$500B Query: Valuing Broadband Aid


The argument sounds powerful: If high-speed Internet access were universally available, the U.S. economy would balloon by $500 billion each year.

That would represent a 5% expansion of the gross domestic product, eclipsing the annual growth rates during the peak of the economic expansion in the late 1990s.

But the study on which the argument is based doesn't actually make that claim.

That hasn't stopped lawmakers and telecommunications executives from citing the $500 billion figure as they attempt to justify tax breaks and deregulatory measures intended to encourage the spread of broadband services.


In May, as the Senate considered legislation to give companies tax breaks for deploying broadband in underserved areas, numerous lawmakers cited the Brookings Institution study as they spoke on the Senate floor.

"Economists at the Brookings Institution estimate that widespread, high-speed broadband access would increase the national GDP by $500 billion annually by 2006," said Sen. George Allen (R-Va.).

"Talk about an economic stimulus," Sen. Conrad Burns (R-Mont.) said, citing the $500 billion figure. "I think we would all be delighted to have that happen, and I believe we should take steps to allow it to do so. This legislation is an important step in that direction."

Last year, as the House considered the Tauzin-Dingell bill to deregulate digital subscriber line service, lawmakers trumpeted the $500 billion in economic growth that the Brookings study supposedly said would accompany widespread broadband deployment.

Good for all

"That's more than the entire economies of most nations," said Rep. Paul Ryan (R-Wisc.). "Very few actions that Congress could take — short of scrapping the income tax for a consumption tax or privatizing Social Security — could deliver those size benefits to workers and consumers."

Sen. Tim Johnson (D-S.D.) and Reps. Darrell Issa (R-Calif.), Robert Wexler (D-Fla.) and Phil English (R-Pa.), also invoked the Brookings study to suggest that universally available broadband would inject a half-trillion dollars into the ailing U.S. economy.

But the author of the 2001 study, Brookings economist Robert W. Crandall, says the lawmakers are confused.

"That is incorrect," Crandall said. "They probably don't understand quite what I'm saying."

His study didn't address the effect universally available broadband would have on economic growth or the gross domestic product. Instead, it examined the "value to consumers once broadband is ubiquitous," and attempted to quantify that benefit with dollar figures.

'Welfare' boost

The calculation is based on the difference between the price of residential broadband service and "the increase in consumer welfare generated by the new services themselves, in addition to the savings in time and commuting that this new technology will allow."

The study assumes that broadband prices will decline and that the service will gain importance in everyday life.

Based on that tricky and seemingly imprecise calculations, Crandall concluded that universal service might be worth $300 billion in economic value to customers and providers. (The oft-cited $500 billion figure was a best-case scenario that assumed speedy deployment.)

The 76-page study, which Verizon Communications Inc. paid Crandall to conduct, probably encouraged some of the confusion. The study uses phrases such as "the likely long-term gains to the economy" to describe what it is measuring..

States News Service