Thanks to Jeff Hoel for providing the transcript for episode 93 of the Community Broadband Bits podcast with Michael Curri on the benefits of increased broadband utilization. Listen to this episode here.
Michael Curri: That is actually much more significant, in terms of benefits -- that economic base -- than the actual initial expenditure. Our calculations are about a tenfold factor increase in GDP relative to the infrastructure investment.
Lisa Gonzalez: Hello, there. Once again, you are listening to the Community Broadband Bits Podcast, from the Institute for Local Self-Reliance. And this is Lisa Gonzalez.
Once again, Chris was able to connect with a guest on the road. This time, he was in Des Moines for the Iowa Association of Municipal Utilities Broadband Conference. Chris took a few moments to sit down with Michael Curri, an economist with the Strategic Networks Group, or SNG. SNG works with economic development agencies, municipal networks, business associations, electric utilities, and private network operators. SNG collects data on how businesses and communities use broadband. By analyzing utilization from a regional perspective, these groups can tailor planning, to get the most out of broadband investment.
Measuring all the benefits of community networks is always a challenge. Balance sheets are important, but there are many positive effects born out of community networks that can't be measured by traditional means. SNG is finding a way to link those seemingly immeasurable factors to economic growth. Here are Michael and Chris, discussing SNG's work and their findings.
Chris Mitchell: Welcome to another edition of the Community Broadband Bits Podcast -- hotel room edition. I'm Chris Mitchell, and I'm here with Michael Curri. Welcome to the show.
Michael Curri: Well, thank you very much for having me.
Chris: We're here at the Iowa Association of Municipal Utilities' conference dealing with telecommunications issues, in Des Moines. And we have an opportunity to pull up two chairs and to talk a little bit about the sorts of data that you collect and analyze. Tell us what you do. And, first of all, I should say, Michael Curri, SNG...
Michael: Strategic Networks Group.
Chris: Thank you.
Michael: Thanks, Chris. Well, we look at the -- called the demand side of broadband. You know, you have the supply side, which is, build it, to the communities, to the regions, and get people connected. Absolutely you need that -- as that essential but not sufficient condition to benefit from the promise of broadband. And we look at, well, who's using it, and why? So, we look at individual businesses; organizations like schools and hospitals, those community anchor institutions; and households. And so, when we go in, because, as an economist, I was always interested in -- and this is what I've worked on for the last 15-20 years -- my goodness -- is that....
Chris: You don't look that old.
Michael: Thank you. ... Is that, you know, we're asking for all this investment in broadband infrastructure. And it's hard to justify that kind of investment when you cannot quantify here the economic impacts. Or show, hey, pull it from health, pull it from roads, or pull it from whatever, and allocate it to broadband. So we quantify that in terms of economic benefits.
Chris: Can you give me a specific example? Like one situation that -- what have you quantified, in terms of the sort of outputs from broadband?
Michael: Sure. Sure. I think it was the first actual study of its kind -- was South Dundas. Where this was a small community -- 2500 people -- between Toronto and Montreal, along the St. Lawrence River, on the Canadian side. They had sold their electric utility and reinvested to do this broadband network, because they didn't have it and they were never going to get it. It was always -- the five-years-out plan kept being pushed out five years.
It was actually the U.K. government that hired us, to say, we've already done some work; can you quantify those benefits for use, because they need it for policy.
Chris: So these are the things that are possible, because their network's there, that were not possible beforehand.
Michael: So we went out, worked with the local redevelopment agency there, and, you know, went out to each of the businesses, like, how are you -- we know how you're connected, how are you using this, and what are the benefits? That, then, gave a report of, OK, these are new revenues we've generated because of this. And we walked through that with them and quantified that. Here are the cost savings. Here are the new people that were hired. Here are the capital expansion -- we even built the new, you know, wing to our plant or something like that. And then you use those numbers, those direct impacts. And you plug that into an input-output model, to say, here's what the impact is, in terms of GDP, and tax base, and employment to the region.
Chris: So these are already existing models that deal with various infrastructures. You're collecting the data to be able to put into the tools that economists already have, to say, this is how the whole economy is affected by having this available now.
Michael: Exactly. So, what used to be a case of -- hey, we know broadband is good, and let's invest, and afterwards, it's like, oh, we've got to justify this -- that's where we would come in. And so that actually showed a 10X factor -- which was actually used in the legislation that provided the $8 billion of the stimulus funding.
Chris: It's good to have impact yourself.
Michael: Yeah. So, now -- I mean, we've done a few of those. But now, it's the case that everybody knows broadband is good, but the question is, how good is it? So...
Chris: Real good.
Michael: Yeah. Exactly. The question is -- rather than go in after the fact, they want to know beforehand -- we can build this, you know, fiber network to everybody, or we could build, you know, this other combination of the technology. We're agnostic to the technology. We're neutral to the vendors. They're trying to decide, hey, what can we do? Rather than having it supply-side dominated -- like, the engineers will give you all sorts of good reasons to build it this way or that way. What we want to do is complement that with, OK, what do you have in your community, in terms of the businesses, and these community anchor institutions, and households? How are they currently using the Internet? So we do an assessment -- a broadband assessment -- of them, there are different tools that we use -- data collection. Because that data doesn't exist. And I'm an economist, I'm not a market survey person. But we have to go out and collect that data, and collect over 110 metrics, now, that allow us to understand, you know, how they're connected -- tested speeds -- as well as what they're doing, as well as how they're benefiting qualitatively -- hey, their operations are easier or quality of life is better...
Michael: ... for these reasons. And also quantitatively. So then we can say, here's where we are right now. And because we've done this, now, for a number of years, we've built a database of over 40,000 records. And we can say, and now, based on your type of business of your size, here's how you compare to your peers. Here are the things that they're doing that you actually should be doing to be more competitive....
Michael: ... and here's what the bottom-line impact is to you. So, we've transitioned -- because we can still do the force of the impacts, but we can also now, you know, show that community, hey, you know broadband is good. If you invest in manufacturing, here the benefits are, because this is where they're at. Here are the potential benefits. If you want to look at agriculture, here's where they're at. And then they can decide, based on -- we invest $1 million, or, you know, $200,000, in driving awareness of utilization and how to use the broadband...
Michael: ... in addition to the X million that they've invested.
Michael: Like the example I showed in my presentation today, You know, manufacturing was $17 million increase to the north Georgia network, whereas tourism was about $4 million. They can then prioritize what is more important, based on not only economic impacts but also ** benefits, and also, you know, where they want to be in the economy in 3-5 years’ time.
Chris: One of the things that we've talked about is the potential tension. If you're a local government, and you have $1 million, you could use that to expand network access, and maybe -- or maybe to take access to people who don't have it at all. Or you can improve utilization. And this is where I pushed you a little bit, because my preference has generally been to say that government should focus on expanding access to networks. And I know that you're not taking a contrary position, but you think that utilization is very important. You know, I don't want to say -- I don't want anyone to think that you're saying no one should build new networks. But you make an interesting case that utilization is very important. So, tell me, as a local government, why should I care whether my local businesses are good at using the Internet?
Michael: In s local government, regional government, I think, affordable, ubiquitous access, that -- you know, reliable broadband -- is key. The question is, is there the budget to pay for it. And, honestly, I don't know any government that really wants to get into -- or any utility that really wants to get into broadband.
Chris: There's not a lot of them.
Michael: They're doing it because the private-sector providers aren't going in.
Michael: ... because there's not the business case. It's low density, they don't have enough market profile.
Chris: Local governments have been investing because they have to, not because they want to.
Michael: Otherwise they continue to lose their jobs, their youth, businesses. And they can't attract anybody.
Michael: So if you don't have it, you're dying. And that's tough. And they're actually being proactive, which is good. The question is, then, what's the best setup for that? So what we're talking about, in utilization, is -- even if -- you know, we have these great gigabit networks that are being built, everyone's talking about them -- fiber, or even the other technologies -- I mean, 100 megs or 20 megs -- are -- the people that now have that available -- are they 1) connected to it? Are they adopted? And even if they're adopted, are they fully utilizing it? Because just because you're connected to it, you may be just doing e-mail or web surfing. And that's good, and you can do it faster -- you don't have to wait as long to use something -- but if you, you know, have a website, where you can be selling your things online, and people can contact you, collaborate with you online, have your financial systems online, using cloud tools to make you look, as your small company, you can act like a big company....
Chris: Right. The cloud tools in particular.
Michael: So, that's where the economic benefits are. To me, there's no one-size-fits-all solution. The private-sector guys know how to run financially-viable networks. And they're stopping at certain points.
The questions you started off with is, you know, should the network drive utilization. To me, how can you have both? The priority is, you want to continue to retain and, hopefully, increase the economic drivers in that community. If there's no jobs, where is the income, then, to support those families? Right? There isn't. My approach, as a very pragmatic economist, let's ensure that those businesses continue to thrive. That those organizations -- schools and hospitals -- continue to offer great services, and be even more effective, and increase their reach. That's a foundation on which you then can build. Because it is high-cost to get some of those other areas that may not be financially viable. When you have that base, and it's financially viable, then you can bring on those other **, like building a foundation to a house, in my view.
Chris: The foundation is, people that know what they're doing on the Internet, and they feel comfortable, and they're taking full advantage of it.
Michael: ** those businesses are staying. Maybe the youth can actually stay. Those are all jobs that stay local. The tax base increases. And there's more available then to actually reach out to those other parts of the community.
Michael: Because the worst thing, for me, is cherry-picking areas of the community that, hey, they're going to have subscriptions that are going to, you know, make this viable -- and leaving others out. You're creating a digital divide that way. It's a reality, financially. But, as a municipal government, they don't want to do that.
Michael: But the question is the reality -- how do you finance this? So it gives them sort of a staged process, so they can 1) have a financially viable base, which then -- with increased utilization, you actually get those benefits, because if they're just doing web and e-mail, they're not being as competitive. They can grow, hopefully. That increases the tax base, allows not only that network to be more sustainable but also gives additional revenues, to say, hey, we can now extend, or reach those areas that we wanted to target but couldn't before.
Chris: Right. And so, what you're proposing is not just doing utilization, but actually doing a good job of measuring utilization, being smart about how you improve it, and tracking those changes.
Michael: Yeah. Yeah. I mean, here's a business, you know. We've shown them things they're not doing, they chose to do, you know. Having a website, with selling online. OK, let's go back to them six months later, a year later. Did you do it? If no, why not, and how can we help? Or 2), you did it great, how much revenues have you generated? How many new jobs has that created? And that, when you add those things across the community, people are connected, well, that would -- those are the off-balance-sheet benefits. You know, there's the business case ...
Michael: ... which the carriers look at, and then there's what I call the economic case to the community. When you aggregate that up, that is actually much more significant, in terms of benefits -- that economic base -- than the actual initial expenditure. Our calculations are about a tenfold factor increase in GDP, relative to the infrastructure investment. And....
Chris: So, if you spend one dollar on infrastructure, you get ten dollars of these amorphous benefits.
Michael: GDP. GDP total.
Michael: You know, the direct and spill-over effects...
Michael: ... that we calculate. And then, the tax base, it's 2-3 times, depending on the type of economy, and so forth. You know, even 2-3 times is pretty interesting. And that, you know, makes the case. So, I think a lot of the networks that focused on the engineering aspect -- and you need it. But they should, in parallel to the build, be looking at that, so when it's lit, you have those people ready to use it to its full potential, so they realize the benefits. And with that, the network becomes sustainable.
Chris: That's -- it sounds like a good plan. I'd like to go further into it, but you have a flight to catch, ...
Michael: I do.
Chris: ... so we're going to wrap up here. But we can definitely come back to it. We'll be running into each other in many more events soon.
Michael: I look forward to that.
Lisa: You can learn more about Strategic Networks Group and sngroup.com. Be sure to check out their extensive research library. They have a lot of information about specific projects they've worked on. And they also have quite a bit of information about broadband and economic development in general.
Let us know about topics that interest you, or guests you feel we should interview. Write to firstname.lastname@example.org. You can also follow us on Twitter. Our handle is @communitynets. This show was released on April 8th, 2014. Thank you again to the group Valley Lodge for their song, "Sweet Elizabeth," licensed using Creative Commons. And thank you for listening.