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GEORGE S. FORD
CHIEF ECONOMIST
3 6 TH A N N U A L P U B L I C U T I L I T Y R E S E A R C H
CENTER (PURC) CONFERENCE
UNIVERSITY OF FLORIDA
FEBRUARY 4, 2009
PHOENIX
C E N T E R
www.phoenix-center.org
“It is unacceptable that the United States
ranksk 15th in
i the
h worldld iin b
broadband
db d
adoption. Here, in the country that invented
the Internet …”
Pres. Elect Barack Obama 12/7/08
Salami Consumption
y Salami?
{ OECD ignores connection modalities (3G)
y Homelessness?
{ OECD normalizes by population, when fixed lines are shared
among members of a household
y Cost
Cost-Benefit
Benefit Analysis
{ Higher subscription rate and/or maximum subscription are
not always desirable.
Let’s look more
closely
l l at the h d
data,
and the way it is
handled.
handled
OECD/ITU Normalizing
6
y Only particular types of
connections are counted
{ Household and small business
fixed services
y Conditioned on Population
{ People don’t
don t buy fixed
Broadband Connections Counted connections, homes and
B= businesses do
Population/100
{ Assumes broadband
proportional to population
y Different bean counters
{ Different methodologies?
y Both the numerator and
denominator are “counted” by
government or business
{ Numbers are estimates
OECD (BB/POP)
0.8
0.6
0.4
02
0.2
0
Hmax Hmax 1.0
All homes have BB.
But B > A to OECD.
Population
Ignores business connections.
Sweden v. U.S.
SWEDEN PORTUGAL
At least, it should be …
Non-fixed Connections?
Share Economy B
Economy A Economy A
of Pop/HH = 3
Pop/HH = 2
(no 3G) 3G BB/POP
Potential 1
OECD (BB/POP)
0.8
0.6
0.4
02
0.2
0
QF QF QM 1.0
Population
Behind? or Ahead?
Share
Economy A
of Pop/HH = 3
Potential 1
BB/POP
0.8
0.6
0.4
02
0.2
0
1.0
11% of U.S.
U S households don’t
don t want broadband.
broadband
Population
What about in other countries?
Why not use
households to
normalize the data?
Denmark
k 0.478 4 United
i d Kingdom
i d 0.389 19
Netherlands 0 437
0.437 7 Greece 0 362
0.362 22
2001
Korea
Canada
Sweden
U.S.
The U.S. ranked 4th!
Trends in OECD Rank: The Fall
(Connections/Capita)
Telecom Rank
not in sequence.
y Top
p 10 in broadband rank;; 9 are Top
p 10 in 1996
99
Wireline Telephone
y Bottom 10 in broadband; 8 are Bottom 10 in
Wireline Telephone (7 in 2001)
y Of the 14 above the U.S. in broadband, 12 are also
above
b the
th U.S.
U S iin ttelephone
l h subscriptions
b i ti
y Of the 15 below the U.S. broadband, 12 are also
below the UU.S.
S in telephone subscriptions
Wireline
i li telephone
l h iis similar
i il to fifixed
d iin the
h way iit iis counted
d ((shared)
h d)
and included both business and residential connections. “Counted”
broadband types (DSL, Cable) are the type often used by businesses
counted in the telephone data. For example, in U.S., about one-third
off broadband
b db d and d telephone
l h connections
i are b business.
i
Convergence to Telephone Rank
21
15.00 US
UK
dband Rank
SWITZ
10.00
MEXICO
LUXEM
5.00 AUSTRIA
Rank – Broad
0.00 Time
0 2 4 6 8 10 12 14
Telephone R
-5.00
-10.00
-15.00
3.00
2 00
2.00
β
1.00
0.00
0 2 4 6 8 10 12 14
-1.00 α
-2.00
-3.00
We can’t reject
j
convergence.
We are and
d will
ll b
be
(about) 15th.
Back to the Match: Sweden v. U.S.
y SWEDEN y U
UNITED STATES
{ Q/POP, Rank 6 { Q/POP, Rank 15
{ Q/HH, Rank 15 { Q/HH, Rank 12
{ Q/TEL, Rank 20 { Q/TEL, Rank 14
Subscription Maturity
A
B
t0 C
C = Inventor of Internet
Time
Inventor’ss Head Start
Inventor
10.0
5.0
0.0
Conclusion …
y Old p
people
p subscribe less
{ Japan 27%
{ Korea 13%
{ U.S. 20%
y Density impact costs
costs, so maybe impacts deployment
{ Japan 338 p/km2
{ Korea 483 p/km2
{ U.S. 31 p/km2
y Educated
d d people
l more lik
likely
l to b
buy ((tertiary
i educ)
d )
{ Italy 10%
{ Canada 44%
{ U.S. 38%
y Higher incomes more likely to buy (GDP/capita; GINI)
{ Portugal $19,000; GINI 35.6
{ Luxembourg $58,000; GINI 26.1
{ US $
U.S. $31,000; GINI 32.6
6
Phoenix Center Policy Papers Nos. 29, 31 and 33
32
0.5
0.6
0.7
0.8
0.9
1
Iceland ((3)
Belgium (122)
Portugal (24
4)
Sw
witzerland (5
5)
Denmark (1)
Finland (6)
France (13)
Norway (4)
UK (11)
Netherlands (2)
Sweden (8)
US (15)
Turkey (29)
T
S. Korea (7)
S
Hu
ungary (25)
Japan (17)
Italy (22)
Spain (21)
Poland(27)
P
Who do you want to emulate?
Broadband Efficiency Index
Policy Paper No. 33
Austrralia (18)
Mex
xico (30)
Germa any (14)
Austria
a (18)
New
w Zealand (19
9)
uxembourg (9
Lu 9)
Czeech Rep. (23))
Irelan
nd (20)
Slo
ovak Rep. (28
8)
THE FRONTIER
Grreece (26)
Scaled Down Model
-0.8
Variable Coef t-stat -1.2
-2.0
20
LN(PRICE) -0.39 -2.56 .3 -2.4
-.2
LN(URBAN) 0.99 3.89
-.3
65 70 75 80 85 90
LN(TEL) 2.81 3.50
Residual Actual Fitted
LN(TEL)^2 -0.36 -2.73
N = 30; June-08 data; R2 = 0.93
Most of the differences across countries are
explained by few demographic and
economic endowments.
What do we need?
Broadband Ain’t Free
Share
Economy A
of Pop/HH = 3
Potential 1
OECD (BB/POP)
0.8
0.6
0.4
02
0.2
SOCIAL VALUE: Cost > 0
0
Optimal Hmax 1.0
BB
Population
Ignores business connections.
Internet Adoption Index
Actual at time t
Adoption Index = At =
Target
Goal:
Actual t
∑ v i ,t ⋅ q i ,t
i =1
At = = N
Target
g
∑ *
vi *
⋅ qi
i =1
STIMULUS
So let’s spend
p about $6-9 billion of the stimulus
to get broadband to the 8% of homes and small
businesses without it.
Still Rank 15
5th!
0.36
0.34
Germany (14)
Extrapolation
=>
France (13)
0.32
U S + Unserved
U.S.
0.3
U.S. (15)
0.28
0.26
Australia (16)
0.24
Japan (17)
0.22
June 08
0.2
1 2 3 4 5 6
OECD Fixed Connections/Capita, June 07, Dec 07, June 08, extrapolated 3 periods.
“U.S.+Unserved” assumes 8% un-served subscribe at same rate as presently served (probably
too high).
Uh …
y Any
y effect on subscriptions
p will,, if anything,
y g, be small
y Japan is fastest, but ranks 17th
y Upgrade
pg to higher
g speed
p byy current broadband
subscribers does not change connection count.
y There are not many dialup users or non-users giving
up 5 Mbps to wait for 50 Mbps.
Spend $10B,
$10B or spend $40B.
$40B