The broadband adoption index: improving measurements and comparisons of broadband deployment and adoption.

• Author: Beard, T. Randolph

1. INTRODUCTION II. THE BROADBAND ADOPTION INDEX A. A Measure of Value B. The Broadband Adoption Index C. Accounting for Heterogeneity D. A Graphical Exposition III. NUMERICAL SIMULATION OF THE BROADBAND ADOPTION INDEX A. Setup for Benchmark Case B. Results for Benchmark Case C. Alternative Scenarios IV. IMPLEMENTATION GUIDELINES, SUGGESTIONS, AND APPLICATIONS A. Econometric Implementation of the BAI 1. Basic Setup 2. Generating the Data Set 3. Estimation of the Demand System 4. Calculation of the BAI 5. Subscription Targets at Different Costs 6. Social Premia B. Comparative Valuation of Broadband Connection Technologies C. Simplification of the BAI and Quantity-Based Measures of Adoption 1. The Single Modality and Per Capita Measures of Adoption 2. Two Modalities D. Endowments and Broadband Adoption Targets V. MEASUREMENT, MULTIPLE MODALITIES, AND PUBLIC POLICY A. The Model B. Caveats and Discussion VI. POLICY RECOMMENDATIONS VII. CONCLUSION Editor's Note: A version of this Article originally appeared as Phoenix Center Policy Paper No. 36. (1)

1. INTRODUCTION

   Policymakers around the globe regard the deployment and adoption of Internet technologies as critically important to the economic and social development of their countries. (2) Perhaps rightfully so: the Internet is commonly viewed not only as a general-purpose technology that can sharply reduce transaction costs in the modern economy and spur economic growth, but it also is argued to be a forum for increased political discourse, a tool for educational opportunities, and even a platform for social change. (3) As a result, for many policymakers, promoting the deployment and adoption of Internet access technologies is an important public policy. (4)

   Given this attention to broadband Internet service--and even efforts in some countries to establish and spend funds efficiently to stimulate broadband deployment, adoption, and usage (5)--policymakers have a keen interest in measuring and benchmarking these efforts. It is, therefore, somewhat surprising that, in general, the current tools used to track Internet deployment and adoption worldwide are so crude. The most commonly cited statistics on broadband adoption--broadband connections per capita--are published regularly by the Organisation of Economic Cooperation and Development (OECD) and the International Telecommunications Union (ITU). (6) However, as we have discussed in prior research, this approach is inaccurate and can even be misleading, as fixed broadband connections, either at a household or business premise, are routinely the only connection in the household and, in some instances, are shared among multiple users. (7) This disconnect renders per capita measures conceptually defective and produces an incorrect index of relative adoption rates. Demographic and economic differences between countries make cross-country comparisons of raw Internet penetration rates of little policy relevance, even if a penetration rate is properly constructed. Indeed, ninety-one percent of the differences in fixed broadband adoption rates in the thirty OECD member countries can be explained by reference solely to differences in income, education, population, age, and other demographic factors that bear little relationship to broadband or telecommunications policy. (8)

   More importantly, the method that the OECD currently uses to measure Internet adoption includes only fixed broadband connections and affirmatively excludes the growing class of connections based on mobile broadband technologies. (9) Other connection types, such as libraries and public Internet connection centers that serve many end users, are also ignored in the OECD's analysis. These shared methods of accessing the Internet provide considerable social value, particularly for low-income families. (10) The exceedingly narrow view of connectivity is significant because, as the ITU Secretary-General Dr. Hamadoun I. Toure recently said, "[i]n developing countries, wireless broadband technologies are increasingly viewed as the means of achieving universal access to [information and communications technologies]." (11) Because consumers and businesses can access and use the Internet in a number of ways, it is improper to disregard any significant connection modality, even to the point of including some accounting for dial-up access that continues to provide value to millions of subscribers worldwide (as is revealed by their willingness to pay for it). (12) To a rural household or small business, even the most rudimentary form of Internet access may generate a significant amount of economic and social value--value that is not taken into account in any current international or intra-national "rankings" methodologies.

   As the bandwidth of mobile broadband technology increases to multiple megabits per second and as compression algorithms improve, it is increasingly probable that mobile broadband may become an important, if not the primary, method of accessing the Internet for a wide range of users. Mobile broadband is likely to be very important for users who do not own or know how to use a computer, since Internet access is also possible through smart mobile phones and other small, portable devices, such as Netbooks. Mobile broadband may also be the most efficient form of connectivity to users who live in areas where wireline telephone or cable networks do not exist and are very costly to construct; or, for those who have access at work or school or have mobile lifestyles, a mobile connection may better satisfy connectivity demands. Mobile broadband is always available, unlike the fixed connections widely used at the home and office. This mobility creates more opportunities for more efficient transactions and information sharing. Indeed, broadband provided over mobile networks may replace fixed connectivity for many users via embedded communications chips in laptops and wireless access cards. The impact of this mobile substitution for broadband service is already being felt in some countries. In Portugal, for example, more than half of all broadband connections are via mobile technologies, and nine percent of people with broadband access in the country use only a mobile technology. (13)

   For these reasons, policymakers seeking to understand and measure the effectiveness of their Internet deployment and adoption programs clearly need a tool that does not simply "count" connections of a particular type, but which takes into account all technologies in a way that measures the value that each broadband technology offers their societies. Broadband matters to economic and social public policy because it generates value. As such, any meaningful performance index of broadband adoption should include the comparative value of various connection modalities, particularly when establishing deployment and adoption targets. In this Article, we provide the first such attempt, by deriving a Broadband Adoption Index (BAI) that considers these important ideas and accounts for heterogeneous connection modalities.

   The BAI is a value-based index of broadband adoption that accounts for both the benefits and costs of adoption and deployment and also recognizes that these benefits and costs may differ, sometimes substantially, both within and across countries. Simply stated, the BAI compares the actual value of adoption to the target, welfare-maximizing value of adoption. This welfare-maximizing target level of adoption will vary from country to country and is a function of the social value of broadband connectivity, measured as the difference in the social benefits and costs of broadband. A country then can judge its progress against this welfare-maximizing target level of adoption. The BAI is specifically designed to accommodate different connection technologies into a single index--something that merely summing the number of connections cannot do.

   The BAI is intended to be used by policymakers in individual countries for performance assessment and the establishment of deployment and adoption targets. (14) The index is also well-suited for policy-relevant, cross-country comparisons. Because the index is scaled to a target level of broadband adoption calculated for each country, this method of comparison is a legitimate comparative metric of performance. Each country's respective target (or optimal) level of broadband Internet adoption will, of course, vary because the costs and benefits vary and the ideal mix of connection modalities will vary by country. In essence, the BAI compares a country's actual adoption against that country's ideal, welfare-maximizing broadband adoption rate. This allows one to compare whether, for example, Turkey is closer to reaching the stated objective than, say, Japan. Merely comparing the raw adoption rates of Turkey and Japan--two countries with markedly different population demographics, economies, and population densities--provides little information relevant to broadband policy. (15) But comparing the BAI of those two countries would, in fact, carry great weight in determining whether one country's policy structure is more conducive to broadband deployment adoption than the other country's policy structure.

   Taking a BAI-oriented approach naturally should lead policymakers to set and establish particular targets for broadband adoption of various connection modalities based on the different value that each mode presents. These country-specific targets would necessarily focus on conditions within that country. The BAI is a conceptually valid, but admittedly data-intensive, concept. This is, in part, our point. The process of measuring broadband adoption in a meaningful way is not simple. However, even if a country does not today collect all of the data necessary to calculate the target level of adoption in a rigorous way, in most industrialized economies there likely is enough data to guide rough approximations of broadband targets using the...