Ronnie05's Blog

The network effect of Broadband on the Economy.

Posted in Industry updates by Manas Ganguly on June 1, 2014

If your believe that Broadband penetration is the messiah-like solution or the panacea to a lot of 3rd world nation issues and problems, there is good news and there is bad news. The good news is that you haven’t been thinking alone – the International Telecommunications Union has firm evidence of the positive impact of (higher) broadband penetration on the economic well being and growth of nations.

Expostulating the (positive) impact of broadband on economy of the state, the ITU states that-
First, broadband exhibits a higher contribution to economic growth in countries that have a higher adoption of the technology (this could be labelled the “critical mass” or “return to scale” theory”).
Second, broadband has a stronger productivity impact in sectors with high transaction costs, such as financial services, or high labour intensity, such as tourism and lodging.
Third, in less developed regions, as postulated in economic theory, broadband enables the adoption of more efficient business processes and leads to capital-labour substitution and, therefore loss of jobs (this could be labelled the “productivity shock theory”).
Fourth, the impact of broadband on small and medium enterprises takes longer to materialize due to the need to restructure the firms’ processes and labour organization in order to gain from adopting the technology (this is called “accumulation of intangible capital”).
Finally, the economic impact of broadband is higher when promotion of the technology is combined with stimulus of innovative businesses that are tied to new applications. In other words, the impact of broadband is neither automatic nor homogeneous across the economic system.

So much so for the obvious – but then whats the bad news: Just that broadband by itself is not the end all prescription to everything – the effect of broadband is not homogeneous across all industry groups and broadband’s positives are possibly more applicable to industries classified as under Information, Communication and Entertainment. There would have to be some bridge building for industries, which are little off-centred from the direct broadband benefits – and again, these pose interesting bundle of opportunities to businesses and entrepreneurs.

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