Ignoring economics is a killer for broadband programs

Technology Policy Institute President Scott Wallsten believes that federal broadband programs have mostly thrown key economic principles out the window. “And a persistent digital divide is partly the result of that,” he said. Rather than just focusing on the cost of capital or the cost of laying fiber, he said broadband programs should apply economic concepts to "maximize total net benefits" for consumers and also balance trade-offs between supply, different deployment technologies and what consumers want. For example, he said a consumer could consider moving from 1 Mbps to 10 Mbps “a huge value” because it gives them more options on what they can do online. But they may not find switching from a 100 Mbps service to gigabit speeds as valuable if they’re not doing as many bandwidth-intensive activities. One aspect of cost-benefit analysis that’s “glaringly absent” from broadband subsidy programs is reality that "a dollar today is worth more than a dollar tomorrow," Wallsten added. This concept is commonly known as the "time value" of money. The White House’s Office of Management and Budget (OMB) calculates the future value of money using discount rates, which account for factors like risk, inflation and other considerations that can affect the value of an asset. Calculating the time value of broadband funding can affect how we view different technologies and deployment strategies, Wallsten explained. Delivering some level of broadband to unserved areas quickly “may be more valuable than waiting years for a perfect solution.”