Want a good return on your money? Try investing in Highspeed Rural Internet

 by Wayne Kelly, 12/08/2012

Why invest in rural broadband? What is the benefit of hooking up small rural communities? These are common questions when working in the field of rural Internet. While there are a wide range of important benefits from the Internet for rural communities, its the economic benefits and perceived lack thereof for rural broadband that drives most conversations.

I’ve outlined a general importance of the Internet in a previous post here to provide a larger perspective than just the current economic one being discussed in this post.

Unfortunately, for many organizations and governments, specific economic benefits and outcomes are needed to even begin talking about connecting rural communities with effective Internet speeds. Without clear economic benefits and outcomes, i.e. return on investment (ROI), deploying rural Internet of any quality is often a non-starter for governments and stakeholders.

Recent studies though are helping provide more economic rational for Internet connectivity and has strengthened the evidence that providing Internet connectivity creates a positive economic ROI. Specifically, two studies examining the value of Internet searches and the benefits of Fiber To The Home (FTTH) provide additional and compelling evidence of the economic benefits of the Internet.

the value of search
While highspeed connectivity is ideal, the economic impacts of the Internet begins with theability to search. This basic feature of the Internet is generating revenue and creating savings in large amounts. A study entitled “The Impact of Internet technologies: Search” released by McKinsey and Company in July of 2011 determined that Internet Search is a significant contributor to the global economy, accounting for $780 billion of global GDP.

Time savings, price awareness, and problem solving are some of the key ways Internet search translates to reduced costs for businesses and individuals alike. The study determined that in developed countries, Internet Search  saves individuals approximately $20 per month.

The value of Internet search alone raises important questions about connecting rural Canadians. Connecting underserved or unserved communities with high speed Internet can provide substantial benefits from basic Internet functions. Small communities with 50 – 100 homes can still realize tens of thousands of dollars in savings yearly just from being able to do effective Internet searches.While initially surprised by this amount, I realized as an Internet shopper for clothes, outdoor gear and technology, searches easily save me $20 on monthly basis. Applying the household savings to the province of Manitoba’s more than 512,000 households, Internet Search could result in $10.25 million savings monthly.

One important note though is as the use of images and videos continues to explode on the Internet, the connectivity needed for basic functions also increases. For individuals, businesses and communities to continue reaping the benefits of basic functions such as searches, connectivity will need to expand along with the Internet.

fiber to the home? No way we can afford that … can we?
Another recent study highlights the economic benefits of the Internet by calculating the ROI of deploying fiber to the home (FTTH) country wide in Sweden. Fiber to the home connectivey provides connection speeds of up to 100MBps.

The 2011 study entitled “Prestudy socio-economic return of FTTH” examined the cost and benefits of deploying fiber to Sweden’s 4.2 million homes. The study determined that while the deployment of fiber to ALL households in Sweden would cost about $8 billion ( approx. $900 per person) initially, the economic benefits would reach $12 billion by the 5th year!

The main areas of economic focus for the study included the cost and benefits of deployment, telecommunication savings for municipal and regional bodies and the increased value of homes due to fiber connectivity. It was the combination of these benefits that totalled a 150% ROI for FTTH; the potential benefits for businesses and the social and quality of life benefits were not factored in at all.

The study illustrates that the common approach of cost-benefit exercises from the telecommunication provider’s (telco) perspective does not give a good picture of the basic economic impacts, let alone the overall benefits from Internet connectivity. The highlights from the study revealed that:

• estimated cost to connect each home in Sweden to fiber is approx $2,500
• estimated 93% of installment costs will be recaptured in GDP through employment and economic activity needed to build the FTTH network
• FTTH connection is estimated to reduce municipal administration costs by 30%
• FTTH connection is estimated to reduce reduction in data and telecommunication costs by 50% for regional governments
• FTTH connection is estimated to increase the rental value of homes by $6.50 monthly

These findings reveal that there is a clear economic benefit and positive ROI for investing in Internet connectivity. For rural Manitoba, some of these figures and approaches may need to be adjusted to provide a more accurate reflection of our geography and population density (while Sweden had one of the lowest population densities in Europe it was still 10X more dense than Manitoba’s 2.2 people per square km) but the overall implications are that highspeed Internet connectivity more than pays for itself.

These studies provide more evidence of the economic importance of Internet in today’s society and help to further build the argument that connecting rural Manitobans is not only economically viable, but provides a positive ROI for Manitobans.

What highspeed Internet or FTTH impact studies do you know about that provide even more evidence or details about the economic benefit of high speed rural connectivity?