The 15-Billion-Dollar Broadband Bonus

In September 2001, approximately 45 million US households accessed the Internet through a dial-up connection, while 10 million used a broadband connection. In March, 2006, a survey by the Pew Internet and American Life Project found a sharply contrasting picture: Approximately 42 percent (and growing) had broadband, while dial-up use was dropping rapidly. That contrast motivates a seemingly straightforward question: What is the economic value created by the increasing use of broadband? As it turns out, popular discussion often gets the answer wrong. The confusion is understandable. There are two alternative economic concepts for understanding the value created by a new good, one pertaining to gross domestic product (GDP) and another pertaining to users. Neither is better than the other. Each measures something different. In today's column, I aspire to use each concept to estimate the economic value created by broadband. I will aspire to be as transparent as possible, so at the outset I must admit that it is impossible to be absolutely precise in this exercise. Rather, I am going to perform a bit of "ballpark" economics. That is, I will aspire to get the numbers "in the right ballpark" - that is, within an acceptable margin of error. To whet your appetite, let me foreshadow the answer: Broadband created at least an additional 15 billion dollars of economic value in 2006, but less than half of that shows up in GDP.