Editor’s note: In the third of a three-part report, independent research firm Strand Consulting looks at the issue of whether city-built fiber-to-the-home projects really do drive economic growth. 

FTTH and Economic Growth

The academic evidence between FTTH and economic growth is neither clear nor conclusive. Rather than consider FTTH as a magic bullet to save ailing communities, broadband should be evaluated as one variable in a complex equation for economic growth.

There are studies on broadband deployment and employment in developed countries, but the results are modest, for example less than a 2% increase in employment in certain communities as a result of an increase in broadband speed and penetration. Some studies demonstrate that employment goes mainly to government workers. Furthermore, the results tend to be better in communities that already have well-educated citizens.


Part one: Examining the costs of metro fiber projects

Part two: The social consequences of such projects


Consider countries such as Japan and South Korea with the highest FTTH penetrations. In Japan, many have cancelled their fiber subscriptions in lieu of 4G/LTE mobile broadband. In South Korea, the government complains of jobless growth. Residents spend much of their time on high definition immersive video games, but broadband-based exports of digital goods and services are lacking. Most tellingly, Japan and Korea still make the majority of their GDP from traditional, pre-broadband industries. The U.S. on the other hand has transformed its economy into new broadband-based industries and digital goods and services are its third largest export.

Consider Southern Denmark where a significant private investment was made in FTTH. It’s interesting to look at the economic growth in the country as a result. Southern Energy of Denmark, a private utility cooperative, invested some $638 million in the rural part of the province of Jutland, but it’s difficult to find the measurable effect. The area accounts for about 10% of Danish households, but economic growth is still centered in metropolitan Copenhagen, in another province all together, where there is no FTTH at all.

Most interestingly for Denmark, a country that perennially scores high on the OECD’s study of broadband deployment, speed, adoption, and price that while 70% of the population have access to ultra-fast broadband, less than 2% subscribe. At least for Denmark, all telecom investment comes from private sources, and taxpayers are not on the hook for broadband projects that don’t work out.

Israel, one of the most innovative countries in the world, is another classic example as a country that has fared well even in the face of the economic crisis, but where FTTH penetration is less than 1%.

Perhaps what is most discouraging for small, rural communities such as Leverett is that they put their hopes into FTTH as the silver bullet to their economic woes and forego other public projects where they might get more bang for the buck: education, retraining, health etc.

We accept that there can be challenges for infrastructure in some communities, but the challenges won’t be solved by increasing property taxes and establishing an inherently flawed model in which the municipality competes with private companies. There are more intelligent ways to get private players to invest using a carrot & sticks approach. For more information, contact Strand Consulting.

(C) Strand Consulting