1.2.1 Spectrum as an Economic Resource

The production of goods and services involves the creation of output for end users (households and firms) from a combination of inputs. Traditionally those inputs are listed as labour, capital equipment and land. Clearly each of these can take on various uses; compare, for example, the use of land in city centres and for agricultural purposes.

Similarly, spectrum is one of these types of resources and can be used as an input in a multitude of services, whether for communications or other applications. Communications services encompass a wide range of forms, including narrow or broadband mobile telecommunications, broadcasting, aeronautical and marine communications, as well as communications for public bodies--such as defence or emergency services. Non-communication uses include military and civilian radar and scientific applications such as radio, astronomy and so on. It interesting to compare spectrum to other natural resources used in the economy such as land, oil and water (illustrated in Table 2), as it exemplifies its similarities to other exhaustible resources within modern economies.

Table 2 Spectrum as an Economic Resource

What flows from these characteristics of spectrum?

• Because frequencies differ in what they can do, there can be problems of matching them to particular uses. Land has similar characteristics. The task of allocating and assigning spectrum noted above are intended to accomplish efficient matching.
• Spectrum can be in short supply because there may be more potential users of particular frequencies than available spectrum. There is, therefore, a need for rationing its use and giving priority to more important applications. Nevertheless, a country can respond to a shortage of spectrum in particular frequencies by moving to other less favoured frequencies, or by developing the techniques, such as compression, which allow spectrum to be used more productively. These two responses is analogous to bringing less fertile land into cultivation and applying fertilizer to make existing cultivated areas more productive within the agricultural sector.
• Because spectrum is renewable and cannot be stored, there is no reason to hoard it for later use, as a country might save oil reserves for use or sale later.
• Because spectrum is locationally specific (specifically located?), it can only be used to provide services in a given territory. However, it can be traded, in the sense that property rights can be assigned to it.

The importance of basic telecommunications services - fixed and mobile - for economic growth and development has long been recognized in the international community. Telephone penetration (traditionally measured in terms of fixed or mobile voice equivalents per 100 population) is a standard metric for evaluating the quality of basic infrastructure, and the positive correlation between telephone penetration and economic activity (usually measured as GDP per capita) is well known,

Today, access to telephony services, while remaining essential, is no longer enough. Internet access--and this increasingly means broadband Internet access -- is now generally regarded as part of the essential basic infrastructure for society and the economy. Equally important is the centre of gravity for infrastructure growth in developing countries, which is clearly wireless.  Chart 2 illustrates the recent rapid rise of wireless broadband subscriptions while Chart 3 illustrates the predominance of growth in mobile connections in developing countries.

Measuring and quantifying the economic impact of ICT's on the economy and spectrum as an input in its application in mobile telephone, while important to policy makers, is very challenging for three reasons:

• Firstly, although investment in ICT represented a significant share of total fixed business investment in the United States (where most of the early research focused), it still represented only a small share of the total capital stock and, ICT-producing sectors, a small share of total GDP.[1]

• Secondly, measuring ICT inputs is notoriously difficult, in part, because of the very rapid pace of innovation and continuously declining prices.  This phenomenom is known popularly as Moore's Law, where it isit is becoming increasingly difficult to measure the quantity and value of ICT inputs (and outputs) in appropriate quality-adjusted terms. For example, although more expensive the technological capabilities of a new Smartphone in 2012 are significantly greater than even in 2009. 

• Finally mobile broadband can be viewed as a general-purpose technology, which is enabling companies-- especially service companies-- to introduce new products as well as change business processes such as supply chains. Capturing data and measuring outputs, similar to measuring inputs, are notoriously difficult.

Still, with these challenges being present several groups of economics have attempted to measure the impact of mobile telecommunications in general and mobile broadband specifically. A selection of these results are summarized below:

• Czernich et al. (2009)[2] used panel data for OECD countries from 1996-2007, and found that a 1% increase in broadband penetration raised GDP per capita growth by 0.09 to 0.15%.
• Franklin, Stam & Clayton (2009)[3] looked at a panel of 13 European countries on firm-level productivity from 2001-2005 and found that broadband enhanced employee productivity, but that this impact varied with the level of adoption, suggesting that critical mass is required to realize significant benefits.
• Katz and Avila (2010)[4] analyzed data for 24 Latin American and Carribean countries from 2004-2008 and found that a 1% increase in broadband penetration resulted in a 0.0178% increase in GDP. They also estimated that the same 1% increase in broadband penetration would increase employment by 0.18%.
• Koutroimpis (2009)[5] examined a panel for 15 European countries from 2003-2006 and concluded that a 1% increase in broadband resulted in a 0.038% higher GDP growth.
• The OECD (2011)[6] looked at a number of OECD countries and found that 1% higher broadband penetration resulted in 0.109% faster GDP growth. This study also looked at the relationship between IPv4 address growth and GDP and found a similar positive impact. This is interesting because it provides additional support for the view that broadband causes (rather than follows) economic growth.
• Waverman (2009)[7] used data for the United States and 14 European countries from 1998-2007 to conclude that a 1% higher broadband penetration raised productivity by 0.0013% in markets with medium to high levels of broadband penetration, but resulted in no significant measured impact for countries with low broadband penetration (providing further support for the notion that critical mass is important in order to realize significant benefits from broadband).

Chart 1 shows the buoyant growth in the ICT sector over the past decade, clearly illustrating the tremendous expansion in the penetration of mobile services with 5.4 billion mobile subscribers, which is enough to reach 78 per cent of the world’s population. In addition to this, by the end of 2010, growth in fixed lines stagnated at nearly 1.4 billion fixed line subscribers.

Photo: ITU World Telecommunications Indicators Database

Chart 1 Growth in penetration per 100 inhabitants of fixed lines, mobile cellular subscriptions, and subscribers to mobile and fixed broadband networks 2000-2010

Penetration varies significantly between rich and poorer countries although the significant trend is for rapid growth in mobile usage in emerging and developing economies.

Photo: ITU World Telecommunications Database

Chart 2 Mobile broadband subscriptions per 100 inhabitants

Mobile penetration in developing countries in Africa and Asia has reached approximately 45 and 62 % respectively with mobile penetration growing at a phenomenal compound annual growth rate over 22 % globally in 10 years. Indeed, amongst the least developed economies, mobile cellular subscribers outnumber fixed lines by more than nine to one. The balance has shifted between developed and developing countries with most of the growth mobile subscriptions occurring in developing countries. 

Photo: ITU World Telecommunications Database

Mobile cellular subscriptions per 100 inhabitants

Photo: ITU World Telecommunications Database

[1]Oliner, S. and D. Sichel (1994), "Computers and output growth revisited: How big is the puzzle?" Brookings Papers on Economic Activity (2): 273-317).

[2] See Czernich, N., O. Falck, T. Kretschmer and L. Woessmann (2009), "Broadband Infrastructure and Economic Growth," CESifo Working Paper No. 2861, University of Munich, December 2009.

[3] See Franklin, M., P. Stam, and T. Clayton (2009) "ICT Impact Assessment by Linking Data," Economic and Labour Market Review, 3(10), 18-27.

[4] See Katz, R. and J. Avila (2010) "Estimating Broadband Demand and Its Economic Impact in Latin America," Proceedings of the 4th ACORN-REDECOM Conference, Brasillia, May 14-15, 2010

[5] See Koutroumpis, P. (2009), "The economic impact of broadband on growth: A simultaneous approach" Telecommunications Policy, 33.

[6] See OECD (2011) "Economic Impact of Internet/Broadband Technologies," DSTI/ICCP/IE(2011)1/REV1, Working Party on the Information Economy, Directorate for Science, Technology and Industry, OECD, Paris, 30 May 2011.

[7] See Waverman, L. (2009) "Economic Impact of Broadband: An Empirical Study," LECG, a study prepared for Nokia-Siemens Networks as part of the Connectivity Scorecard 2009."