The economic impacts of mobile
broadband
www.TheCIE.com.au
Phil Manners
2 October 2013
www.TheCIE.com.au2
Productivity in Australia
www.TheCIE.com.au3
Strong growth from
mid-90s to mid-2000s
Declining productivity
growth since m...
www.TheCIE.com.au4
0
50
100
150
200
250
300
350
2007 2008 2009 2010 2011 2012 2013
Index1. Productivity of the sector
www.TheCIE.com.au5
Empl...
0
50
100
150
200
250
300
350
2007 2008 2009 2010 2011 2012 2013
Index1. Productivity of the sector
www.TheCIE.com.au6
Data...
0
50
100
150
200
250
300
350
2007 2008 2009 2010 2011 2012 2013
Index1. Productivity of the sector
www.TheCIE.com.au7
Inpu...
2. Business productivity from use of mobile
broadband
www.TheCIE.com.au10
Survey of businesses by Woolcott Research
Busine...
Business use of mobile broadband
www.TheCIE.com.au12
Share of businesses using mobiles for…
Main uses are
phone calls, ema...
2. Business productivity from use of mobile
broadband
www.TheCIE.com.au13
Impact Share of
businesses
noting impact
(%)
Ave...
Sectoral impacts from business survey
www.TheCIE.com.au14
Businesses that had higher revenue growth were
more likely to cite impacts from mobile broadband
www.TheCIE.com.au15
Business ranking of mobile broadband as a
significant issue
www.TheCIE.com.au16
Number mentioned Weighted by VA Weighted b...
Broader economic impacts of mobile
broadband sector
Productivity growth in and from mobile sector
www.TheCIE.com.au17
Annu...
Implications for spectrum management
If no additional spectrum provided then what?
─ And when?
www.TheCIE.com.au18
Phil Manners
Director
02 9250 0811
pmanners@TheCIE.com.au
www.TheCIE.com.au
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The economic impacts of mobile broadband - Phil Manners, Director, Centre for International Economics

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  • Context for the work ACMA’s role in allocating spectrum across different sectors and businesses Mobile broadband is a major user of spectrum ACMA is seeking to better understand the economic impacts of the sector and the economic impacts of alternative spectrum scenarios Acknowledgements: CIE has partnered with Analysys Mason and Lisa Maclean from Evans and Peck. Woolcott conducted survey
  • Rather than starting with mobile broadband, I am going to set the economic context in Australia, particularly in terms of productivity Productivity is the ratio of what we produce against the inputs that we use to produce it. Why productivity matters? “ Productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.” Krugman Why countries become more productive – technological progress that shifts out the productivity frontier, making the most of resources within available technology – moving closer to the technological frontier. Countries also become richer per person because they increase the amount of capital used in production. Eg. computers and machinery used per person. China is a great example of how to growth within the productivity frontier. Huge investment into physical capital and using technology that already exists. Story of Australia’s productivity performance 1990s reflected a bit of ICT productivity gain (around 10% of the productivity acceleration) But consensus is that it mainly reflected bringing competitive pressures to bear on Australian business through opening up the economy to external competition and National Competition Policy. That is, changes implemented by Government have been critical in allowing Australia to move closer to the productivity frontier. Why has productivity growth been low in recent years? Partly reflects specific issues in mining, electricity and water industries. But even in other industries there has been widespread measured productivity deceleration Technology frontier has continued to move outwards, US typically viewed as being closest to the frontier and it has achieved similar productivity growth over these periods. A number of other countries have had productivity declines similar to Australia A number of commentators consider regulatory burden/Government decisions is an important reason for productivity deceleration. Potential examples include the NBN, poorly designed environmental policies (green tape). Future examples could include high speed rail. Of course, lots of measurement issues with productivity, particularly in services But key point is that potentially government decisions can accelerate or decelerate Australia’s productivity performance. This includes ACMA in its role in spectrum allocation.
  • So now we have the context, lets get back to the mobile communications sector, which is one important users of spectrum. The sector is not particularly large, making up only about half a per cent of the Australian economy and only 0.2% of employment. But its small size is at odds with the economic impact of the sector. It has been a rapidly changing part of the Australian economy. The growth of the sector has been highlighted in the previous segment of this conference. Mobile broadband has been pushing outwards the productivity frontier. It is viewed by business and households as a valuable device, witnessed by adoption rates So, given this, what impacts has this sector had on Australia’s productivity? We see three types of productivity arising from mobile broadband. Productivity of the sector itself. For a similar cost per device, mobile broadband users can now use their phone far more Productivity from business use of mobile broadband. This includes access to internet, emails etc. Improved value to households from use of mobile broadband. I.e. the output is worth more to consumers because it is of higher quality. I won’t discuss this in detail as the estimates are too preliminary at this stage. Are these impacts likely to show up in the productivity statistics previously presented? Some will and some won’t. Quality changes are not well measured in National Accounts. As was noted by Nobel Prize winning economist Robert Solow, “You can see the computer age everywhere but in the productivity statistics”. In fact, in very few countries apart from Australia has an impact been well identified from the ICT revolution of the past two decades. So let’s go through what we think the size of these impacts is…
  • The first type of impact I want to go through is the productivity of the sector itself. The sector can increase the prosperity of Australia directly by producing its outputs with less inputs (which then allows these to be used elsewhere) or by producing more with the same inputs. We define the sector to include mobile voice and data use, as they are difficult to separate from a cost and consumer perspective. Inputs into mobile communications have been fairly stable since 2007. The sector is employing about the same number of people, about the same amount of intermediate inputs (such as handset costs) and about the same amount of capital.
  • We have identified the outputs of the sector as: Connections (i.e. sim cards) Voice minutes – the average of voice minutes originating and terminating with mobiles Data used Connections have risen by about 50% since 2007 Voice minutes have risen by over 100% - i.e. people are using about 50% more voice minutes per connection than they have in the past Data use has increased by 325 times since 2007 (from a low base) Aggregating across these three outputs, an output index has increased by over 200% since 2006
  • Bringing these two points together – fairly stable inputs for rapidly increasing outputs means substantial productivity growth Part of this probably reflects economies of scale in production Annual productivity gains average 10-20% over the period 2007 to 2013. This is a remarkable level of productivity improvement.
  • What does the productivity gain in mobile communications mean? Prices for most products gradually rise each year – the Reserve Bank aims to keep prices increasing on average by 2-3% per year. The productivity gains have largely been passed on to customers, through lower prices. Prices per connection haven’t changed much over this period A connection is now getting a lot more for the same price. In particular, using more voice minutes and data. Other quality factors have also changed a lot over this period, such as what handsets can do.
  • The second type of productivity I want to talk about is about how businesses use mobile broadband. Mobile broadband is termed a general purpose technology. This means its use can significantly change how businesses operate. As has been seen in the examination of the impacts of ICT, it is very difficult to precisely measure the impacts of new general purpose technology. Options that have been used in the past include: examination of cross-country or cross-regional economic performance and technology uptake examination of firm-level performance and technology uptake case studies of particular uses of a technology surveys of businesses For this project the CIE and Woolcott research conducted a survey of 1002 businesses across a range of sectors of the Australian economy and a range of business sizes. This survey asked businesses about how they used mobile broadband, what its impacts have been on their business, how they viewed mobile broadband within the context of other issues of importance to them and how their business had performed over the past 3 years.
  • AMTA case studies
  • We asked businesses directly whether mobile broadband had impacted on productivity-related aspects of their business and if so, how much This is clearly a difficult issue for businesses to answer precisely The results are surprising, both for the pattern of impacts noted by business, and the size of the impacts noted by business For example, 75% of businesses indicated that mobile broadband saved time for employees. The average impact, adjusted for the number of employees that have access to mobile broadband is a 2.2% time saving. 62% of businesses noted that mobile broadband had enabled them to improve their quality The impact cited by business broadly followed the extent to which employees had access to company paid mobile internet enabled devices. For example, for those with more than three quarters who had access to company paid mobile internet enabled devices, time savings noted were over 5% and cost reductions of 2%.
  • The sectors noting the largest impacts were utilities (for time saving), transport for both time and cost reduction, administrative services, information and telecommunications and financial and insurance services. A notable low impact was noted by mining businesses and health care. Health care is often cited as an example where fixed broadband can have significant impacts.
  • There is also a weak relationship between the impacts that businesses noted for mobile broadband and their revenue performance over the past 3 years. Those with the highest revenue growth noted the largest time savings and cost reductions from mobile broadband.
  • We expected that many businesses would not be able to answer how much mobile broadband had impacted their business. In fact, we were surprised by how many were willing to put quantitative figures on impacts. As a cross-check, we asked businesses to consider how big an issue mobile broadband was for them relative to other possible issues. This would allow us to consider the extent to which business responses are reasonable. Again somewhat surprisingly, mobile broadband was noted as a significant issue by many businesses. It was ranked in the top 3 issues by about the same amount of businesses and less government regulation and a more efficient tax system. Previous work we have done suggests impacts in these areas could be in the order of a 1% to 2% improved in Australia’s economic performance – and probably more for specific businesses. A second level of checks on the types of numbers reported by businesses is previous studies. The productivity commission’s work for ICT suggested productivity growth impacts of up to 0.2% per year for ICT. If we convert out figures to an equivalent, we would find an average annual cost reduction of 0.2% and an average annual time saving of 0.27% for 2006 to 2013. Our numbers are slightly higher than the PC’s ICT numbers. However, international studies of broadband have suggested far larger possible impacts. For example, US regions with access to broadband have been estimated to have employment growth 1% per year higher than other regions. A World Bank cross-country study found broadband impacts of a 1.2% increase in annual growth from higher broadband penetration. Our estimates for mobile broadband are significantly lower than this.
  • The changes to productivity of businesses and to the sector are only the beginning of the impacts of mobile broadband. We evaluate these using the CIE Regions model, which is an offshoot of a model developed by Monash Centre of Policy Studies and used by the Productivity Commission. This model allows us to trace changes in economic responses to direct sectoral impacts. In the longer term, similar to ICT, the productivity gains from mobile broadband lead to an expansion of Australia’s capital stock. This is the capital deepening part of increased prosperity. The changes in productivity also flow through to higher wages, an expansion of economic activity and higher levels of household consumption. These changes look small as per cent changes. For example, a 0.5% annual increase in GDP growth means additional growth of $7 billion per year relative to what would otherwise have occurred. This growth effect is cumulative, so over a period of 3 years, the size of the Australian economy is 3 times $7 billion larger. The productivity of the sector alone is adding almost 0.2% to Australia’s annual GDP growth Flow-on impacts from using sectors are 0.3 to 0.6% on top of this This constitutes a substantial part of Australia’s reported GDP growth. Probably impacts reported by business are sightly too high. But also GDP growth is likely to be underestimated by the ABS. These are preliminary numbers at this stage.
  • The significant historical and projected growth in data usage on mobile networks raises questions for the management of spectrum. The mobile sector appears to be an important productivity driver for Australia. But this does not necessarily have implications for spectrum management. The key issue is what happens if mobile providers do not obtain additional spectrum? They could try to limit demand, particularly at peak times. This is like many other types of infrastructure where there has been a push to limit peak demand through pricing and demand management. They could increase their network density through additional investment. For example, through smaller cells. This is equivalent to a lower level of productivity than would be the case with additional spectrum. That is, additional capital is used to provide the same services as could be provided with a lower level of capital and more spectrum. They could let quality of their network performance fall – essentially forcing people off the network through congestion. They could increase their prices above costs as spectrum scarcity becomes a competition concern They could invest in greater spectral efficiency All these factors will impose economic costs Timing of this will depend on changes in demand for data (as discussed in last segment of conference) and spectral efficiency
  • As noted above, Australia has had low productivity growth in recent years This is likely to reflect that we are not moving outwards with the technological frontier this has been attributed by many to over-regulation, inefficient regulation and inefficient investment These issues are just as relevant to spectrum regulation as they are to other regulatory areas If spectrum isn’t well-managed, it becomes part of that drag on productivity growth. Critically important to ensure that the spectrum allocation process is appropriately taking account of economic and social benefits and costs so that its value to society is maximised. This has to be able to align economic benefits that are measured with a market context, with non-market benefits. These issues are not isolated to spectrum. Similar issues are dealt with in water management, such as the Murray Darling Basin Plan. Key is to understand and measure the benefits and costs of different uses of spectrum.
  • The economic impacts of mobile broadband - Phil Manners, Director, Centre for International Economics

    1. 1. The economic impacts of mobile broadband www.TheCIE.com.au Phil Manners 2 October 2013
    2. 2. www.TheCIE.com.au2
    3. 3. Productivity in Australia www.TheCIE.com.au3 Strong growth from mid-90s to mid-2000s Declining productivity growth since mid- 2000s Recent income growth driven by higher prices for our products
    4. 4. www.TheCIE.com.au4
    5. 5. 0 50 100 150 200 250 300 350 2007 2008 2009 2010 2011 2012 2013 Index1. Productivity of the sector www.TheCIE.com.au5 Employment index Intermediate inputs Capital Input index Input growth into sector has been slow
    6. 6. 0 50 100 150 200 250 300 350 2007 2008 2009 2010 2011 2012 2013 Index1. Productivity of the sector www.TheCIE.com.au6 Data useVoice minutesConnections Output index Output growth of the sector has been rapid
    7. 7. 0 50 100 150 200 250 300 350 2007 2008 2009 2010 2011 2012 2013 Index1. Productivity of the sector www.TheCIE.com.au7 Input index Output index Outputs have grown faster than inputs = productivity
    8. 8. 2. Business productivity from use of mobile broadband www.TheCIE.com.au10 Survey of businesses by Woolcott Research Business adoption and use of mobile broadband Impacts on business Performance of business over past 3 years Ranking of mobile broadband within major business issues Main Industry of Business Total (n=1002) % Agriculture, forestry and fishing 7 Manufacturing 6 Construction 16 Wholesale trade 5 Retail trade 10 Accommodation and food services 7 Transport, postal and warehousing 5 Information media and telecommunications 1 Financial and insurance services 4 Retail, hiring and real estate services 4 Professional, scientific and technical services 13 Administrative and support services 4 Education and training 1 Health care and social assistance 6 Arts and recreational services 1 Other services 6 Unknown 2 Company Size Total (n=1002) % 1–4 employees (Micro) 534 5–19 employees (Small) 326 20–199 employees (Medium) 100 200+ employees (Large) 42 No.
    9. 9. Business use of mobile broadband www.TheCIE.com.au12 Share of businesses using mobiles for… Main uses are phone calls, emails and internet Many businesses using mobile broadband for more sophisticated uses
    10. 10. 2. Business productivity from use of mobile broadband www.TheCIE.com.au13 Impact Share of businesses noting impact (%) Average impact across all businesses (%) Reduced costs 25 1.5 Saved time for employees 75 2.2 Increased revenue 21 1.1 Improved quality 62 na Allowed access to new markets 33 na Allowed access to new suppliers 30 na
    11. 11. Sectoral impacts from business survey www.TheCIE.com.au14
    12. 12. Businesses that had higher revenue growth were more likely to cite impacts from mobile broadband www.TheCIE.com.au15
    13. 13. Business ranking of mobile broadband as a significant issue www.TheCIE.com.au16 Number mentioned Weighted by VA Weighted by number Skill development of employees 716 81% 72% More efficient tax system 357 24% 38% Less government regulation 408 28% 41% Investing in IT systems 346 39% 33% Improving internal systems and processes 505 62% 50% Investing in mobile broadband 209 26% 20% Investing in machinery, other capital equipment 374 34% 38%
    14. 14. Broader economic impacts of mobile broadband sector Productivity growth in and from mobile sector www.TheCIE.com.au17 Annual impact (%, 2006 to 2013) Sector productivity Business productivity Low high Investment 0.02 0.26 0.61 Wages 0.30 0.34 0.57 GDP 0.17 0.33 0.66 Exports 0.11 0.57 1.05 Consumption 0.21 0.27 0.52 ─ Increased returns from investment and capital deepening ─ Higher wages ─ Expansion of economic activity and exports ─ Higher levels of household consumption
    15. 15. Implications for spectrum management If no additional spectrum provided then what? ─ And when? www.TheCIE.com.au18
    16. 16. Phil Manners Director 02 9250 0811 pmanners@TheCIE.com.au www.TheCIE.com.au

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