Gigabit Internet: Internet Speeds & Economic Development

Today’s Speed of Innovation Is Determined By Connection Speeds, Not Computing Power or Storage Capacity

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Most of the dominant cities in the world are near oceans or significant waterways: Tokyo, Hong Kong, New York and London are at the top of cities ranked yearly by ATKearney as being the world’s most influential cities (Global Cities Index: http://www.atkearney.com/research-studies/global-cities-index). The reasons for this location bias are of course practical and historical. At the time these grand cities were established, their economic livelihood was very much determined by the amount of physical goods they could trade. Physical goods movements are still very important of course, but an increasing percentage of the world economy is now driven by its digital backbone. That’s good news for landlocked . Little cities like Kansas City (USA), Astana (Kazakhstan) or Wuhan (China). Of course, when it comes to broadband’s economic benefits, the impact will always be relative: can myeconomy finish a project faster than your economy. It still comes down to the comparative advantageof trade (Ricardo, 1817). Given the current state of global broadband, Ericsson and AD Little estimated that every doubling of broadband speed, increases GDP by 0.3%. It’s not difficult to see why an increasing number of countries have adopted national Gigabit internet objectives as a matter of economic development.

How fast is fast?

You think your 50 Mbps is fast broadband? Think again. Increasing numbers of cities around the world are trailblazing what all of us wish we had on a daily basis: real fast, inexpensive, reliable internet. Selected cities in Europe, Japan, South Korea and the US have offered gigabit internet connections to consumers since 2012. How does 2 Gbps for $50-$60/month (Singapore, South
Korea, Japan), or 1Gbps for $88/month (Google, ATT, CenturyLink, in 20 US cities) sound? Meanwhile, research pushes the envelope even further: in 2011 NEC reported data-sending rates of 101.7 terabits per second through 165 kilometers of fiber.

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Fast Connection Speeds and The Cloud Economy

There are very good reasons why connection speeds determine economic development in today’s world economy. You only have to look at the location where computational advantages are realized. At the dawn of the information age (1980’s to mid-1990’s) the speed of computer processors determined where most of the advantage came from: my computer works faster than your computer (or sometimes, I have a computer, you don’t). A megabyte of data was considered a lot and most computers could handle it well. The internet started the digitization of the world economy and generated a lot more data. The ability to store all that data drove much of economic development, in part because more digital data got generated, but also because online interaction itself created significant amounts of behavioral data (“Big Data”). In the end, the sheer size of data and the processing power required to analyze huge amounts of data have grown beyond the realm of individual devices: we store our media in the cloud (music, video, books,documents) and ask cloud computers to match media files with millions of stored samples for recognition (Google Voice Recognition, Google Glass, Shazam, etc.). In other words, most of the computations we do and most of the data we store, are not on our devices. We rely on fast connections to far away servers to get the job done. Hence, speed of connections drives the productivity.

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Building a Competitive Advantage – Time is of the Essence

While establishing faster internet connectivity will always be an ongoing race (your country was faster yesterday, I’m faster today, our neighbors are faster tomorrow, etc.), there are significant first mover advantages in the connectivity game. Once datacenters are constructed, companies are reluctant to move any time soon. If your location has fast connections with the rest of the world and it’s in a geologically safe place , you have a comparative advantage. So, move over Silicon Valley (earthquakes), Tokyo (Tsunamis) or New York (under sea level). Kansas City and Astana, Kazakhstan want a piece of the action.

Patrick Duparcq,

Professor of Marketing

Associate Dean of Executive Education

Nazarbayev University, Graduate School of Business in Astana, Kazakhstan.