The Martin County Broadband Network

The Martin County Broadband Network Opportunity For Job Creation & Economic Development Prepared For Martin County Board of County Commissioners by Dale M. Gregory Executive Vice President Cherrystone Management Consultants Inc. dgregory@cmcisolutions.com 561 212 8385 January 18, 2011

Table of Contents Executive Summary Introduction The Need for Higher Speed Broadband Broadband as a Resource for Job Creation and Economic Development Broadband as a Resource to Attract and Retain Businesses Fiber To The Premise ( FTTP or FTTH ) Improves a Communities Ability to Achieve Competitive Advantage Opportunity for Job Creation and Economic Development in Martin County 01/18/11 Property of Cherrystone Management Consultants Inc. Page 2

EXECUTIVE SUMMARY Governments around the world have increasingly recognized the power of broadband to influence the economics of businesses, communities and nations. Broadband networks are widely considered essential infrastructure for the global information economy, providing businesses, students, government, healthcare providers, researchers and consumers with fast, always-on access to Internet-based services, content and applications. Current broadband services provided by cable and DSL type services will be insufficient to carry Internet applications driving future demand. There are a number forward looking initiatives to increase broadband speeds and quality, such as Verizon and ITS Telecom fiber to the home and business projects (labeled FTTH and FTTP ) and deployment of emerging high speed wireless services. Unfortunately FTTH and FTTP projects are limited to specific geographic markets. New super high bandwidth applications such as IPTV, video on demand, HDTV, healthcare, cloud computing, pervasive computing & sensor networks ( the internet of things ), and life sciences data analytics are driving broadband demand beyond the capabilities of most wired cable and telecom networks. Case studies and econometric research reports from the Information Technology and Innovation Foundation, Brookings Institute, North Carolina e-solutions, Sacramento Regional Research Institute, The World Bank, Applied Economic Studies, and MIT confirm that increased adoption rates of high speed broadband service can lead to: Job Creation Increased Purchasing Power of Consumers, Business, & Government Higher Apartment Rental Rates Improved High School Graduation Rates, GPA s, & Standardized Reading Scores Lower Teen Dropout Rates, Crime, & School Suspensions Greater Ability To Attract & Retain Businesses Improve the Quality & Skill of the Workforce Strengthen the Ability of Businesses to Compete in Global Markets 01/18/11 Property of Cherrystone Management Consultants Inc. Page 3

The Martin County Community Broadband Network ( CBN ) is a unique asset in the Treasure Coast that can be a catalyst to diversify the regions economy and strengthen its competitive position in global markets. The CBN is the twenty first century infrastructure that will influence both our economic health and quality of life. When completed, it will be the most comprehensive community-wide network in Florida, and potentially in the United States. It will not only connect key anchor institutions, it will pass or be in close proximity to major commercial districts, residential communities, CRA, and other areas targeted for development and/or redevelopment. Examples of potential job creation and economic development opportunities include: Establish Martin County as a Global Broadband Gateway Port Community Attract Strategic Industries and Assets, such as Internet hosting and data centers ( digital warehouses ) to Locate In Martin County Utilize Unused CBN Fiber Collaborate With Incumbent &Emerging Firms to Provide FTTP and/or Fiber to the Home (FTTH) Services Enhance the Availability of Ubiquitous Wireless Broadband Service Availability 01/18/11 Property of Cherrystone Management Consultants Inc. Page 4

History confirms the benefits of smart infrastructure policies from the Erie Canal in the 1820s to the transcontinental railroad in the 1860s to rural electrification in the 1930s to the Interstate Highway System in the 1950s. Smart infrastructure policies not only sustain commerce, they strengthen our communities. As President Eisenhower said, Together, the uniting forces of our communication and transportation systems are dynamic elements in the very name we bear United States. Without them, we would be a mere alliance of many separate parts. In today s world, that connecting and uniting force is broadband. - Chairman Julius Genachowski, Federal Communications Commission 1 October 21, 2010 INTRODUCTION This paper focuses on identifying the demand for and value of higher speed broadband services, the opportunities to leverage the Martin County Community Broadband Network to create jobs, enhance economic development, and establish 21 st century innovative infrastructure to sustain a high quality of life for the community. Governments around the world have increasingly recognized the power of broadband to influence the economics of businesses, communities and nations. Broadband networks are widely considered essential infrastructure for the global information economy, providing businesses, students, government, healthcare providers, researchers and consumers with fast, always-on access to Internet-based services, content and applications. 2 The evidence is all around us. The information and communications technology industry sector represents a trillion dollars in revenue, millions of jobs, and 13 percent of U.S. GDP. We have gone from zero to 150,000 applications for smart phones in less than three years, and 500 million people are registered at U.S. founded social network sites. 3 Broadband is a consumer service, a tool for interacting with the world, a distribution system, and a means to enhance the skills of the current and future workforce. It is a resource for business to expand product and service distribution channels, broaden geographic markets to sell goods and services, implement innovative tools to communicate and serve customers, and 01/18/11 Property of Cherrystone Management Consultants Inc. Page 5

encourage foreign investment. Broadband is a resource for government to enhance interactions with constituents and facilitate open government. It is a resource to create jobs, increase productivity, reduce cost, and improve the effectiveness of all types of organizations. 4 Case studies and econometric analysis confirm that increased consumer adoption rates of high speed broadband service can lead to job creation; increased purchasing power; higher apartment rental rates; improved high school graduation rates, GPA s, and standardized reading scores, and lower teen dropout rates, crime, and school suspensions. Social networks have evolved through broadband enabled, peer-to-peer web-based groups that facilitate economic integration and drive innovation. THE NEED FOR HIGHER SPEED BROADBAND The term "broadband" is often misused as a synonym for Internet access. Broadband refers to a high performance network capable of delivering many kinds of services, including access to the Internet, VOIP, information and applications with and between government, institutions, businesses, and consumers. Broadband is increasingly being integrated into virtually everything we do at work, at school, at home, and at play. Current broadband services provided by cable and DSL type services will be insufficient to carry Internet applications driving future demand. There are a number forward looking initiatives to increase broadband speeds and quality, such as Verizon and ITS Telecom fiber to the home and business projects (labeled FTTH and FTTP ) and deployment of emerging high speed wireless services. Unfortunately FTTH and FTTP projects are limited to specific geographic markets. New super high bandwidth applications such as IPTV, video on demand, HDTV, healthcare records management and telehealth, cloud computing, pervasive computing & sensor networks ( the internet of things ), and life sciences data analytic requirements are driving broadband demand beyond the capabilities of most wired cable and telecom networks. The 2010 Saïd Business School at Oxford University annual broadband study provides a concise picture of how applications and broader adoption of online services and applications are impacted the demand for super high speed broadband. The study evaluated broadband quality (speed and latency) in 72 countries and 239 cities, finding that the quality of broadband has improved by 24% in one year. 5 Using the data from 40 million real-life broadband quality tests conducted in May-June of 2010 on the Internet speed testing site, speedtest.net, the researchers were able to evaluate the broadband quality by scoring the combined download 01/18/11 Property of Cherrystone Management Consultants Inc. Page 6

throughput, upload throughput, and latency capabilities of a connection. These criteria are key factors impacting a connection s ability to handle specific Internet applications. Study findings indicate that: 10% of mobile broadband users already enjoying similar quality experiences compared to those with fixed-line broadband. Broadband consumption patterns are diverging, from a basic household requiring over 2 Mbps and consuming about 20 GB per month, to a smart and connected home commanding over 20 Mbps and a consumption of 500 GB per month. Global broadband quality has improved by 50% in just three years The average global download speed has increased 49% in just three years (3.3 Mbps in 2008, 4.9 Mbps in 2009 and 5.9 Mbps in 2010). The average global upload speed has increased 69% in three years (794 Kbps in 2008, 1.3 Mbps in 2009. 1.8 Mbps in 2010). Average latency has fallen by 25% to 142ms. This is slightly up from 140ms in 2009, but still significantly lower than 189ms in 2008. The United States ranked 21 st of 72 countries studied. South Korea achieved the highest ranking, followed by Hong Kong, Japan, Iceland, Switzerland, Luxembourg, Singapore, Malta, Netherlands, UAE, and Qatar. BROADBAND AS A RESOURCE FOR JOB CREATION AND ECONOMIC DEVELOPMENT According to a 2009 World Bank econometrics analysis of 120 countries, for every 10- percentage point increase in the penetration of broadband services, there is an increase in economic growth of 1.3 percentage points. The World Bank analysis demonstrated that the growth effect of broadband is significant and stronger in developing countries than in developed economies, and it is higher than that of telephone and Internet. The impact can be even more robust once the penetration reaches a critical mass Table 1 summarizes World Bank economic growth estimates associated with increases in fixed & mobile technology, and the Internet, and broadband penetration rates. 6 01/18/11 Property of Cherrystone Management Consultants Inc. Page 7

Table 1. Economic Growth Effects of Communications & Internet Technology Penetration Economic Growth Per 10% Increase in Service Penetration High-Income Economies Low & Middle Income Economies Fixed Telephone Service 0.43% 0.73% Mobile Telephone Service 0.60% 0.81% Internet Service 0.77% 1.12% Broadband Service 1.21% 1.38% Source: 2009 Information and Communications for Development, Christine Zhen-Wei Qiang & Carlo M. Rossotto with Kaoru Kimura, The World Bank (2009) An often cited 2005 study by the Massachusetts Institute of Technology of a broad range of U.S. communities where broadband had been deployed since December 1999 found that it benefits economic activity in ways consistent with the qualitative stories told by broadband advocates. 7 Between 1998 and 2002, U.S. communities that were among the early adopters of mass-market broadband experienced faster growth in employment, number of businesses, and businesses in IT-intensive sectors. These communities also had higher market rates for rental housing than communities where broadband was adopted later. MIT study findings estimated that broadband added 1.0 to 1.4% to the growth rate in the number of jobs created and.5% to 1.2% to the growth rate in the number of firms during the period 1998 2002. Housing rental rates were more than 6% higher in 2000 in zip codes where broadband was available in 1999. Research from both the Brookings Institution and Criterion Economics corroborate the World Bank and MITS studies, with the Brookings Institution finding that a 1 percentage point increase in broadband penetration corresponds to an employment rises of between 0.2 to 0.3 percent. 8 Criterion Economics research showed that increased capital spending empowered by broadband in industries ranging from education services to health services, tourism, entertainment, and manufacturing industries could generate 1.17 jobs for every single direct job created by capital spending of broadband service providers. 9 A 2007 study commissioned by AT&T found that increased use of DSL and cable modems would directly result in 14,853 new jobs in the Solano County area of California in the next 10 years. The study also showed that a four percent annual percentage increase in adults using broadband in California could result in a net cumulative gain of 1.8 million jobs and $132 billion 01/18/11 Property of Cherrystone Management Consultants Inc. Page 8

in payroll over the next decade. The study was based on an analysis of the incremental effects of broadband between 2002 and 2005, concluding that a one percentage increase in broadband penetration could increase employment levels between.025% and.075%, business establishments by -.104% to +.062%, and payroll by.029% to.088%. 10 Applied Economics Studies published an econometric model comparing the economic growth of Lake County, Florida with similar Florida counties. 11 In 2001 Lake County began offering private businesses access to one of Florida s most extensive municipality owned broadband networks, with fiber optic connections to hospitals, doctor s offices, private businesses, and 44 public schools. Relative to comparable Florida counties, Lake County experienced a dramatic increase in economic growth after 2001, being roughly twice that of the control group. While Lake County s growth rate and economic activity level was nearly identical to the control group prior to 2001, the county experienced a statistically and economically significant increase in growth after offering its municipal broadband network broadly to local businesses and government agencies. Such a large effect on economic growth suggests that public ownership of broadband infrastructure can contribute significantly to economic development, and that such investment may in fact be necessary if the private sector undersupplies broadband network infrastructure in a particular community. Studies of robust broadband deployment in Lafayette, Louisiana and Fort Wayne, Indiana demonstrate similar economic and competitive benefits resulting from investments in broadband infrastructure. A North Carolina survey of 1,492 households and 6,266 businesses and organizations collected evidence on the utilization of broadband, use of the Internet, as well as connectivity patterns. 12 The survey, published in May 2010, is part of an ongoing effort by North Carolina to develop high speed Internet as a tool for helping residents improve their quality of life. The survey found that job creation was the most significant economic impact of broadband adoption in North Carolina between 2009 and 2010. Of 1,018 organizations reporting employment impacts, 17.5 percent of new full-time jobs created were attributed to the use of the Internet. This is even more significant for businesses with less than 20 employees where 28 percent of new jobs are attributed to using the Internet. Figure 1 is a breakdown of job creation by size employer group. 01/18/11 Property of Cherrystone Management Consultants Inc. Page 9

The Internet as a Valuable Revenue Source The Internet has become an important component to the revenue of businesses and other organizations, with the North Carolina e-strategy Report indicating that as much as 18% of small business revenue is a direct result of Internet sales (online) and income enabled by using the Internet to interact with customers. Table 2 summarizes survey responses by size of organization. Table 2. Revenue Impacts from Internet Use Employees Per Organization Average Revenue per Organization Average Revenue from internet Use % Revenue from Internet Use 0 19 $1,284,576 $231,824 18.00% 20 99 8,603,014 1,207,238 14.00% 100-499 38,542,168 6,335,703 16.40% Internet Usage at Home For Personal Productivity The North Carolina e-strategy Report found that households that have broadband service are more likely to have home businesses and telework, use online training, and access their place of work from home. Figure 2 is a summary of survey responses. 01/18/11 Property of Cherrystone Management Consultants Inc. Page 10

Figure 2. Internet Uses Personal Productivity The findings of a similar survey in Kentucky during May 2010 found that 46% of households access their workplace from home, 44% use educational or training courses, 23% operate a home-based business, and 20% tele-work on a formal basis. 13 BROADBAND AS A RESOURCE TO ATTRACT & RETAIN BUSINESSES Of 405 county and municipal government respondents who participated in a North Carolina esolutions benchmarking survey, 54 percent indicated that they had been asked about broadband availability. 14 Twenty-six percent indicated that the availability of broadband had been a factor in attracting businesses to their area. In addition, 17 to 22 percent of respondents stated that businesses have relocated away or chose not to locate in their area because of the level of broadband. These respondents came predominantly from rural counties (18 out of 21 cases of relocation away; and 21 out of 24 decisions not to locate in their area). Figure 3 summarizes survey responses concerning the importance of broadband when selection a location or making a decision to remain at a current location. The findings of a survey in Kentucky were similar to that in North Carolina, with 33% of organizations indicating that the availability of broadband services was essential for selecting their business location, and over 56% saying that broadband is essential to remain in their current location. 15 01/18/11 Property of Cherrystone Management Consultants Inc. Page 11

Figure 3. Importance of Broadband for Location Figure 4 summarizes responses to the Kentucky E-Solutions Benchmarking survey concerning the relative importance of broadband, by industry, when making a decision to remaining at an existing location. Figure 4. Importance of Broadband for Remaining in Location by Industry 01/18/11 Property of Cherrystone Management Consultants Inc. Page 12

Moreover, broadband is very important for the choice of living location for 41 percent of households. This reinforces the responses for the likelihood of relocating to another community to obtain broadband service. FTTP IMPROVES A COMMUNITIES ABILITY TO ACHIEVE COMPETITIVE ADVANTAGE The availability of fiber to the premises ( FTTP ) is also an important selection criterion for business location decisions. A 2007 Strategic Network Group survey of 233 organizations using FTTP in three communities found that 43% of organizations identified FTTP as being Essential or Important. The importance of FTTP does not show a wide variation based upon business size, but importance tends to increase with size. These findings demonstrate the growing importance of high quality broadband in attracting and retaining businesses, organizations and populations within communities. 16 OPPORTUNITIES FOR JOB CREATION AND ECONOMIC DEVELOPMENT IN MARTIN COUNTY OPPORTUNITY The Martin County Community Broadband Network ( CBN ) is a unique asset in the Treasure Coast that could be a catalyst to diversify the regions economy and strengthen its competitive position in global markets. The CBN is the 21 st century infrastructure that will influence both our economic health and quality of life. When completed, it will be the most comprehensive community-wide network in Florida, and potentially the United States. It will not only connect key anchor institutions, it will pass or be in close proximity to major commercial districts, residential communities, CRA, and other areas targeted for commercial development. The following are examples of potential job creation and economic development opportunities that could be exploited: Establish Martin County as a Global Broadband Gateway Port Community -Provide connectivity with global destinations such as the NAP of the Americas in Miami, Florida and National LambdaRail high speed research network, as well as connectivity between government, healthcare, education, public safety and other anchor institutions throughout South Florida and the Treasure Coast. Attract Strategic Industries and Assets to Locate In Martin County Life Sciences, High Performance Data Centers, Web Hosting and Co-location Data Centers, and Software Development Labs. 01/18/11 Property of Cherrystone Management Consultants Inc. Page 13

Utilize Unused CBN Fiber Capacity Sell broadband capacity to wireline and wireless carriers, Internet Service Providers, State of Florida, and Commercial Enterprises. Collaborate With Incumbent & Emerging Firms to Provide FTTP and/or Fiber to the Home (FTTH) Services Evaluate alternatives to accelerate the pace of FTTP/FTTH deployment. Enhance Wireless Broadband Service Evaluate alternatives to improve the efficiency, scope of applications, and resilience of county and municipal government, healthcare, education and public safety broadband wireless services. Stimulate the Availability of Competitively Priced and feature rich broadband services and applications to Consumers and Businesses Evaluate alternatives to wholesale broadband capacity to retail carriers and/or offer broadband services directly to businesses and consumers. 01/18/11 Property of Cherrystone Management Consultants Inc. Page 14

1 Unleashing America s Invisible Infrastructure, FCC Spectrum Summit, Prepared Remarks of Chairman Julius Genachowski, Federal Communications Commission (October 21, 2010) 2 Capturing the Promise of Broadband for North Carolina and America, The Baller Herbst Law Group, (June 2008) 3 Broadband: Our Enduring Engine for Prosperity and Opportunity, Prepared Remarks of Julius Genachowski, Chairman, Federal Communications Commission, NARUC Conference, Washington, D.C. (February 16, 2010) 4 Broadband s Role in Economic Stimulus, National Association of Telecommunications Officers and Advisors (NATOA). (November 2008) 5 Third annual broadband study shows global broadband quality improves by 24% in one year, Said Business School, University of Oxford & Univeridad de Oveido (October 18, 2010) 6 2009 Information and Communications for Development, Christine Zhen-Wei Qiang & Carlo M. Rossotto with Kaoru Kimura, The World Bank (2009) 7 Measuring Broadbandʼs Economic Impact Final Report, Sharon E. Gillett, William H. Lehr, & Carlos A. Osorio, Massachusetts Institute, Prepared for the U.S. Department of Commerce, Economic Development Administration National Technical Assistance, Training, Research, and Evaluation Project #99-07-13829 (February, 2006) 8 Crandall, Robert, William Lehr and Robert Litan, The Effects of Broadband Deployment on Output and Employment: A Cross-Sectional Analysis of U.S. Data, Issues in Economic Policy, (July 2007), at brookings.edu/views/papers/crandall/200706litan.pdf. 9 Robert Crandall, Charles Jackson, and Hal Singer, The Effects of Ubiquitous Broadband Adoption on Investment, Jobs, and the U.S. Economy, Criterion Economics, LLC, Washington, D.C., September 2003: 21-22. newmillenniumresearch.org/archive/bbstudyreport_091703.pdf> (accessed January 1, 2009). 10 Sacramento Regional Research Institute, Economic Effects of Increased Broadband Use in California, (November 2007), http://tinyurl.com/ypc2tx. 11 A Municipal Case Study from Florida, Applied Economic Studies, George S. Ford & Thomas M. Koutsky, (April 2005) 12 e-strategy Report North Carolina, Prepared by The Strategic Network Group for e-nc Authority (October, 2010) 13 E-Solutions Benchmarking Technical Report, Prepared by Strategic Network Group for Commonwealth of Kentucky (May 2010) 14 e-strategy Report North Carolina, Prepared by The Strategic Network Group for e-nc Authority (October, 2010) 15 E-Solutions Benchmarking Technical Report, Prepared by Strategic Network Group, for Commonwealth of Kentucky (May 2010) 16 Importance of FTTP to Business Location, Michael Curri, President, Strategic Networks Group, Inc. (July 2008) 01/18/11 Property of Cherrystone Management Consultants Inc. Page 15