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Cheap Broadband is the Oil of the Modern Economy


This is a guest post written by Mark Dykeman. Mark broadcasts from his brain about communications, social media, and technology several times per week at Broadcasting Brain. He enjoys participating in several social media sites, including Twitter, FriendFeed, and StumbleUpon.

Oil and broadband Internet access are the twin fuels of both brick and mortar businesses and Internet based businesses. When oil prices are low, economies can zoom at light speed. When prices are high, many businesses can barely put one foot in front of another. A look at the history of oil might serve to help us understand the importance of ubiquitous, low cost Internet access, which is currently growing at a snail's pace in North America.

Cheap oil was one of the drivers of recent global economic booms. Cheap oil helps keep transportation, electricity generation, and manufacturing costs low - all three types of work normally require huge quantities of refined petroleum products. When the price of oil rises, ballooning as it has since the 9/11 tragedy in New York City, it tends to cause the global economy to slow down because of the compounding effects of widespread oil usage.

Cheap oil was a hallmark of recent economic boom periods, permitting stable, continued economic development. Today, more expensive oil (not withstanding any recent price fluctuations) is leading to price increases in many sectors of the global economy, slowing growth by making it more expensive to travel, manufacture goods, heat our homes, and so on. While businesses that specialize in extracting, refining, and distributing petroleum products are reaping record revenues and profits, increasing demand coupled with supply challenges has resulted in increased costs for virtually all other sectors of the global economy.

Cheap broadband Internet access has worked the same as cheap oil, powering the expansion of e-commerce, Web 1.0 and Web 2.0. At one time people were limited to dial up access for either Internet or other private online services (e.g. the original America Online, CompuServe, the Well, etc.) As telecos and other technology companies gradually built a high speed communications infrastructure –- first in major centers across the world and then expanding to wider areas of coverage -– applications gradually began appearing that could take advantage of increasing communications bandwidth. Images, audio, and video applications grew tremendously as broadband Internet access became available.

These days, can you imagine using services like, eBay, YouTube, Facebook, or Flickr at speeds of 14,400 baud? Can you imagine podcasting or videoblogging ever happening without some form of high speed Internet connection? Would digital photography have ever become as popular as it did if you had to wait 5 - 10 minutes to upload or download a single photo?
Fortunately for many of us, broadband Internet access is affordable, giving us access to these kinds of services. Likewise, many newer e-business models would not be feasible without affordable broadband Internet access.

Unfortunately, that high speed Internet is still not universally available across the world, nor do we have 100% coverage in developed countries like Canada and the US. Even New York City, one of the largest developed cities in the world, has less than 50% broadband Internet access in its homes, according the city's Broadband Advisory Committee report of July 30, 2008. According to a New York Times article on the report, "the use of broadband in New York lagged behind Boston, San Francisco and Atlanta, but was more common than in Miami, Chicago and Los Angeles. Broadband connections were also notably more expensive in New York than in Paris, Tokyo, Hong Kong and London."

A July 2008 Pew Research Center study on home broadband adoption in the United States provided some interesting insights. Although broadband Internet connections are continuing to increase across the US, broadband adoption is stalling amongst lower income Americans. Moreover, while 54% of Americans have broadband Internet access, that number isn't growing much - cost (and availability) is definitely a factor.

Average broadband Internet costs are decreasing slightly across North America, but not enough to make some users switch from dial-up Internet connections. Worse still, the Pew study reveals that dial up Internet costs are increasing, making an inferior service even less desirable. Considering the growing advantages, if not needs, for E-Mail, search engines, online databases like, financial services, and government information/services that are available via the Web, lack of affordable Internet access widens the divide between the "haves" and the "have nots."

Mashable's Steven Hodson recently wrote about US Internet access being marginalized through caps on broadband usage and potential tiered usage pricing. If these initiatives go through, they will have the same effect as rising oil prices. Many Web 2.0 services and e-commerce services are like the vacations, air travel, gas guzzling cars, and other luxury items of the "bricks and mortar" economy. As oil prices have risen, the global economy has responded through slowing economic growth. Lack of affordable access to services will constrain revenue and profit growth for companies both online and offline.

We are currently seeing the economic impact of rising oil prices. While there are multiple factors in play with oil prices, including finite oil supplies and environmental concerns, many would agree that current prices provide hardships to many people. Unless broadband capability increases over time, it may become a scarce resource subject to the laws of supply and demand. If demand comes to outstrip supply like we see with oil, broadband Internet access could become more expensive. Furthermore, the compounding effects of broadband cost increases from producer to consumer might lead to sluggish growth.

Despite the costs involved, the advantages of inexpensive broadband Internet access are potentially much greater. Suppliers should work to ensure that this increasingly important service, the oil of the online economy, increases its penetration into the global economy at affordable prices. Broadband Internet access is becoming an important driver of economic welfare, just like cheap oil.

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