Economics of the Internet

Catherine A. Novelli
Under Secretary for Economic Growth, Energy, and the Environment 
Washington, DC
September 15, 2015

I. Introduction – The Economic Impact of the Internet

Good afternoon. This has been a tremendous forum and I’d like to thank everyone who has participated today, including all of the wonderful presenters and panelists, and of course Chief Economist, Rod Ludema and his staff for putting together this great event.

To say the Internet has profoundly altered modern life in a remarkably short amount of time feels like an understatement. So let me point to some statistics to illustrate this point – which I imagine much of this audience will appreciate.

The Boston Consulting Group recently asked American Internet users how important online access meant to them and according to the report: 73 percent of Americans would give up alcohol; 77 percent would give up chocolate; and 21 percent would give up sex, instead of going without the Internet for a year.

That’s pretty striking, I would say.

In the United States, the Internet is now a foundational tool for economic growth, as fundamental to our commerce as highways, power grids, and ports. We are home to eight of the world’s 14 largest technology companies in the world by revenue. The United States captures more than 30 percent of global Internet revenues and more than 40 percent of net income, according to McKinsey. By 2016, the Internet economy will represent approximately 6% of U.S. GDP.

Of all the ways the Internet has changed our economy, one of the most significant effects is how it has leveled the business playing field for small and medium sized businesses. According to a report by Connected Nation, more than four million U.S. firms have web sites and more than half of those businesses have less than five employees. Companies that have broadband-connections report annual median sales revenues approximately $300,000 higher than businesses without broadband access.

Today, we take for granted how broadband connectivity is an increasingly essential component of economic growth for small businesses in the United States. In a recent survey by the U.S. Small Business Administration, respondents generally agreed that high-speed Internet access is “as essential to my business as other services such as water, sewer or electricity.”

Clearly then, the Internet is hugely beneficial to our own economy and our interests, and its significance is only increasing.

But with 95 percent of world consumers located outside of our borders, we stand to benefit when even more countries in the world gain greater and faster access to the Internet. For U.S. companies, more consumers online translates into more customers and users. It also results in a larger global footprint for American online products and services. The rest of the world will also benefit, including people who live in developing countries, because the Internet can spark economic growth wherever it is adopted and can improve access to social services like health care and education.

But the Internet of tomorrow depends on government policies adopted today.

That is where we need your help.

Working together, we need to strengthen the economic case for Internet openness. By expanding broadband access, countries can expand economically; by adding openness, we can show how they intensify gains.

II. How Can Policy Boost Broadband Access?

To fulfill the Internet’s promise, we should redouble efforts to extend access to everyone. Today, roughly three out of every five people in the world remain without Internet access. In the poorest countries, five percent of the population – at most – has access to the Internet.

These developing countries lack the basic infrastructure or the political will – or both – to adopt the Internet. Less than two percent of Burma’s and Ethiopia’s population, for example, are online. Nearly three-quarters of the people around the world who are offline live in just 20 countries, such as India, Nigeria, and Indonesia.

For this group of countries, we must showcase how the Internet can be a powerful tool for economic growth. By doing so, we can light a fire under local politicians to treat Internet-access like any other type of critical infrastructure that is crucial to their country’s development. But, to make this case most effectively, we need more country-specific data and research that provides the empirical evidence to local policymakers.

Many recent studies are showing the detrimental macro-level effects of what happens when people are cut off from the worldwide information grid, and why we must prioritize broadband access within the international development agenda.

Now, we need to do what many of you do – measuring and parsing data, looking for useful patterns and information – to highlight why access is relatively high in Colombia but low in Venezuela; high in Rwanda but low in Ethiopia; and higher in Malaysia than in North Korea.

III. How Can Open Internet Policies Intensify Economic Gains?

Then, there’s another group of countries that have broadband access but are adopting restrictive Internet policies like forced localization of data and other restrictions on cross-border data flows. We have heard very loudly from our businesses that these restrictive policies harm their ability to operate efficiently. This makes it all the more critical that we gather empirical evidence that shows how these thinly-veiled industrial policies diminish foreign competition, stunt innovation, and hamper economic growth in these countries.

An economic-based argument for an open Internet can be particularly effective with countries that have the Internet, but have adopted restrictive policies through a variety of methods including firewalls or adopting proprietary standards. For these countries, clearly stating the case for the economic benefits of Internet openness with data, research, and analysis, is critical. It is the key to persuading them to change their practices.

IV. Closing

The Internet’s power lies in its universality. When we look at different models for connecting people to the Internet, there is not a one-size-fits-all approach for extending access within every country.

For example, we heard today how companies like Microsoft, Facebook, and Google are coming up with innovative ways to deliver the Internet to remote and urban regions without developed infrastructure. Simon Wilke’s presentation on TV White Spaces in Africa was outstanding. Google’s Project Loon, which provides the Internet through balloons floating in the stratosphere, is remarkable.

Coming from the technology sector, I understand that there is often a divide in knowledge between what Industry knows and what regulators understand. However, for the reasons outlined in the 2014 White House Report on “Big Data,” more and more regulators are now appreciating how big data technologies are transforming every sphere of life. Rather than diminishing opportunities, greater access to online data expands the potential for individual empowerment and social good. Moving forward, we need your help to further measure and assess how data can materially improve peoples’ lives in the developing world, and what policies are needed to ensure this happens.

This is a complicated evolving set of issues and questions. And I genuinely look forward to trying to address them with all of you.

Thank you.