//The economic benefits of digital inclusion

The economic benefits of digital inclusion

By |2019-12-17T08:46:42-07:00Dec 19, 2019|Technology|

Around the world, growth follows internet connectivity

It’s the last decade of the century. A new technology is changing the world. It’s starting in cities and spreading to the country, albeit slowly. Inventors are crafting new devices to take advantage of the “networks” that entrepreneurs are building and financiers are financing.

Most importantly, economic growth is booming.

The decade in question? There are two, actually: the 1890s and the 1990s. Electricity changed life forever in the 1890s, and the internet revolutionized it in the 1990s. Both technologies spurred historic economic booms. Gross domestic product in the U.S. soared both times as the new tools kick-started worker productivity.

And in both decades, there were winners and losers. Strangely, they were often the same places, and people. Electricity came slowly to rural America because running power lines from dams and generators cost money. Same with the internet. Getting high-speed internet into little houses on the prairie often meant digging miles of trenches.

With electricity, the U.S. government responded forcefully, passing the Rural Electrification Act of 1936, which made low-interest loans available for electrical infrastructure. That year, 10 percent of U.S. farms had electricity. By 1950, 80 percent had power.

Comparing labor productivity against the rise of electricity and internet access

The government has worked to foster broadband internet, too, with less success. The Federal Communications Commission (FCC) said in 2018 that there were 25 million people in the U.S., or 8 percent of the population, with no broadband connection. The agency defines broadband as internet service with a minimum download speed of 25 megabits per second (Netflix says it takes 5 Mbps to stream a high-definition movie from its service)

In a world where people make video calls, trade stocks, and map even the shortest car trips, being without internet can seem like living without electricity. And, unfortunately, the number of people without broadband internet may be much higher than FCC figures indicate.

Microsoft Corp., for one, says the real number is closer to 163 million. The software giant tracks usage of its products, and their data shows that many people aren’t using the internet at broadband speeds, even in places where the FCC says broadband is available.

Why the discrepancy? Microsoft says it’s because the question the FCC asks internet service providers (ISPs) is far too broad. The agency asks where they actually offer service, and where they could provide service without “an extraordinary commitment of resources.” Microsoft says that those two words, “could provide,” is the problem. Just because an ISP could do it doesn’t mean it will, and it may cost far more than companies claim.

Microsoft cites six studies showing that broadband access has a direct impact on employment and gross domestic product, or GDP, the economic output of the nation. A 2012 study by the World Bank showed that in developed countries like the U.S., every time broadband penetration rises 10%, GDP rises 1.19%. In developing nations, the increase in GDP is 1.35%.

If the U.S. seems underserved with broadband — by the FCC’s figures or Microsoft’s — the rest of the world is an internet desert. The vast majority of humankind — 4 billion out of nearly 8 billion people — don’t have broadband internet. Among the have-nots, students can’t use online resources to do their homework. Breadwinners can’t seek jobs online. Small farmers and manufacturers can’t reach markets beyond their local area.

Like Microsoft, Viasat believes that private companies must help erase the digital divide. Our commitment to connect the unconnected is one of the reasons Fortune magazine included us on their 2019 “Change the World” list. Our satellite signals reach the biggest cities and the most sparsely populated regions without the need to dig long ditches to connect customers.online deficit graph

Growth follows the internet

Satellite service can connect small communities to the world economy. For example La Cienega de Gonzalez — a small town deep in the mountains of northern Mexico — had minimal to no internet access until Viasat put in a satellite antenna and a wireless base station solution to bring satellite-powered internet services to the town. Now, a Viasat Community Wi-Fi connection fans out from the center of town. It’s fast enough for video teleconferencing and secure enough for online banking, and it costs less than $1 an hour. Viasat provides the service to small towns across Mexico and is now working to do the same in Brazil.

Chiapas student

A student in Chiapas, Mexico gets online with Viasat’s Community Wi-Fi service.

It’s proven that rural areas benefit from broadband internet, no matter how the connectivity is delivered. To see how the internet boosts economic growth, take a look at Dongfeng village in Jiangsu Province of China. Dongfeng was a pig-farming town until the 1980s, when it switched to plastic-waste recycling. According to a 2016 World Bank Digital Dividends report, an entrepreneur in the village saw opportunity in the newly arrived internet and opened an online shop to sell furniture. Others in town followed his lead, and by 2010, Donfeng had eight factories and 15 logistics and shipping firms.

Dongfeng is one of China’s “Taoboa Villages,” so named because merchants there sell mostly over Alibaba Group’s Taobao shopping platform. The number of Taobao villages totaled 3,202 in 2018, up from 20 in 2013, according to a report by McKinsey, the consulting firm. Without broadband internet, there would be no Taobao villages.

Another example of where connectivity drives economic activity is in Uganda, where an entrepreneur named Clarisse Irigabiza started SafeBoda. The service is similar to Uber or Lyft, except all the drivers are on motorcycles. Unlike other motorcycle taxis in Uganda, SafeBoda’s drivers are trained in road safety and first aid, and they all carry extra helmets.

The Global Innovation Fund, a nonprofit based in London, invested $230,000 in SafeBoda. Drivers who join the service have seen a 50 percent increase in pay, the fund says.

Better with broadband

Where it doesn’t create whole new businesses, broadband connectivity can lower costs and increase returns. In Vietnam, factories using e-commerce had higher productivity growth by 3.6 percentage points, according to the World Bank. And economic growth in the country has correlated with internet penetration. In Honduras, farmers using a text-messaging service to track market prices said they got 12.5 percent more for their crops, the World Bank said.

The best example of online efficiency might be Kenya’s digital payment system, M-Pesa. It lets people store money on an account through their phones and pay by text message. The cost of sending money fell 90 percent after it was introduced in 2007. (The system also lifted 194,000 Kenyan households out of poverty, according to an article in the journal Science, often because women “moved out of agriculture and into business” where they can make more money.)

An M-PESA outlet in Nairobi. Photo: Fiona Graham/Wiki Commons

In terms of efficiency, few industries have reaped online rewards like airlines. Because of online reservation systems like Expedia, Kayak and others, the load factor on airplanes — the number of passengers sitting in seats when a plane takes off — rose to 80 percent in 2007 from 62 percent in 1993, according to a 2014 paper by James Dana and Eugene Orlov in the American Economic Journal: Microeconomics.

And the in-flight passenger experience has greatly improved with new internet service providers bringing satellite-based in-flight connectivity to fleets of aircraft. As of June 2019, Viasat was delivering in-flight connectivity to more than 1,300 commercial airplanes around the world, letting passengers use their flying time to work, or play.

The service opens new markets and opportunities. For example in 2019, American Airlines started offering Apple Music free of charge to all American Airlines’ passengers on Viasat-equipped domestic flights, making both the Apple service and American flights more attractive to potential passengers.

Huge gains in things like load factor are what lead many economists to compare the internet to electricity in terms of productivity: the efficiency of a person, machine or factory. Data shows that U.S. labor productivity rose at a similar rate in the period from 1970 to 2012, when information technology proliferated, and from 1890 to 1940, when the U.S. was electrified (see graph below).

Gains in government

Internet access has improved the public sector, too. Governments that are online are running far ahead of those that aren’t when it comes to efficiency. For example, in 2014, Nigeria began distributing new national ID cards, each with a chip that enables online digital payments. The cards are backed with fingerprint ID technology to guarantee identity. One of the many benefits: Nigeria identified thousands of ghost workers — those drawing salaries under fake names — by making all public sector employees show up in person and present the IDs to collect their checks.

Estonia’s online efficiencies are even more impressive. When the country became independent from the former Soviet Union in 1991, less than half the country had telephone lines. Today, it is one of the most connected countries in the world. The government there runs more efficiently than most because of a computer system called X-Road that links all agencies together. One huge benefit: Estonians never have to enter their information twice, at, say, the department of motor vehicles and the Estonian Tax and Customs Board. Estonia estimates that it saves 1,400 years of working time a year because of X-Road.

e-Health

In many cases, the internet is literally a lifeline. Consider radiology. Radiologists, the doctors who read X-rays and CAT scans, are often scarce in rural hospitals because they don’t want to live in small towns where cases are less interesting, according to a 2018 study in the Journal of American College of Radiology. Enter “tele-radiology,” a system by which images are uploaded to the internet in small towns and read by doctors in big cities.

A company called Direct Radiology is using connectivity to improve its service in Montana. A lone radiologist there covers several small hospitals, driving from one to another, according to the company. Direct Radiology, based in Coeur d’Alene, Idaho, covers for the Montana doctor when he’s off work or on vacation. It does the same thing for hospitals in rural Virginia, where there is a similar shortage of radiologists.

A satellite-equipped ambulance in Scotland.

In Scotland, Viasat has partnered with the University of Aberdeen’s Centre for Rural Health  to connect ambulances via satellite internet. The program is aimed at improving outcomes for patients being transported in remote areas by connecting paramedics to doctors en route. The ability to transmit real-time video can be a lifesaving technology in the critical “golden hour” after an injury.

Online education

For American students taking the SAT, the first stop is often Khan Academy, the free, online academy that offers courses in everything from math to art history. Test takers flock there for good reason. Spending 20 hours doing SAT prep on Khan Academy produces, on average, a 115-point improvement in scores, Khan Academy says.

Khan offers lots of other courses, many of which have nothing to do with the SAT and are about learning. Khan courses are available in 40 languages, but they are only available to students who have access to the internet. That means most of the world’s learners can’t get to them. The same is true for online colleges, like the University of Phoenix, which started offering online courses over CompuServe, the first online service provider, in 1989. Now, about 30 percent of students in the U.S. take at least one course over the internet, according to a 2018 study in the Journal of Global Information Technology Management.

In much of the world, the promise of online education is being denied by poor or non-existent internet service. “Telecommunications infrastructure, with a focus on high-bandwidth connectivity, has to improve,” the authors of the study say.

Rio de Janeiro is leading the way in South America. Its Educopedia service offers lessons and other teaching materials for math, science, history, English and even physical education. It operates in all 700 schools in Rio and serves 680,000 students. Set up in 2008, Educopedia was a key part of Rio’s education reforms. Between 2009 and 2012, the city achieved a 22 percent increase in its score in Brazil’s Basic Education Development Index for middle schools.

Other parts of Brazil would like to emulate Rio’s success, but about half of Brazilians have no internet service, according to TechinBrazil, an online site that discloses internet penetration in the region. In rural areas, only one in four households are online, despite Brazil’s Programa Nacional de Banda Larga, a national effort to extend broadband service to all citizens at reasonable prices.

Viasat is part of the effort to improve those statistics. It provides the ground network for a satellite owned by Telebras, the country’s state-run telecom. As of September 2019, the two companies have connected thousands of remote schools and over 1 million students. It’s all part of the GESAC program (“Governo Eletrônico – Serviço de Atendimento ao Cidadão) — an initiative by the Brazilian government to bring broadband to schools, hospitals and other government-run facilities in the sprawling country.

Time to connect everyone

In-depth studies and anecdotal evidence show that the internet boosts GDP by creating huge new businesses like Amazon.com, and small ones like those in the Taobao villages of China, and by increasing efficiency at old ones, like airlines.

The challenge now is extending the benefits of connectivity to the whole world. For every Estonia, there is an Afghanistan, or Chad, where almost no one has broadband internet. These areas are starved in part because terrestrial internet providers (fiber, cable, etc.) are reluctant to spend billions of dollars burying fiber-optic cable in war-torn countries or those with small, dispersed populations.

Take Africa as an example. Ghana is a small, coastal nation with a dense population. An undersea fiber-optic cable that runs from London to South Africa has a branch running straight into Accra, Ghana’s capital. Internet there costs a few dollars per megabit (see map, below). In land-locked Chad, 3,000 miles away, it costs more than $3,000 per megabit.

In most places, it’s the “last mile” problem that bedevils internet providers: getting the signal from the base station or fiber node to a customer’s home costs the most, per mile. The whole country of Chad has what the World Bank calls a “last 1,000 miles” problem. Getting from the coast to the middle of Africa is difficult and costly for terrestrial services.

“For low density, dispersed populations or remote islands, satellite offers a quick and easy alternative,” the World Bank said in its 2016 Digital Dividends report.

Viasat plans to address both the “last mile” and the “last 1,000-mile” problems everywhere in the world after it launches the last of three powerful satellites that, together, are expected to reach almost every part of the world. The last mile barriers that terrestrial ISPs face can be overcome with satellite, since the signal can travel directly from space to a user terminal on the ground. With a clear view to satellites over the equator, service can be delivered with a relatively inexpensive antenna dish.

Entrepreneurs from non-traditional satellite worlds like Jeff Bezos and Elon Musk see the promise of satellite broadband to connect the world, and have recently made plans to enter the market with low earth orbit (LEO) satellite constellations.

While that is one strategy, there are other initiatives that are expected to serve more people with more cost-effective, economically-sustainable broadband. For example, Viasat CEO Mark Dankberg believes the best way to serve the consumer broadband market is to deliver bandwidth at a lower cost using large, powerful satellites that reach more of the globe from a higher geostationary orbit.

The next initiative in that direction is a big one: Viasat is building the ViaSat-3 constellation — three new satellites that each are expected to deliver more than 1 terabit per second — each approximately four times more than the company’s record-breaking ViaSat-2 satellite. Together, the three satellites are expected to cover nearly all parts of the globe.

Reducing the cost of bandwidth, Dankberg says, is essential for realizing the goal of a truly connected world.

“We aim to use our vertically integrated systems technology to be the most cost-effective manufacturer of bandwidth in space,” Dankberg said on a 2019 call with financial analysts. “We believe vertical integration, including direct relationships with end users, is a key element in generating the greatest potential value.”

Viasat designs and builds its own satellites and ground networking infrastructure, which includes the base stations that communicate with the satellites and the consumer premise equipment at subscribers’ homes. The integrated approach gives the company more control over cost, efficiencies, capacity allocation and other metrics.

Viasat has an ability to bring cost-effective broadband to communities globally; aiding in the ability for people everywhere and anywhere to drive local economies. The company started the effort with its satellites providing affordable connectivity in the forms of residential internet, business internet and Community Wi-Fi, to name a few.

It has been said that economies can grow when people can connect online—with a strong byproduct being a positive impact on peoples’ daily lives. Atop its existing fleet that primarily covers North America, the global ViaSat-3 constellation will expand internet access for many of the unconnected while also opening up new business opportunities in a variety of new markets. Viasat’s aviation and government customers in particular will benefit from having one global network for connectivity.

Viasat wants to enable it all, with internet service that reaches everywhere, no matter how remote, or how isolated.

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Alex Miller is the editor of the Viasat corporate blog. A veteran newspaper reporter and editor, Alex has been with Viasat since 2012, working out of the company's Denver office.