Evaluating the impact of next generation broadband on local business creation

Abstract: Basic broadband connectivity is regarded as generally having a positive macroeconomic effect. However, over the past decade there has been an emerging school of thought suggesting the impacts of upgrading to higher speed broadband have been overstated, potentially leading to the inefficient allocation of taxpayer-funded subsidies. In this analysis we model the impacts of Next Generation Access on new business creation using high-resolution panel data. After controlling for a range of factors, the results provide evidence of a small but significant negative impact of high-speed broadband on new business creation over the study period which we suggest could be due to two factors. Firstly, moving from basic to high-speed broadband provides few benefits to enable new businesses being formed. Secondly, strong price competition and market consolidation from online service providers (e.g. Amazon etc.) may be deterring new business start-ups. This analysis provides another piece of evidence to suggest that the economic impact of broadband is more nuanced than the debate has traditionally suggested. Our conjecture is that future policy decisions need to be more realistic about the potential economic impacts of broadband, including those effects that could be negative on the stock of local businesses and therefore the local tax base.