The Economic Case for 4G

The problem with working in any industry is that it inevitably leads to a kind of tunnel vision. This is especially true of working in the world of technology, where advances are often seen in a purely linear fashion – each technological change being related solely to the existing model or empty niche being improved upon or filled. While there is nothing wrong with seeing technological change in this way, it can come at the cost of failing to see the big-picture implications. The most recent example of this is Ofcom’s much delayed 4G spectrum auction in the UK, which has been getting press coverage lately following the news that the UK Chancellor has already included the projected revenue from that auction in this year’s budget (for more information on this see our previous post on LTE network speeds).This is interesting because it allows us to look at the arrival of 4G from an economic perspective as opposed to a simply technological one.

From a technological (and user-end) perspective, the advantages of 4G should be manifest. It allows for phones operating at broadband speed, meaning that whether one is watching television or downloading documents for work, everything will happen over ten times faster than it currently does. With the number of mobile devices used to access the internet projected to outnumber computers within a few years, the improvements that 4G will bring are obvious. This is especially true in developing countries, where the relatively low fixed-capital costs of establishing a 4G network will mean that the social and economic benefits of broadband penetration could be achieved before the laying of fibreoptic cables. Increasing the number of mobile phones and data use in developing countries has been shown by Waverman (2005) to increase GDP by up to 1.2% and the USA Federal Communications Commission recently wrote a blog post discussing the importance of increasing mobile phone use by women in developing countries as a crucial tool for achieving social equality.

Despite all this, the discussions about the 4G auction in the UK have largely avoided the subject of the economic reasoning, choosing instead to focus on the more tangible improvements that it will make to the existing 3G network. While the economic benefits of widespread internet access in developing countries are obvious, the benefit to the UK (or any other more economically developed country) is more difficult to grasp owing to widespread high speed wireless networks and the existing internet capabilities of 3G. The idea of being able to use your phone with the same internet fluency as a PC is one that, while appealing, hardly seems like a top priority. It is for this reason that I propose an alternative lens through which to view the arrival of 4G, and it is one that is rooted not in technology but in macroeconomics.

Arguments over the best way to deal with a contracting economy and large spending deficit have focussed on whether cuts to deal with the deficit or Government spending to stimulate the economy are more important. The roll-out of 4G gives an unparalleled opportunity for the UK government to do both simultaneously. Networks are expected to pay around £3.5bn for 4G licences (which Osborne has earmarked for deficit reduction) following which they will be making an infrastructure investment of around £5.5bn (0.5% of GDP) over the next four years. To put this into perspective, the British Chambers of Commerce calculates that building a third runway at Heathrow would add around £1bn a year to the UK economy. In comparison, 4G would add around £1.3bn a year over the four-year upgrade program in infrastructure investment alone, with none of the negative environmental externalities. Furthermore, a more advanced telecommunications network would have the advantage of reducing demand on the oversubscribed UK transport system, as (for example) video conferencing would be easier to set up without the necessity of being within Wi-Fi range. These benefits would sit alongside the long term productivity and GDP boost that is brought about by improved broadband penetration. In short, allowing 4G to go ahead provides a £5.5bn government-sanctioned economic stimulus that also reduces the deficit and brings the United Kingdom up to speed with its international competitors, most of whom have already implemented this technology. The question must be asked: Why hasn’t this happened already?

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