Thoughts On Broadband, the Internet, Business Incubation and Jobs

Don Samuelson and John Lewis
Published: April 12, 2011

Thoughts On Broadband, the Internet, Business Incubation and Jobs

Don S. Samuelson, DSSA Strategies
John L. Lewis, Northern Illinois University

 April 2011

Part of President Obama’s campaign platform was a “stimulus program” designed to create jobs as quickly as possible through the funding of “shovel ready” projects. There were WPA-like objectives in the rhetoric, which would put Americans to work repairing roads, bridges, airports and infrastructure.  Unemployment was at record highs bolstering the demand for jobs and often expressed through the campaign rhetoric of “Jobs, Jobs and Jobs.” Another public policy objective also garnered a great deal of attention:  an assumption that broadband availability in rural areas was important to the regions future economic development.  In fact, the correlation between broadband availability and economic development is very similar to the 1936 Rural Electrification Act (REA) which underscored the importance of, and secured funding for, an infrastructure supporting electricity.  Much of the campaign rhetoric about the need for public support of broadband deployment was similar to the arguments used for the REA.

In most of the broadband evaluation metrics, the United States ranked 16^th in the world and was quickly losing ground to Japan, South Korea and the Scandinavian countries.  U.S. broadband was slower, more expensive and less often used.  The initial “digital divide” in the United States was based on income, education and demographic factors.  The new “digital divide” was between the United States and what were perceived to be more progressive countries.  There were many demographic groups and geographical areas that had little or no broadband service. There were many other situations where the Internet option was merely one cable company and/or one phone company.  Our telecom marketplaces were not perceived to be sufficiently competitive and many felt we needed a national broadband plan and new regulatory structures to increase economic development and to remain globally competitive.

In the midst of these long standing discussions regarding global competitiveness and broadband infrastructure, the President’s stimulus package allocated $4.7 billion to the Department of Commerce and another $2.7 billion to the Department of Agriculture ($7.4 billion in totality).  Monies were to be distributed in two rounds of grants and offer loans to develop and operate Comprehensive Community Networks (“CCI”), Public Computing Centers (“PCC) and Sustainable Broadband Adoption (“SBA”) strategies.   Initial awards were made September 30, 2010 with a second round of awards being distributed during the third quarter of 2011.

How Many Jobs Were Projected to be Created Out of the BTOP Proposals?

The number of jobs created by BTOP Department of Commerce programs occurred in several stages.  The first two steps in creating a CCI network were to complete an environmental assessment and to prepare contract drawings and specifications.  The relatively few jobs associated with this work will include engineers, consultants and lawyers, not construction labor.  It is only when construction starts, trenching and laying cable, that labor hiring will occur.  This work will require a limited number of crews and proceed along the work path, not unlike job processes in highway construction.  Although these particular construction jobs are of limited duration, when the networks have been constructed, permanent jobs will be needed in marketing, sales, accounting, customer services and network operations.

The above job categories are the direct jobs associated with the construction and operation of networks.  There are also indirect jobs associated with the increased production of cable, equipment, switches and all of the materials associated with the construction and operation of the networks.  The number of direct and indirect jobs created through the construction of CCIs could easily be determined by calculating the number, timing, wage rates and duration of all CCI associated projects.  Using a conservative economic impact model, IMPlan Pro, it is estimated that only 35 jobs per each $10 million in construction expenditures will occur for the new capacity.  An additional 30 indirect jobs will be created per each $10 million in expenditures.  Many of the indirect jobs will be in various retail and food and beverage establishments as well as in professional and scientific services.  Within the CCI institutions increased employment is less likely but the improved infrastructure will increase the efficiency of the organizations and provide the opportunity for reduced operational cost.

The “direct” PCC jobs relate to the installation of computers and local area networks in libraries, community colleges and anchor institutions throughout the country.  Limited duration jobs will include computer deliver, installation and set-up. The work then converts to education and training in online, small group, lab and one-on-one sessions.  It is not clear at this time whether the PCCs grant program funds educators and trainers. Many of the jobs needed to provide instruction to PCCs in the various vertical markets to be served by the PCCs may already exist in education and workforce development agencies.  Because of this, there may not be many “net” new jobs associated with PCC grants but there are clearly indirect jobs involved in generating new computers for PCCs and in the other furniture and equipment needed to equip a PCC.  It would be useful to aggregate these direct and indirect jobs to see what the applicants proposed.

The SBA programs are primarily related to education and training.  Ancillary jobs will relate to the construction of building networks, computer learning centers and the development of training materials for the various vertical markets that make up a local economy.  It would be illuminating to determine the number of education and training jobs generated during the life of the grants, and then the training infrastructure to extend the learning experiences generated in the adoption programs to all of the individuals who might have adoption interests and needs like those in the target communities.  For example, it will only take 23 trainers to provide Internet education and training to the 3,000 residents in the 23 buildings during the two years of the MyWay Village SBA demonstration in Illinois. Availability of Broadband will impact a number of different audiences.  There are 100,000 senior and disabled residents in the neighborhoods surrounding the demonstration buildings, and more than 1,500,000 seniors and the disabled in Illinois.  New industries will be born out of the education and training needs of the SBA projects around the country, for the specific vertical markets that have been identified in the proposals, and for the vertical markets that have not been targeted in the Round 1 and 2 BTOP proposals: the needs of veterans, non-profits, farmers, small and neighborhood businesses, health care clinics, etc.

What Can be Done in BTOP Markets To Create Jobs?

Creating publicly-financed short term jobs – like Census takers and the construction of fiber networks – have short term and limited value.  This is not to say they are not important, particularly during 2010 and 2011.  However, there is general agreement that it would be preferable to develop private sector jobs in businesses with the capacity to compete successfully in the international marketplace for the indefinite future.  As such, the immediately recognized jobs may be limited but the long term projection of jobs increases resulting from improved access and global competitiveness 

There appear to be a finite number of economic and local job development strategies.  One is to recruit businesses into a local economy.  This normally requires incentive packages and these have generated mixed results over the past 30 – 40 years.  A second is to make investments to retain existing businesses, subsidizing the costs of doing business in one way or another.   A third is to grow the local small business community, through the work of small business development centers using Small Business Administration (SBA) programs and making it easy and inexpensive for local business owners to connect with local service providers.  An individual owner may be content with managing a $1 million company; however, there is a public interest in helping the owner to “grow” the business into a $10 million company.  A fourth way is to create a culture of successful “start-ups” including the strategic use of business incubation training programs and business incubators.   In the early 80s, the SBA embarked on a national series of “business incubator” conferences around the country.  Over the years, this initiative has matured into the National Business Incubator Association (“NBIA”), an international organization with over 1,900 members in 60 countries.  These incubators represent wide experiences from university technology transfer, to venture capital based for-profit efforts, to business education/training and small business growth in distressed neighborhoods.  This is important because 64 percent of net new jobs over the past 15 years have been generated by small business[1]

Because BTOP awards have been directed to “unserved” and “underserved” markets, it is not likely that promising “jobs” strategies in these areas would relate to the recruitment or retention of large businesses.  To maximize the probability and speed of success, the emphasis should be on attracting small and medium size businesses, helping local small businesses to grow and providing “incubation” services.  The businesses or prospective entrepreneurs are often already in the local economy.  The strategy is to help them grow, serve more markets, generate more revenue and, in the process, to create more jobs.  Recent research from North Carolina indicates that 28% of new jobs created by companies with less than 20 employees were related to the Internet[2].  The Internet was also responsible for 18% of the company’s revenue[3].

There are immense opportunities for local business growth and jobs through the education and training of the small business community in the practical benefits to be derived from Internet marketing, interactive websites, and the gradual integration of Internet strategies in supply chain management and in the integration of customer leads, marketing sales and customer services.   The objective is to start with the local small business community and to help them become more effective competitors in the 21^st Century marketplace through broadband and the Internet.

How Does An Area Identify Its Future Internet-Enabled Businesses?

While it is true that the effective use of broadband and the Internet by mid/small neighborhood and home-based businesses could strengthen local economies, these new resources need to be understood, embraced and used by these local businesses.  The affected communities have to be convinced that the “investment” of time, money and frustration in learning new ways to operate their businesses using the Internet will result in “returns” such as increased efficiency, revenues and profits relative to the investment.   It is only when the broadband and the Internet are used by local businesses in cost effective ways that economic development objectives are achieved.

Several years ago one of the authors, Don Samuelson, conducted a study to determine the “Internet readiness” of the business community in a mature Chicago suburb.  Here is what he found:

In this particular situation there were 1,990 businesses out of 2,000 that could improve the use of the Internet in their business operations.  Because 25% (500) of the businesses had no e-mail address or Internet connection, it is probable that this number would have been substantially reduced with increased Internet capabilities.  The real opportunity – then as well as now – is to get businesses to integrate Internet strategies into their basic business operations. 

Virtually all cities have a Chamber of Commerce and economic development organizations that can assist in the ability to track local advertising in the white and yellow pages as well as in the traditional newspaper, radio and TV.  Increasingly, local advertising is moving to paid search engines (such as Google) and online placements in community portals.

Broadband development is a large and fast evolving field. The purpose of this essay is not to define the scope or major functions of Broadband but rather, to suggest the value of determining the extent of Internet and broadband adoption by the members of the local business community. Important information to be gleaned consists of, but is not limited to, evaluating how members use the Internet.  Are they online? Do they have a website?  If so, is the site static or interactive?  How central are the website and Internet marketing to business operations? 

The Need to Develop an Internet Education Program for Small Businesses

To our knowledge there was a BTOP SBA grant to promote the education and training of small businesses in the use of the Internet.  While one does normally not think of businesses as small or worthy of subsidy (until our recent subsidies of the financial and automotive sectors), in fact, the economic health of many distressed communities relates directly to the health of their small and neighborhood businesses.  As in other SBA interventions, the starting point would be an assessment of current Internet use, followed by the promotion of practical business value resulting from broadband and the Internet, education and training interventions, and then evaluating the results.  The whole process would begin with literature consisting of the identification of benefits, the nature and responses to adoption barriers, case studies to illustrate value, and an analysis of the most effective ways to motivate, educate and train the small and start-up business communities.  The gathering of relevant information and the effective packaging of the instructional programs should be relatively easy.  There should already be online and classroom setting instructional courses on these topics.  Like all adoption efforts, success or failure is a function of the relevance of the materials, its practical value to the target audiences and the effectiveness of the instruction.

1. The Problems to be Solved.  The small business will want to know the nature and cost of the “investment” (in time and money) and the nature and amount of the “return” they are going to receive for their investment.  It is not particularly helpful to simply show small business technology solutions without explaining the business problem they were designed to solve?  How did things work in the “old days”?  What business problems or costs did those situations present?  Was there an analysis of the current site in the form of an Internet Diagnostic Analysis (IDA) or Webscan?  Was there an Internet Business Analysis conducted?  What were the results of those analytics?           
2. The Alternatives Considered.  The next part of the case study would be a discussion of the various solutions that were considered as well as the phases and costs of the solutions.  What approach was selected?  Why? 
3. The Solution.  What were the elements of Internet features and functionalities that were designed to meet the client’s need? Why were the design and functionality decisions made?  Too often websites and Internet marketing strategies are just presented as examples from a portfolio of work, much like pictures of a model or housing designs by an architect.  The question should be: “does it work” which in turn, requires an articulation of its purposes and its effectiveness in achieving the desired results.  What “calls to action” or “conversions” were provided by the site?   What values would they have to the client?  The Internet Consultant should be able to describe the objectives to be achieved by whatever Internet solution was provided to the client.
4.  The Results.  How did the site work?  Did it achieve its objectives?   In addition to the answers to the questions related to purposes and objectives, it would be important to know the “economics” of the Internet Solution.  What services were provided? What did they cost?  What economic values were realized over what periods of time?  What was the client’s Return on Investment (ROI)?  The specifics of this type of information should be discussed with prospective clients privately.  These private consultations are imperative to protect client confidentiality factors.           

In addition to understanding how small business can benefit from new broadband capacity and what education and training is necessary, there is also the opportunity to reduce the operating cost of small business with increased use of cloud computing.  The hosting of clouds can, in and of itself, be a new business opportunity.

Summary

The investment of the Federal Government in the expansion of broadband capacity to underserved areas and populations will have a limited economic impact on job creation for a limited period of time.  The real impact depends on the ability to use the increased broadband connectivity to generate economic development.  A “field of dreams” approach is not sufficient.  A concerted effort needs to take place now to identify the benefits of bandwidth to small and medium size businesses and to develop an economic development strategy that will result in attraction of and growth of small and medium size businesses in areas that will be served by the increased telecommunications capacity.

Finally, the expansion of broadband is one of a number of investments in technology that the federal government made with American Recovery and Reinvestment Act (ARRA) money.  There was also a major investment in healthcare information technology infrastructure.  An alignment of these efforts would increase the returns to the combined investments.  Organizations that have received NTIA grants need to reach out to organizations that have received health IT grants from the Department of Health and Human Service, Office of the National Coordinator of Health Information Technology as well as the Federal Communication Commission and develop collaborations to maximize the impact of all of the information technology investments.

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This paper is third party research and does not necessarily represent the views or receive the endorsement of The Partnership for a Connected Illinois. It is presented for consideration as a public service to the broadband community.