Last week, at the annual U.S. Conference of Mayors meeting in San Francisco, Minority Leader Nancy Pelosi identified the two policy issues she most wanted the mayors in attendance to focus on: sequestration and spectrum. As Pelosi noted, issues surrounding sequestration will hopefully get sorted out relatively quickly, but adjusting our national broadband infrastructure to maximise innovation and economic growth is a far more difficult task.
In most markets in the country, consumers and businesses have access to only one or two wired Internet access providers. The situation isn’t much better in the fast-growing mobile Internet space, where the two dominant wireless companies, AT&T and Verizon, control nearly 75% of the low-band spectrum in the country—the type of spectrum most valuable for mobile Internet use. Given this concentration of key resources in the hands of a few companies, it is no surprise that the U.S. recently ranked 26th out of 29 countries in terms of wireless broadband speed.
As Leader Pelosi noted, in a country where “only 37 percent of our nation’s schools [have] enough broadband for digital learning,” increasing broadband access and affordability would help grow the economy by training a generation of entrepreneurs with the technical skills needed to thrive in the digital world. But, improving wireless broadband speed, price, and coverage through greater competition would grow the economy in myriad other ways, perhaps most profoundly through its impact on the startup sector.
We at Engine are fond of reminding policymakers that startups are responsible for virtually all new net job growth in America, and in light of this reality, policies that help increase startup activity are policies that create jobs. Simply put, actions that increase competition in broadband markets—like expanding the spectrum reserve in the upcoming low-band spectrum incentive auction—will go a long way towards spurring startup activity and the economy more generally. That’s because better competition in mobile broadband helps startups in a number of key ways:
1) A bigger customer base. At any pitch meeting, one of the first questions an entrepreneur will get from potential investors is about the size of the company’s addressable market. That is, how many consumers will your business reach? The bigger the market, the higher the company’s potential value. Citizens that are either not online at all or do not have access to broadband of adequate speed or capacity are citizens not participating in the startup economy.
According to the FCC’s Seventeenth Mobile Wireless Report, in 2014, 0.3 percent of the U.S. population “lived in census blocks that received no mobile wireless broadband coverage.” That may seem like a small percentage of the population, but it amounts to approximately one million people without any mobile wireless access. Amongst people with access to some mobile broadband coverage, a huge percentage of the population is dramatically underserved. A recent Pew study found that seven percent of the public—or more than 22 million people—have no home broadband service and have a limited number of ways to get access beyond their cell phone. Considering how poorly U.S. mobile broadband fares in terms of speed, data availability, and affordability, many if not all of these citizens likely cannot use any of the amazing technologies and services that startups provide. Giving these folks access to better, cheaper mobile broadband will greatly expand startups’ addressable market and consequently boost startup activity. And, increasing competition amongst mobile broadband providers is really the only feasible method of improving broadband penetration.
2) Lower costs for startups. The archetypal image of the startup as one or two scrappy inventors in a garage isn’t all that far from the truth for most companies. While there are a few outliers that find substantial funding early in their life cycles, most startups have to get by with minimal funding as they develop their core business. Failing to raise adequate seed funding to launch an enterprise is one of the most common pitfalls for entrepreneurs. Since every dollar counts, lowering the amount of money it takes for entrepreneurs to start businesses directly results in more startup activity. And, according to a report from the Internet Innovation Alliance, access to quality broadband can save startups an average of more than $16,000 annually—a significant number for startups trying to get off the ground. Making mobile broadband more efficient and affordable will further help drive down costs for startups and in turn improve competition in the startup sector.
3) New technologies. It’s impossible to predict precisely how the innovators that drive our startup sector will harness the power of faster broadband technologies like gigabit WiFi, but it’s a guarantee that they will find ways to generate entirely new companies and services that take advantage of whatever broadband resources are available to them. This innovation represents the real economic growth potential from increased mobile broadband competition. Just look at the value of startup products and services riding on unlicensed spectrum technologies like Bluetooth and WiFi, which are estimated to add $222 billion to the U.S. economy each year. If startups had access to ubiquitous, ultra-high speed mobile broadband, the value of the technologies and services they could create would be staggering.
The importance to the startup economy of advanced broadband infrastructure is hard to overstate, and yet opportunities to promote the type of competition necessary to spur faster and cheaper networks are in short supply. The upcoming FCC low-band spectrum incentive auction represents one such opportunity. Failure to take adequate steps to promote competition through auction safeguards will put at risk the untapped economic potential of future generations of startups and the millions of jobs they could create.