Don’t Disconnect The Country’s Economic Lifeline
Theories on how to fix the economy are everywhere. One of the latest comes from the United Nations – and involves telephones.
In this case, the UN is onto something. Released earlier this year, the UN study projects that regulators will have to update their approaches in light of the generational shift from fixed telephones networks to mobile connections if they hope to deliver economic growth.
The UN’s data are new, but the potential for mobile phones to drive economic growth is not. And yet, here in America, some are advocating regulations that would diminish access to mobile phones in the low-income communities that would benefit most from the growth dividend they bring.
Until the mid-to-late 1990s, the vast majority of Americans relied on landlines whose plans were few and whose costs were relatively fixed. As mobile devices became ubiquitous, so too did wireless competition, which made the new technology available to more consumers at lower cost.
That has led to substantial economic growth. A recent study from researchers at the London Business School, John Cabot University and the University of Toronto helps explain why and how much.
Developing countries provide a perfect sample for measuring the impact of mobile phones on economic growth, as their landline networks are generally far less extensive than those in the developed world.
The researchers found that a developing country that had an average of ten more mobile phones per 100 population between 1996 and 2003 would have enjoyed per capita GDP growth 0.59 percent higher than an otherwise identical country.
Consider the case of Morocco. In 1995, the North African country had just four landlines per 100 people and zero mobile phones. Fast forward to 2003, and while the landline rate remained the same, the mobile penetration rate jumped to 24 per 100 people three times the average developing nation’s rate. If that penetration rate gap were sustained over time, Morocco would enjoy a dramatic 0.95 percent higher per capita growth rate.
The effect of mobile phones is similar in developed nations.
Take Sweden and Canada. The Nordic country posted the highest mobile penetration rate in the world between 1996 and 2003, at 64 per 100. Canada’s rate languished at 26 per 100. Average per capita GDP growth in Canada would have been one percent higher if mobile phone penetration rates in the Great White North had mirrored those in Sweden.
The implications are clear that mobile telephony aids economic growth, particularly at the bottom of the economic ladder.
Federal officials should pay heed.
The Federal Communications Commission is considering a proposal that aims to rein in the Universal Service Fund (USF), which helps ensure that all Americans have access to affordable phone service, including mobile phone service.
At present, less than 16 percent of the USF goes toward a program called Lifeline, which provides up to $10 per month to subsidize phone service for the poor whether on a fixed line or a mobile device. For more than 25 years, the program has been underutilized and has lived in relative obscurity. But with the inclusion of a pre-paid wireless option in the Lifeline program, significantly more lowincome folks have been able to benefit from it. Of the 8.5 million people currently on Lifeline, it is estimated that more than six million have subscribed to wireless Lifeline services. Without it, they likely wouldn’t be connected.
Curbing Lifeline by cutting funding for the USF would limit access to mobile phones and therefore curtail the economic growth they generate. Investments in Lifeline can pay for themselves many times over in the form of higher levels of economic growth.
By the same token, reducing spending on Lifeline and thus depriving the poor of mobile phone service could diminish economic activity by an amount much larger than any putative savings.
Now is not the time to hamstring the American economy. By bolstering Lifeline, regulators can make a solid investment in our country’s long-term economic growth.
F.J. Pollak is president, CEO and cofounder of TracFone Wireless.