Affordable High-Speed Internet is Spurring Economic Growth and Boosting Small Businesses

Heather Boushey, Chief Economist, Investing in America Cabinet

Access to affordable, reliable, high-speed internet is a cornerstone of the American economy and essential for economic growth. This is also a bipartisan view—Congress has found that “[a]ccess to affordable, reliable, high-speed broadband is essential to full participation in modern life in the United States.” However, nearly a quarter of American households continue to lack access to high-speed internet at home due to high costs, and in certain communities, a lack of necessary infrastructure. In particular, communities of color, Native communities, rural communities, and low-income households are disproportionately disconnected. That’s why, as part of his Internet for All initiative, President Biden committed to connecting every household in America by 2030, deploying over $80 billion in federal funding to expand access to affordable, reliable, high-speed internet across the country.

Core to the success of the President’s plan is the Affordable Connectivity Program (ACP), which provides qualifying households with up to $30 per month (or $75 per month for households on qualifying Tribal Lands) off their internet bill. The ACP is the largest and most successful internet affordability program in our nation’s history, with over 23 million households enrolled—one in every six households. Because the Administration worked with internet providers to offer high-speed internet plans that are fully covered by the Affordable Connectivity Program, most of these 23 million households have received high-speed internet for free.

Without further funding from Congress, the Affordable Connectivity Program will expire today. This expiration would increase the price of internet for the more than 23 million households enrolled in the program with significant economic implications. That 23 million includes nearly 11.5 million military families, 4 million seniors, 5.75 million African American households, 5.75 million Latino households, and 320,000 households on Tribal lands. Many families would lose internet all together—a recent FCC survey found that more than three-quarters of respondents would have their service disrupted by losing their ACP benefit. Depriving these families of this funding would leave them without money to spend on other necessities like groceries, education, or healthcare. In some states like Kentucky, Ohio, and Nevada, one in four households are enrolled.

That’s why, since last October, President Biden has called on Congress to extend this benefit through 2024. Democratic Members and Senators have joined him in this effort. But Republican leaders in Congress have failed to act. President Biden is once again calling on Republicans in Congress to join their Democratic colleagues in support of extending funding for the Affordable Connectivity Program, so tens of millions of Americans can continue to access this essential benefit.

This blog describes the economic benefits of access to affordable high-speed internet and the consequences of letting the ACP expire, with a particular focus on the role of internet access in supporting small business creation and economic growth.

The significance of access to high-speed internet in the U.S. economy

The COVID-19 pandemic brought into sharp focus the importance of affordable, reliable, high-speed internet for American businesses and families in the 21^st century economy. Even pre-pandemic, an extensive literature pointed to the significance of access to affordable, reliable, high-speed internet for an array of economic outcomes, including small business formation and economic growth. Small businesses, in particular, are a crucial part of local economies and communities—they are responsible for more than 40% of America’s economic output and two-thirds of net new jobs.

Access to internet is now a must-have for creating and running businesses in the U.S. economy. Businesses engage with customers, suppliers, and services (such as banking and accounting) online; online sales account for 15.9 percent of total retail sales, nearly nine percent more than a year ago; and most job seekers now look for jobs online. Several recent papers have found causal links between expansions of broadband (high-speed internet) access and the creation of new businesses, as well as the growth of existing businesses, in urban and near-urban areas. The literature indicates that rural broadband expansion also likely affects business growth and formation, particularly in knowledge-intensive industries.

These results may stem from increased access to new ideas, supply chains, and customers. Additionally, some researchers have described the effects of the internet as allowing businesses in smaller cities or more rural areas to “borrow size”—to take advantage of the benefits of larger cities without the costs associated with physically locating in those cities.

The economic benefits of access to high-speed internet extend beyond small business formation to health and education. Researchers have found that virtual visits with trained medical professionals can improve patient outcomes at a lower cost and lower risk of infection than traditional care provided in-person. Unfortunately, a survey of community-based health centers found that, among those not using telehealth, lack of access to broadband was a barrier to adoption, especially for those living in rural areas. In education, survey data show that students in rural school districts with high-speed internet at home had higher grades and standardized test scores than their peers without access, with ensuing economic effects.

These effects and others mean that affordable high-speed internet supports a stronger and more resilient economy. One study comparing countries that belonged to the Organization for Economic Cooperation and Development between 1996 and 2007 found that a 10-percentage-point increase in broadband penetration was associated with a 0.9 to 1.5 percentage point increase in per capita economic growth. Another study focused on the United States estimated that counties gaining broadband access in the early 2000s experienced a 1.8 percentage point  increase in employment rates. More generally, a number of studies support benefits of broadband internet for employment, labor productivity, and economic resilience.

Expanding access to reliable, high-speed internet

Despite the importance of affordable, reliable, high-speed internet for economic equity and growth, in 2022, only 75.9 percent of U.S households had wired high-speed internet service at home according to the American Community Survey with adoption varying by income, race, and the density of their community (Figure 1).

This variation means that expanded access to and adoption of broadband is important for reducing economic disparities. Additionally, it points to two separate challenges for broadband adoption. First, some households—particularly those in rural communities—do not have access to broadband internet because it is not offered in their community. According to the latest data by the Federal Communications Commission, 7.2 million physical locations—either homes or small businesses—are unable to access broadband internet due to a lack of the necessary infrastructure. A second challenge is that some households are unable to afford it; in the beginning of 2021, 15 percent of home broadband users reported having trouble paying for high-speed internet service, including 34 percent of users in households with less than $30,000 in income.

Through its Investing in America agenda, the Biden-Harris administration is making targeted investments in addressing both of those challenges and thereby gaining the benefits of widespread high-speed internet adoption for business formation, employment, health, education, and economic growth. The Broadband Equity Access and Deployment program, created by the Bipartisan Infrastructure Law, invests over $40 billion in building out high-speed internet infrastructure in every U.S. state and territory. In addition, $2.75 billion is included for the Digital Equity Act, which provides grants for communities to take advantage of high-speed internet connections. At the same time, the Affordable Connectivity Program reduces the price of internet for eligible households.

Over time, these investments will connect every American with affordable, reliable, high-speed internet. But connectivity is not enough, it’s essential that Americans can afford the service. The Biden Harris-Administration is asking Congress to extend funding the Affordable Connectivity Program, so that millions of households do not lose the connections that enable them to run their own business, access telehealth, and participate in remote and virtual education.

Conclusion

Without action from Republican leaders, funding for the ACP will soon lapse. This means that families will see their internet bills increase by $30 or more, and communities across the country will lose out on the economic benefits of connectivity. When accounting for lost economic opportunities, education, and telehealth services, one study found that vulnerable communities are projected to lose over $20 billion annually in economic benefits. Furthermore, the first two years of the Biden-Harris Administration were the two highest years of applications to start businesses on record—the third year is on track to surpass both. The loss of ACP subsidies could threaten to slow this pace because many of these businesses rely on access to high-speed internet to succeed.

The economic benefits of programs that expand access to high-speed internet, like the Affordable Connectivity Program, are well-established. Continued funding for the Affordable Connectivity Program would not only benefit the 23 million households that are able to afford high-speed internet through the program, but also all Americans who benefit from thriving small businesses and strong, stable, equitable economic growth.