Categories
ESG
Can investors help bridge the US digital divide
Matt Lanstone
Head of ESG Research and Investing
Emma Doner
ESG analyst
KEY TAKEAWAYS
  • Up to 79 million Americans, especially in low-income households, lack a broadband subscription.
  • Internet access is key to work, education, finances and health care.
  • Broadband providers can support equitable economic development - and earn a compelling return - by connecting unserved and underserved customers, especially in rural areas.

Access to high-speed internet is crucial to social and economic health


Fast and affordable internet service has become a critical component to working, studying, accessing health care and participating in the political process - both in the US and across the globe. In 2016, the United Nations went so far as to declare internet access to be a fundamental human right.1 Access to high-speed internet is crucial to social and economic health and is fundamental to achieving numerous UN Sustainable Development Goals (SDGs).


Capital Group’s proprietary Environmental, Social and Governance (ESG) investment framework for broadband providers recognizes the importance of this issue. Analysts systematically consider how company management teams approach society’s digital divide. While it’s been a longstanding issue, COVID-19 brought the digital divide into sharp focus. The acceleration of digitalization in all parts of daily life and the degree of inequity for those without reliable access to the internet pushed the digital divide higher on the agenda for policymakers. It also increased scrutiny of companies for any perceived failure to connect people.


Before the pandemic, the social and economic consequences of the rural broadband gap and digital divide had been conservatively estimated at $55 billion per year in the U.S. alone.2 The costs included lower workforce productivity, labor exclusion, lower educational attainment rates, higher health care costs, higher energy costs (reduced efficiency gains), less access to personal finance management and overall decreased economic resilience..


In the U.S., there is a financial opportunity for broadband providers to earn a compelling return, supported in part by new federal subsidies, by connecting unserved and underserved customers. To be successful, companies need to address a combination of accessibility, affordability and digital literacy. Getting this right could support equitable economic development, especially in rural areas, acting as a tailwind for essential industries like telehealth, education, agriculture, real estate and financial services. It could also provide direct economic advantages for companies that address the issue effectively, as there are likely to be indirect benefits through a lower risk of regulatory intervention.


How many people in the U.S. lack access to broadband?


Understanding who is or is not connected is nearly impossible. A simple snapshot of households connected to the internet relies on incomplete data and misses aspects such as affordability, customer willingness, literacy, digital literacy and access to a computer.


The Federal Communications Commission (FCC) conservatively estimates that 21 million Americans do not have access to broadband. An independent review suggests that number is actually double — closer to 42 million Americans.3 An even higher number of people report that they are not using broadband. In 2019, the American Consumer Survey reported approximately 79 million Americans do not use a fixed broadband subscription.4


The FCC is reforming its data collection process and is likely to disclose higher numbers of Americans without broadband access in 2022. If a significantly higher number is confirmed, it could prompt additional federal subsidies and/or additional private investment in network build-outs from improved economies of scale. A higher number is also likely to increase the scrutiny on what companies are doing about this issue.


 


1. UN Human Rights Council. “Oral Revisions of 30 June.” June 27, 2016.


2. Greg Goldman, Lee Huang. “FCC Reports Broadband Unavailable to 21.3 Million Americans, BroadbandNow Study Indicates 42 Million Do Not Have Access.” BroadbandNow Research, March 8, 2010.


3. John Busby, Julia Tanberk, et al. “FCC Reports Broadband Unavailable to 21.3 Million Americans, BroadbandNow Study Indicates 42 Million Do Not Have Access.” BroadbandNow Research. Updated May 11, 2021.


4. United States Census Bureau. “Types of Computers and Internet Subscriptions.” American Community Survey, 2019. Figure was calculated by assessing number of households (without an internet subscription, with a cellular data plan only, and dial-up only); adjusted for total people using data from average size of U.S. household in 2019.


 

Risk factors you should consider before investing:
  • This material is not intended to provide investment advice or be considered a personal recommendation.
  • The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
  • Past results are not a guide to future results.
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  • Depending on the strategy, risks may be associated with investing in fixed income, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.


Matt Lanstone is a global head of research and investing in ESG with 28 years of industry experience. He holds a first class bachelor’s degree in economics and accounting from the University of Bristol.

Emma Doner is an ESG senior manager with 8 years of industry experience. She holds an MBA in finance & sustainable development from ESLSCA in Paris and a bachelor’s degree in international business management from Missouri State University.


Past results are not a guarantee of future results. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.