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EMPLOYMENTIMPACTOFINVESTMENTINTHEFIBER-TO-THE-

PREMISENETWORK

$5.9billionInvestmentCreatesNearly72,000jobs

ByHELENEJORGENSEN,Ph.D.

June27,2012

Fiber-to-the-Premise(FTTP)isanall-fiberoptictelecommunicationsnetworkthatallows

telecommunicationcompaniestodeliverhigh-speed,multimediaservicesdirectlytothe

consumer-premise. The largest U.S. providerof FTTP isVerizon Communications Inc.

withitsFiOSnetwork.

Thisanalysisestimates the employment impactofanexpansionofthe FTTPnetwork

infrastructure developed by Verizon. Under current franchise agreements, the FTTPnetworkisexpectedtopass18millionpremisesby2018,accountingfor70percentof

premises within the Verizon wireline footprint.1 Further expansion of the FTTP

infrastructure will have a positive employment impact due to capital investment in

constructionandinstallation.

TheanalysisprojectsthetotalemploymentimpactofanexpansionoftheFTTPnetwork

to95percentofVerizonswirelinefootprinttobe71,710job-years.Theemployment

projections include direct employment impact from capital expenditures in primary

industries,aswellasindirectandinducedimpacts.

AnalysisTheanalysisestimatesthe job impact froman increasein capitalexpendituresabove

the baseline of no expansion of the Verizons FTTP network infrastructure beyond

existingfranchiseagreements.TheanalysislooksattheexpansionoftheFTTPnetwork

from its current franchise obligations to 90 percent, 95 percent and 100 percent,

respectively,ofthewirelinefootprint.Anexpansionto95percentwouldincreasethe

numberofpremisespassedbytheFiOSnetworkby6.4million.

ThenationalIMPLANmodelbyMIGInc.wasusedtotranslatecapitalexpendituresinto

numberofjobssupported.TheIMPLANmodelisan input-outputmodelthatdescribescommodityflowsfromproducerstointermediariestoconsumers.Themodelestimates

1Verizon Communications at UBS 39th Annual Global Media and Communications Conference,Dec. 7, 2011; see alsoPeter B. Davidson, Senior Vice President, Verizon Federal GovernmentRelations to U.S. Congressman Michael Doyle dated June 1, 2012. "Our announced plan ofpassing 18 million households represents 70 percent of homes in Verizon's wireline footprint."Provided by the Communications Workers of America.

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the number ofdirect, indirect, and induced jobs.Direct jobs are jobs created in the

primary industries. Indirect jobsare jobs in thesecondary industries supplyinggoods

andservicestotheprimaryindustries.Finally,inducedjobsaregeneratedbyemployees

purchasinggoodsandservices.Thetotalemploymentimpactisthesumofthedirect,

indirect,andinducedimpacts.IntheIMPLANmodel,employmenteffectsaredefinedin

termsofjob-years,whereonejob-yearisasinglejobinoneyear,e.g.1,000job-yearsequalanaverageof100jobsovera10-yearperiod.

The capital expenditures needed toexpand the FTTP network infrastructure from70

percentto95percentoftheVerizonwirelinefootprintisestimatedtobe$4.5billion(in

2011 dollars) in construction and an additional $1.4 billion (in 2011 dollars) in

installationforsubscribers. 2Theallocationoffinal-demandinvestmentacrossthefive

identifiedprimaryindustriesisshowninTable1.Thecalculationconservativelyassumes

thatthepenetrationrateisconstantovertheinvestmenttimeframe.

TABLE1:IndustrycompositionforcapitalinvestmentintheFTTPnetworkinfrastructure

Sectorcode Sectordescription Allocation Investment($million)

351 Telecommunications 0.25 1,483

237,272 Communicationcableandequipmentmanufacturing

0.50 2,967

416 Electronicandprecisionequipmentrepairandmaintenance

0.05 297

36 Constructionofothernewnon-residentialstructures

0.15 890

369 Architectural,engineering,andrelatedservices 0.05 297

Total 1.00 5,933SOURCE: Authors analysis. Note: Communication cable and equipment manufacturing combines

communication and energy wire and cable manufacturing and telephone apparatus manufacturing.

Capitalinvestmentisfora95%buildoutoftheVerizonwirelinefootprint.Dollaramountsarein2011

dollars.

Findings:ExpandingtheFTTPNetworkto95PercentofVerizonswireline

FootprintAddsNearly72,000Job-Years

TheprojectedemploymentimpactofexpandingtheFTTPnetworkinfrastructurefrom

70percentofVerizonswirelinefootprintto95percentofthefootprintwouldhaveanestimated direct employment impact of 18,754 job-years, distributed across five

primaryindustries.Theindirectimpactinthesupplychainisestimatedat20,914job-

2GoldmanSachsmodel,January25,2012.Estimatedconstructioncapitalexpenditureswereanaverageof$700perresidentialpremiseandinstallationcapitalexpenditureswere$625perresidentialsubscriber.Theanalysisassumedthatinstallationcostswerethesameforresidentialandbusinesssubscribersandremainedconstantovertime,afteradjustingforinflation.

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years, and the induced impact at32,042 job-years. The totalprojected employment

impactis71,710job-years.Itshouldbenotedthatajob-yearisasinglejobinoneyear.

If the durationof the expansionof the networkwere five years, then an average of

14,342jobswouldbecreatedabovethebaselineinayear.

TABLE2:EmploymentimpactofcapitalinvestmentinexpandingtheFTTPnetworkinfrastructureto95%ofVerizonswirelinefootprint

Direct Indirect Induced Total

Low-end 15,890 19,005 28,951 63,846

Intermediate 18,754 20,914 32,042 71,710

High-end 22,218 23,330 36,228 81,776SOURCE:AuthorsanalysisusingtheIMPLANmodel.

The estimates are robust to a variety of different underlying assumptions about

penetration rate, marketing scale, industry composition, and construction and

installationcosts.Theanalysisdeterminedtheprojectedemployment impacttorange

from63,846forthelow-endcaseto81,776forthehigh-endcase.

Theaboveprojectionsarebasedonanexpansionto95percentoftheVerizonwireline

footprint. The analysis also looked at an expansion of the FTTP infrastructure to 90

percentand100percentofthefootprint.AcompleteexpansionoftheFTTPnetwork

would add 7.7 million premises above the baseline and have an estimated total

employmentimpactof86,055job-years.Finally,itshouldbenotedthattheprojections

assumenopopulationgrowthintheVerizonwirelinefootprint,andtheactualimpact

couldbehigherthanprojected.

TABLE3:EmploymentimpactsofanexpansionoftheFTTPnetworkinfrastructuresto

90%,95%and100%oftheVerizonwirelinefootprint,intermediatecase

Direct Indirect Induced Total

100% 22,507 25,097 38,451 86,055

95% 18,754 20,914 32,042 71,710

90% 15,005 16,731 25,635 57,372SOURCE:AuthorsanalysisusingtheIMPLANmodel.

PenetrationRates

The intermediateprojections assumedthat theFiOSpenetration rate, definedas the

numberofsubscribersasapercentageofthenumberofcustomerpremisesopenfor

sale,would stay constant at36.4 percent.3 This is a conservative assumptionas the

3VerizonCommunication,FinancialandOperatingInformation,March31,2012,http://www22.verizon.com/idc/groups/public/documents/adacct/2012_q1_foi_xls.xls.Thehigh-

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Internetpenetrationratehasincreasedfrom29.0percentinthe1stquarterof2010to

36.4percentinthe1stquarterof2012,andisexpectedtofurtherincreaseastheFiOS

market matures.4 With further market penetration, increased capital investment in

installation will have a positive economic effect. Table 4 shows the increase in

subscribers, capital expenditures, and the employment impact of an increase of the

penetrationrateby1 percentagepointperyear fromthe currentrateof36.4%. Theprojectedemploymentimpactofanapproximate23,500job-yearsby2025isfroman

increaseinpenetrationratealone,andisinadditiontotheestimatedimpactof71,710

job-yearsderivingfromanexpansionwithinthewirelinefootprint.

TABLE4:Additionalimpactsofachangeinpenetrationratesby1percentagepoint

peryear,2012-2025

Chg.insubscribers Chg.incapitalexpenditures(in$mill.)

Chg.in

employment

Undercurrentfranchise

agreements1,058,400 $661.5 7,998

Undernewfranchise

agreements2,053,800 $1,283.6 15,517

All 3,112,200 $1,945.1 23,509SOURCE:AuthorsanalysisusingtheIMPLANmodel.Note:Thecalculationassumes95%coverageofthe

wirelinefootprint.Thecalculationisbasedon anincreasein thepenetrationrate fromcurrentlevelof

36.4%to49.4%overa13-yearperiod.

Conclusion

The analysis, using input-output modeling, projects a direct employment impact of

15,890 to22,218 job-years for a95%buildoutoftheVerizonwireline footprint.The

totalprojectedemploymentimpact,accountingforindirectimpactsinthesupplychain

and induced impacts, range from 63,846 to 81,776 job-years for a 95% build out

nationally.ItshouldbenotedthateconomicimpactsderivingfromhighspeedInternet

andimprovedefficienciesbyanestablishedfiberopticnetworkinfrastructurewerenot

consideredintheanalysis.

endprojectionassumedthatthepenetrationrateforallFiOSproductswouldincreaseto40%,andlow-endprojectionassumedthatthepenetrationratewouldfallto35%.4VerizonCommunication,FinancialandOperatingInformation,March31,2012,http://www22.verizon.com/idc/groups/public/documents/adacct/2012_q1_foi_xls.xls.FiOSdatapenetrationisjustover50percentandFiOSvideopenetrationisjustunder50percentinmaturemarketssuchasTexas.SeeVerizonCEOLowellMcAdamstatementatUBS 39th Annual Globalmedia and Communications Conference,Dec.7,2011.

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AbouttheAuthor

HeleneJorgensenisaneconomicconsultant.Sheisalsoaseniorresearchassociatewith

the Center for Economic and Policy Research. She received her Ph.D. degree in

EconomicsfromAmericanUniversity.ShealsoholdsanM.S.degreefromGeorgeMason

UniversityinEnvironmentalScienceandPolicy.SheistheauthorofthebookSickand

Tired:How theU.S.HealthCare System Fails Its Patients.Jorgensenhasservedasan

advisortotheCensusBureauAdvisoryCommitteeontheDecennialCensusandchaired

the Bureau of Labor Statistics Labor Research Advisory Committee. She previously

workedasaneconomistforthePublicPolicyDepartmentoftheAFL-CIO.

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TABLEA1:EmploymentimpactofcapitalinvestmentinexpandingtheFTTPnetwork

infrastructureto90%ofVerizonswirelinefootprint

Direct Indirect Induced Total

Low-end 12,712 15,204 23,162 51,078

Intermediate 15,005 16,731 25,635 57,372High-end 17,775 18,983 28,983 65,422SOURCE:AuthorsanalysisusingtheIMPLANmodel.

TABLEA2:EmploymentimpactofcapitalinvestmentinexpandingtheFTTPnetwork

infrastructureto100%ofVerizonswirelinefootprint

Direct Indirect Induced Total

Low-end 20,715 23,100 35,391 79,206

Intermediate 22,507 25,097 38,451 86,005

High-end 24,812 27,668 42,391 94,871SOURCE:AuthorsanalysisusingtheIMPLANmodel.