The Broadband Access Market: Competition, Uniform Pricing and Geographical Coverage

This paper analyzes some technological and political aspects of the market for broadband access. Broadband access is the last mile of the telecommunication network, and it is an essential component in order to offer broadband Internet connectivity. A key technological feature of this market is that it is considerably more expensive to connect consumers in rural locations than in urban locations. In an unregulated market we should therefore expect that the price of access to the broadband would be higher in rural locations than in urban locations. This is true independent of whether the market is served by a monopoly or by several competing firms. We have thus seen a political concern that peripheral locations will be harmed unless broadband access providers are required to charge the same price for the same service in all locations that they cover (uniform prices). However, even though there may be implicit or explicit political requirements of uniform prices, the actual price level will hardly be regulated. Instead, as in other industries, governments seek to prevent unduly high prices by inviting several firms to compete. The purpose of the present paper is to investigate how this policy mix affects welfare and geographical coverage of broadband access. The main messages of the paper are as follows: ? The socially optimal regional coverage of the broadband is smaller with uniform prices than with non-uniform prices, and this will harm consumers in some of the most rural areas. It is thus not obvious that uniform pricing is a good regional policy. ? A monopoly may have incentives to set the same regional coverage of the broadband as a hypothetical social planner, but the coverage will fall if there is competition between several firms. A political requirement of uniform prices combined with fierce competition is therefore a poor policy mix. ? Given a requirement of uniform prices, the government should also specify a minimum regional coverage of the firms that are providing broadband access. By doing this, the government corrects a market failure and is able both to increase the profit level of the firms and the general welfare level. It should also be noted that in this case competition is beneficial to society.