Private Solutions to Broadband Adoption: An Economic Analysis

TABLE OF CONTENTS I. INTRODUCTION 2 II. UNDERSTANDING THE BARRIERS TO BROADBAND ADOPTION 5 A. Demand-Side Barriers 5 B. Supply-Side Barriers 7 C. Social Value 8 D. Global Adoption Data 9 III. A MODEL OF BROADBAND ADOPTION 11 A. Choosing the Number of Quality Tiers 13 B. Awareness, Literacy, and Promotion 16 C. Summary 17 IV. ADDITIONAL WAYS "FREE-BUT-LIMITED" ACCESS ENCOURAGES ADOPTION 18 A. Increasing Adoption by Ensuring Continuous Access 18 B. Adoption Programs as Connectivity Insurance 19 V. CONCLUSION 22 I. INTRODUCTION Broadband Internet service is seen as critical to economic and social progress, yet broadband is not ubiquitously available and, even where available, the adoption rate is often seen as being too low. Consequently, expanding broadband deployment and adoption are top policy goals in nearly every industrialized nation as well as in many developing regions. (1) It is not proving to be an easy task. Faced with many impediments of both a public and private nature, progress on improving availability and adoption has proven unsatisfactory, resulting in what is often described as a "digital divide" separating the information "haves" from the "have nots." (2) In the United States, for example, broadband adoption appears to have plateaued even while systematic differences in adoption rates exist among subpopulations. The global digital divide is even more pronounced. (3) In less-developed economies, the hurdles to availability and adoption are especially high and Internet adoption rates remain very low. Despite differences in the economic fundamentals of nations, the barriers to deployment and adoption are categorically of the same underlying nature. On the supply side, the lack of access to broadband is mostly a financial issue driven by the high infrastructure costs of network deployment relative to the revenue potential. (4) On the demand side, research consistently points to the related concepts of awareness and digital literacy, as well as affordability. (5) An effective policy for expanding broadband adoption, therefore, seemingly must expose consumers to broadband service, do so at very low prices (or even free), and yet secure sufficient revenue for network deployment, maintenance, and upgrades. Thus far, despite much effort and discussion, no government has found an effective solution to this complex problem. Private companies have begun their own search for methods to increase adoption, perhaps driven in part by altruism and in part by the pursuit of income. In the United States, for instance, Comcast's Internet Essentials program provides a subsidized 10-Mbps connection and low-cost computers to qualified lower-income households. (6) While privately funded, the program is connecting more households to the Internet than multibillion dollars efforts by the U.S. federal government. (7) Similarly, Facebook's Free Basics program helps to address the awareness and affordability barriers to adoption by offering consumers free access to basic online services such as communication tools, health services, educational information, and job tools. (8) Free Basics is available in more than fifty (mostly developing) countries and municipalities, and Facebook's connectivity efforts, including Free Basics, have successfully brought more than twenty-five million people online. (9) Despite the obvious success of these programs at increasing adoption, some questions are being asked about the propriety of the basic connectivity offered by such programs. …