Broadband and the Digital Economy: Policy Approaches to Broadband Development

Abstract

The building of advanced, high-speed digital networks has been described as “the great infrastructure challenge of the 21st century”. In response, many countries have taken steps to promote the rapid development of ‘broadband’, including ambitious plans for public investment, as well as a wide range of regulatory interventions and governmental programs. The purpose of this paper is to describe the various policy and regulatory models being used to promote the development of broadband network infrastructure, review their effectiveness in terms of promoting investment, network coverage and impact on innovation, and assess their relevance to future policy-making for the digital economy. In the past decade, the availability and use of the Internet has grown exponentially, reaching near universal levels of penetration in many countries. In 2010, the number of Internet connections per capita was greater than 70% in 21 of the 34 OECD countries, with some surpassing 90%. With the development of more and more bandwidth-intensive applications using the World Wide Web, the growth of Internet connectivity has been increasingly driven by demand for higher speed network services. Since 2004, the demand for broadband has far exceeded more basic levels of Internet access, virtually replacing narrow-band access in the most advanced economies [OECD, 2011]. As a result, broadband has increasingly become the de facto standard for Internet access, both for businesses and consumers.

The rapid deployment of broadband networks both reflects and magnifies the economic and social significance of today’s Internet. As a result, governments in virtually every developed economy have taken steps to promote the development of high-capacity broadband network infrastructure and expand its availability.

National broadband strategies encompass a wide range of policy and regulatory instruments which include both supply-side policies designed to encourage or support investment in network infrastructure, as well as demand-side measures directed at increasing or influencing the use and adoption of broadband services. The paper describes the policies, regulation and programs that have been used to promote broadband development in leading OECD economies, specifically the United States, the European Community, Australia, Korea, and Canada, noting marked similarities, as well as dramatic contrasts, in public policy.

Clearly, “one size does not fit all” with respect to governmental policies on broadband, nor is there consensus on the optimal mix of policy and regulatory tools required to foster the rapid growth of broadband and capture its benefits for economic growth. While policy frameworks contain a number of similar ingredients, these are often mixed together in critically different ways and proportions depending on the circumstances and perceived challenges prevailing in each jurisdiction. The lack of consensus would appear to reflect a dynamic or tension which has developed around: 1) The role of Public Investment vs Regulatory (Private Sector) Models; 2) The relative importance of Supply vs Demand Side Strategies; and 3) The priority attached to Network vs Services Competition.

The paper examines these tensions and their impacts the choice of policy instruments across jurisdictions, and also explores how governance factors, specifically the degree of policy coherence and program coordination, can influence the policy mix and determine overall effectiveness of broadband strategy at the national level.

On the assumption that the overall importance of broadband network infrastructure will continue to grow, and will lead governments to adjust their broadband policies as part of their digital economy strategies, the authors make some suggestions regarding the empirical information and analysis needed to develop credible policy options in the future.

Keywords: Broadband, Digital Economy, Internet Policy, Regulatory Policy

JEL Classification: O38, L59