Private Solutions to Broadband Adoption: An Economic Analysis

For the last twenty years, promoting broadband adoption has been a focal point of communications policy around the world. Despite significant advances, there is still much work to be done. To help bridge this adoption gap, in many countries private communications companies are now offering services at deeply discounted prices or even for free. Facebook’s “Free Basics” program, for instance, helps to address the awareness, digital literacy and affordability barriers to adoption by offering consumers in more than 45 countries free access to basic on-line services such as communication tools, health services, educational information, and job tools. And, by increasing digital awareness, many of the program’s users upgrade to fee-based services to the broader Internet in a short amount of time. Nonetheless, questions are being asked about the propriety of the basic connectivity offered by such programs.

Using economic theory, a new paper from the Phoenix Center demonstrates that the price-quality variations of such programs are economically sensible, if not necessary, to address the key barriers to adoption without attenuating investment incentives. In addition, it demonstrates that such “free but limited” programs can increase adoption by “smoothing” Internet consumption over time and present econometric evidence of “connectivity insurance,” keeping consumers on-line during periods of financial distress.

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