Is Universal Service an Effective Policy for Increasing Broadband Adoption?

Is Universal Service an Effective Policy for Increasing Broadband Adoption?

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Broadband adoption is decelerating and it appears that government intervention tactics designed to increase the number of subscribers to high-speed Internet access is not having its desired effect.

In November 2012, the research firm Leichtman Research Group announced that 17 of the largest cable and telephone providers accounting for 93% of the broadband access market acquired 580,000 net additional broadband access subscribers in the third quarter of 2012. This total was 92% of net additional broadband subscribers added in the third quarter of 2011. Telephone companies added 5,000 high-speed subscribers in 3Q 2012, but that number of acquisitions was paltry when compared to the 108,000 net additional broadband subscribers telephone companies acquired in 3Q 2011.

As Gigaom.com’s Om Malik concluded, the drop off in subscriber acquisitions may be the result of market saturation, and as companies like AT&T face this new reality, it may be time for telephone companies to enhance their broadband offerings in order to slug it out with their cable competitors.

Mignon Clyburn, a member of the Federal Communications Commission, acknowledged that broadband adoption has been slowing down. In testimony before the Senate Committee on Commerce, Science, and Transportation, Ms. Clyburn said that:

“What we have learned so far is that adoption has slowed in recent years, and those consumers who have yet to adopt have multiple reasons for not doing so. Cost remains a significant barrier, and convincing those who are non-digital natives to get on-line typically involves a trusted local partner, digital literacy training, and subsidized services and equipment if affordability is an issue.”

Ms. Clyburn also cited the FCC’s obligation under federal statute to promote adoption and use of broadband.  This obligation would include pursuing initiatives to address cost, lack of deployment, especially in insular and rural areas, and digital literacy.

Recent initiatives may be coming up short.  The national broadband plan called for 100 million additional U.S. households having access to broadband by around 2020, but so far roughly 80 million households in total have access to broadband.  In 2009, the American Recovery and Reinvestment Act split $7.2 billion in broadband stimulus funding between the U.S. Department of Commerce and the U.S. Department of Agriculture giving both agencies the responsibility for dispersing and overseeing the use of federal funding for the deployment of broadband to unserved and underserved communities.

In addition, the FCC re-engineered its universal service funding to promote both voice and broadband services.  According to the Congressional Research Service, from 1998 through 2010, approximately $73.7 billion in universal service support has gone to promoting the adoption of telecommunications services by consumers.  Recent efforts to redirect this funding to broadband include the Connect America Fund which released $115 million in its first phase in order to faciliate the connection of rural households to the Internet via broadband.  The FCC wants to connect 19 million unserved rural residents to the Internet via broadband by 2020.

Another initiative is the FCC’s Mobility Fund Auction.  The first phase of the auction was intended to provide approximately $300 million in funding to mobile carriers that committed to providing advanced voice and mobile broadband services in unserved areas.

But given all this federal funding will broadband adoption boil down to whether the private sector can continue to innovate their services, offer new competitive services, and drive down prices thus attracting new subscribers?  There may be an opportunity for the FCC to consider a more effective and less intrusive method of increasing broadband adoption other than government spending.

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