It is true that universally accessible broadband can be a useful tool for lower-income residents, for education, research, accessing government services, and job search. According to Graham Longford and Andrew Clement, while over half of Toronto residents can take advantage of high-speed Internet access, about a quarter of the residents in Toronto have no Internet access at all.
Should government intervene? Incumbent companies in Canada charge $30 to $60 a month for broadband services. There are sound arguments that prices could fall with more competition as there are two or at most three firms providing broadband access to most locations in Canada, a market characterized by very high concentration.
Government should do something, but should avoid trying to get into providing services themselves. There are a lot of inefficient Wi-Fi business models that exist, one of the worst of which is to aim for full coverage, which a municipality is likely to pursue due to political necessity. Providing across-the-board municipal Wi-Fi is a broad brush that will create wasteful overlapping infrastructure. In fact, customers tend to demand Wi-Fi to be provided at hubs (social environments?) such as cafes.
Government supported broadband Internet access is already widely available in schools, libraries, community centers, and other specialized locations such as employment service agencies. Any proposed investment to bridge the digital divide should be focused on strengthening the services provided through these channels rather than to build and operate a city-wide service.
Moreover, sociopreneurs from the private sector are better equipped to provide low-cost Wi-Fi than the government – the Ile Sans Fil Wi-Fi service which is supported by volunteer resources and revenue from hotspot locations such as cafes and restaurants in Montreal is extremely successful. Municipalities can support such organizations through existing channels such as volunteer and community support agencies.
The general experience of regulation in the telecommunications sector is that it has stifled innovation. However, this is not to say that all regulation curbs innovation (Anthony, Roth & Christensen, 2002, link to pdf). In a situation where there are few companies providing broadband services to the market, theory tells us that this lack of competition leads to higher prices, and less rapid innovation by incumbents. We note that there is no shortage of motivation by would-be private-sector entrepreneurs to start-up Wi-Fi services. However, their ability to achieve this is hindered by their ultimate dependency on the telecommunication companies to carry their back-haul traffic.
One problem they face is incumbent terms of service that potentially abuse dominant market power. For example, some terms for DSL or cable Internet service prohibit commercial use, forcing Wi-Fi entrepreneurs to purchase less cost effective services based on older leased line technologies. Another example bans residential end-users from sharing DSL or cable connections with neighbors using a Wi-Fi router. This policy biases against small apartment units, and creates an unequal burden on lower-income households. Many Wi-Fi startups are small companies and may not be able to co-ordinate themselves to bring forward an anti-competitive legal case against any of the incumbents without help. The federal government can assist in providing a platform to alleviate these concerns, releasing true points of modularity by taking down barriers.
The federal government could also support advancement in Wi-Fi based technologies by releasing more unlicensed spectrum, or by providing at low-cost spectrum demarcated for Wi-Fi type services only. Is spectrum allocation currently biased against Wi-Fi? Government should have a hard look at their spectrum allocation policies (and internal motivations). Theory suggests that there might be a innovation gains from encouraging the development of Wi-Fi as it could be disruptive to incumbent broadband providers’ markets characterized by customers who are over-served from a technical perspective, but under-served in terms of quality of customer service.
In summary, government should focus on enhancing the ability of entrants, and avoid programs that require detailed selection of private sector partners to implement municipality funded projects. These programs will only distort entrant motivations, undermining entrepreneurial intentions that already exist in the industry.
