Economists’ Statement on U.S. Broadband Policy

Robert Hahn and
Robert Hahn
Robert Hahn Director of Economics - Smith School of Enterprise and the Environment at the University of Oxford, Former Brookings Expert
Robert E. Litan

March 15, 2006

Elizabeth E. Bailey, Martin Neil Baily, William J. Baumol, Peter Cramton, Gerald R. Faulhaber, Kenneth Flamm, Richard Gilbert, Austan Goolsbee, Shane Greenstein, Robert W. Hahn, Robert E. Hall, Thomas W. Hazlett, Alfred E. Kahn, Robert E. Litan, John Mayo, Paul Milgrom, Janusz A. Ordover, Robert S. Pindyck, Gregory L. Rosston, Scott J. Savage, Richard L. Schmalensee, Howard Shelanski, Pablo T. Spiller, David J. Teece, Hal R. Varian, Scott Wallsten and Dennis L. Weisman

Broadband, or high-speed access to the Internet, has generated significant economic benefits. Certain regulations, however, are slowing investment and deterring entry into the broadband market. In this statement, we make the following two recommendations that would remedy these regulatory defects and thereby lower artificial barriers to competitive provision of broadband services:

Recommendation 1: Congress should eliminate local franchising regulations, which serve as a barrier to new entry.

Recommendation 2: Congress and the Federal Communications Commission should make more spectrum available to private parties and allow them to use it or trade the right to use it, so that spectrum will go to its highest-valued uses.

The bottom line is that investment in broadband should be as easy as possible. Regulations that primarily protect incumbents or serve as barriers to entry should be removed.

Local Regulation

Some firms that want to provide broadband services currently must obtain local approval and access to rights of way, pay fees, and meet regulatory obligations regarding service provision. These obstacles can slow investment and deter entry.

For example, if a firm wants to provide video services over broadband lines it must negotiate with every franchising authority in its coverage area. The FCC (1997) has noted that approximately 33,000 municipalities in the U.S. have the authority to issue franchise licenses. Dealing with every city separately is slow and costly, and discourages competitive entry. Such delay can reduce consumer welfare. Research by the Government Accountability Office suggests that telecommunications service prices were 15 to 41 percent lower in cities with the new entrants than in cities without (GAO 2004), and that cable prices were about 15 percent lower in cities with wireline video competition (GAO 2005).