Do we really want to make the broadband sector more like the postal service?

Prime Minister David Cameron announced that fast broadband access – at speeds of at least 10 megabytes per second – will become a legal right of all residents in the United Kingdom by 2020. Giving everyone access to broadband is a goal which many of us will share. In barely two decades, Internet access has gone from an expensive luxury to a widely available service, seen by most people in developed countries as an essential part of an active and engaged life. Professionally as well as socially, we rely on dependable broadband connections to conduct many of our daily interactions with other people. And, while access to this service has expanded enormously in a very short period of time, a small proportion of Britons in remote areas of the country – 5 per cent of households by the government’s own calculations – will still lack fast Internet connections in 2017.

However, the above does not take away from the fact that this proposal is a terrible idea. First of all, presenting Internet access as something which can be turned into a human right is misleading. What we commonly call rights – to life, liberty, property – are inherent to human beings; they are not granted, but merely protected, by the state. They do not involve taking from some to give to others. My right to free association does not detract from yours.

By contrast, government efforts to guarantee all citizens access to a good or service – most topically these days, higher education or healthcare – do involve governments’ taking resources away from some in order to give to others. That does not necessarily mean such efforts are wrong – there are many reasons why we might want to make healthcare accessible to all regardless of income. But it does mean that they are not human rights. They are entitlements, i.e. things which the government guarantees to all citizens and which it finances through taxation. Presenting Internet access as a right demeans actual human rights, and it gives the false impression that all rights flow from government – a dangerous implication. Crucially, it conceals a fundamental feature of all government entitlements, namely that they involve a cost which somebody has to bear.

That is the second cause for concern about the PM’s announcement. The main reason why there continues to be a residual proportion of Britons who lack Internet access is that, with the current technology, it is not economical for broadband providers to offer it to them. They tend to be residents of remote and sparsely populated areas of the country, which means that there are simply not enough people in these places to justify providing broadband access at a cost which households might be willing to pay. The fact that the people we wish to help do not value the product we want to give them enough to justify the cost should lead us to question the appropriateness of using taxpayer money to give it to them.

On the other hand, it may be that “disconnected” Britons do value broadband access above and beyond the cost of providing it, but that they simply lack the funds to meet the cost themselves. In that case, and provided there is widespread agreement that universal Internet access is desirable, there would be a rationale for taxpayer funding of broadband provision.

However, even if we grant this, the way the Government is going about it is the worst possible. It plans to introduce a Universal Service Obligation for broadband providers, akin to that of the Royal Mail for postal services. While we do not yet know how this obligation will be funded, it is likely that it will involve a levy on broadband firms, the revenues from which will be used to subsidise fulfilment of the USO, presumably by the largest player in the market (BT).

This is a highly inefficient way to achieve universal broadband provision. It would give providers little incentive to try and lower the cost of reaching remote households, because the Government would effectively guarantee that the expenditures related to the USO would be reimbursed with money from the levy. The cost of the levy would in turn be passed on to the majority of broadband customers, who would see their monthly bills rise. Meanwhile, broadband customers in the remotest areas would likely be offered the legal speed requirement – 10 Mbps – and nothing more, because there would be just one provider facing no competition, and with no monetary gain to be made from providing higher speeds. The bottom line: do we really want to make the broadband sector – dynamic, innovative, ever-growing – more like the postal service? The answer has to be no.

Instead, a more economically efficient way to achieve the PM’s pledge would be to estimate the cost per household of providing broadband access to those who currently lack it, and to give each of those households an equivalent subsidy. We could then be sure that the latter had enough resources to meet the cost of Internet access. Importantly, we would also be giving broadband providers an incentive to reach out to these potential new customers, and to lower the costs of provision in order to make the proposition more attractive – as households would then be able to keep the savings.

We do not know what form this innovation might take. It could come in the form of improvements to existing technology, or as wholly new ways to deliver Internet access. What is important is that there would be incentives for firms to come with better and cheaper ways to reach remote customers. Over time, innovation would lower costs, coverage would grow further, and eventually we would achieve universal access and whatever subsidies remained could be phased out.

A Universal Service Obligation achieves none of this. It makes remote areas chronically dependent on state support. It entrenches monopoly by one provider in those areas. And it gives no incentive for competitive and innovative service.

Just as with earlier technologies, ever-greater broadband coverage has been a product of the incentives created by private markets. But, as with all technologies, it takes time before they become universally accessible. If the Prime Minister wishes to speed up this process, he should harness the power of markets and seek to promote continued competition between providers. Inefficient fixes like a Universal Service Obligation will, much to the contrary, stifle competition and slow down innovation in broadband provision.

Diego Zuluaga is the IEA’s International Research Fellow, and Deputy Director of EPICENTER.

Policy Analyst at the Cato Institute's Center for Monetary and Financial Alternatives

Diego was educated at McGill University and Keble College, Oxford, from which he holds degrees in economics and finance. His policy interests are mainly in consumer finance and banking, capital markets regulation, and multi-sided markets. However, he has written on a range of economic issues including the taxation of capital income, the regulation of online platforms and the reform of electricity markets after Brexit. Diego’s articles have featured in UK and foreign outlets such as Newsweek, City AM, CapX and L’Opinion. He is also a frequent speaker on broadcast media and at public events, as well as a lecturer at the University of Buckingham.

3 thoughts on “Do we really want to make the broadband sector more like the postal service?”

  1. Posted 09/11/2015 at 15:25 | Permalink

    I think the problem is that so many things these days are going fully digital – even our currency if bankers have it their way – that our society wouldn’t properly function without at least some type of internet access. By providing broadband to everyone, the government should be able to save money by rolling out digital-only access without being discriminatory. Of course people might still choose to live without a broadband connection, just as some never have landlines or even a fixed address. But that would be their choice. If broadband was just about games and social media then I would agree.

  2. Posted 09/11/2015 at 18:19 | Permalink

    First bring in the land line universal phone, which is primarily the actual monopoly that will give the public access to the cheapest form of electricity. Without being able to afford the electricity, which the internet used to the tune of an increase in climate change over 10 percent increase, the entire idea is a utopia economic myth. Electricity and both fossil and green manufacturing of fossil fuel driven production are required before a national utility pricing of broadband access to the internet can even begin to be considered. Otherwise having a phone that has access fees to Canada Bell Canada Act through the open radio micro waves payed for by investors and the for only Canadians as a public, who have universal access rights, under the Bell monopoly grandfathered in clause,not British people, will cut your corporations and Royalties off, ending the use of charity by your government. Historically, Britain only wanted access to Canada, as a country for their business and political communication to flow through that land and on to China.

    Without justice for the Canadians who are no longer under the parliament of Britain, those Lords of the Spiritual and Temporal, who permitted all this passing on to the public to fund their selected private, who too took too much from their public, under their privilege of charity for the rich, for far too long. The fact that these Lords of the Spiritual would privilege their own life style, and even in Cambridge, use disabled children from foreign lands to bring in revenue for educational funding, is indicative of a lack of moral reasoning.

    The economic interests of international education economic plan should not have turned children into exchange products of trade. The result of this political abuse of public interests has resulted in child commodification revenue, what the government did not want to fund under public finance, as some of their members wanted charitable schools for their own segregation of social networks. When the richest is the world, claim entitlements as charitable services for their own interests, the variable methodological design of the economic research of all those think tanks need real peer evaluation.

    Standards of iea must assure that when a variable is used, it actually is a reliable variable to define what the research is measuring. When they invent their own index, with a classification of tautological subjective claims that the person believes makes up the variable based on subjective arbitrary values, they act on what in scientific research is called social bias. Social bias must be controlled for, other wise the study is a waste of time. And unfortunately most of the economic research in international education makes all the research not worth much. Public policy design created under this social biased economic assumptions from their tautological definition of specific studies, only represents the specific simple numbers, and cannot be generalized, because the social bias is predictable and the study mimics what is already known to be the problem of the social structure in the first place.

    When the social bias was not controlled for, and an economic interest in the collective micro behaviors of the public, were assumed to be other than related directly to the birth position of the child, within their local society, the real needs of those children are not considered as factors that public finance needs to address first, in order to understand that each individual experience of the economic world is based on a child’s birth position into a social class within their local community. Particular individuals place and space will also vary individually based on the child’s own stratified relationship within that local social economic structure, and that local communities stratified social-economic relationship to the larger state, and the then that state’s relationship to that larger nation.

    Assumptions made by economists about any individual child’s economic relationship to education under international education and standardized tests, forgot about reliable variables of needing to control for social bias and the actually differences of the economic lived life of the child and their access to resources. The economic thing tanks recommended and actual use of public finance is indicative of their beliefs and uncontrolled social bias in their own studies as resulting in the enhancing of inequalities of opportunity for a child.

    Had they had more education is social stratification and classification probability indexes for creating the real probability controlled indexes for measuring the relative place of the child within their social structure, they might have realized that a child position is based on their birth position in a social strata where parental income and education define their child’s access to the quality of services that they will access in a democracy that will enhance or not their privileged life to be mobile both up and down. When charity is for the rich to tax plan and have access to their own membership goods and services offered directly to them, democratic principles under public finance are eroded and children are discriminated against.

    Charitable self self government under democracy public finance changes the meaning of public to be a violation of our person, property and voting rights as though the meaning of public is private.

  3. Posted 11/11/2015 at 13:20 | Permalink

    Seems odd they announce this at a time they are emphasising the need to reduce public spending and the debacle over benefit cuts. All the hassle over the latter and then this which seems to me may well add to total public spending.

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