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