The Supply Side of the Digital Divide: Is There Equal Availability in the Broadband Internet Access Market?
Prieger, James E., Economic Inquiry
The Internet has transformed the way Americans work, play, and shop. A new wave of Internet accessibility, the availability of broadband (high-speed) access, has the potential to be as revolutionary as the first wave. Broadband access, usually through Digital Subscriber Line (DSL) or cable modem technology for residences and leased lines for businesses, allows users to send and receive enormous quantities of data, audio, video, and voice communication and relaxes the constraints of the "World Wide Wait." With every technological revolution comes the possibility that some will be left behind. The so-called digital divide-the well-documented gap in computer and Internet usage between richer and poorer households, whites and certain minority groups, and urban and rural areas (1)-has received much attention in the past few years, both in policy circles and the popular press.
The public-policy focus on the digital divide is shifting toward broadband Internet access. In a widely cited report, the Department of Commerce (National Telecommunications and Information Administration [NTIA], 2000) finds that in terms of household broadband subscription, black and Hispanic households lag white households, rural areas lag urban areas, and poorer households lag more affluent households. Such findings commingle nonadoption of broadband access by households and non-implementation of the technology by carriers. One unanswered question, therefore, is whether groups lacking broadband access are deprived because broadband services are not available where they live. Preliminary findings by the Federal Communications Commission (FCC, 2000a) indicate that broadband is less likely to be available in rural and lower-income areas. Although lacking direct evidence, the FCC (2000a, 241) furthermore concludes that "minority customers are vulnerable to not having access to advanced services in as timely a fashion as most other Americans."
Faulhaber and Hogendorn (2000) conclude from a model based on engineering data that the unconstrained market at maturity will leave at least 12% of U.S. households without broadband availability, due to cost and demand considerations. Findings such as these lead some observers and interest groups to charge that market forces are leading to the unequal availability of broadband, (2) with some advocates going as far as charging broadband carriers with "redlining." (3)
These charges warrant careful study for three reasons. First, federal policies currently proposed to narrow the broadband digital divide are based on an incomplete examination of the data. Such policies include a host of pending legislation in the 107th Congress. (4) The FCC is also actively involved in monitoring the digital divide, because it is charged by the Telecommunications Act of 1996 (5) to monitor and encourage the "reasonable and timely" deployment of broadband to "all Americans." Although it has not done so yet, the FCC has the authority to add broadband to the list of services supported under federal Universal Service programs if it deems necessary. Second, because availability is a precondition for access, any analysis of the digital divide must begin with the supply side. Third, broadband is an important technology whose study advances the empirical literature on the economics of diffusion.
This study explores the causes of the unequal availability of broadband. Do the racial composition, income, and rural location of an area affect whether broadband is available? The results contain some surprises. Simple regressions imply that high concentrations of poor, minority, and rural households decrease the probability of broadband access. However, after controlling for cost conditions, other demand factors, and competition in local telephony, the income and minority effects largely disappear. Among racial composition factors, only those for Native Americans and Asians have significant negative effects on broadband availability. …