Opinion and Banking & Finance

HICKS: How competition sped up broadband adoption

May 1, 2010

Changes to public policy, such as regulations, almost always have unintended consequences. Tracking down these accidental results are among the most interesting things we economists get to do.

They are often quite controversial, such as a purported link between legalized abortion and a decline in the crime rate a generation later, or the link between gun ownership and lower crime rates. They are sometimes surprisingly pleasant, such as the decline in obesity rates due to proximity to big-box grocery stores with their lower-priced fruits and vegetables.

Recently, my colleagues at the Digital Policy Institute found an unintended consequence that is worth writing about.

Over the past decade, more than 20 states have adopted a seemingly modest policy to introduce competition in cable-TV service. You see, back in the early 1980s, when cable became ubiquitous, Congress required states to set geographical monopolies for cable TV. This was designed to make sure more households got the service and that companies didn't just fight for market share in high-density locations.

Over the next two decades, this thing called the Internet came along and it relied heavily on the same transmission technology as cable TV. Eventually, most communities found themselves with overlapping sets of cable for broadband access to the Internet and cable TV. But the regulation that was still in effect prevented telephone companies from offering cable TV. This meant all the conditions for competition were available, but outdated regulation prevented it.

Through the first decade of this century, Indiana and 20 other states changed this law, facing fierce opposition from the cable TV monopolies and their lobbyists. To this day, they've continued to argue this was a mistake and that cable rates didn't decline and that service got worse. This is hard to refute since we don't have good data on the price of cable TV to compare across states. Here, the economic sleuth steps in.

The Federal Communications Commission doesn't keep records of cable TV prices, but they do keep good records, updated twice a year, on the number of homes that have access to broadband. This is important because it sets up an especially nice statistical test to compare the effect of deregulation with adoption rates of broadband in states that deregulated cable TV markets. By the way, from a public-policy perspective, we care more about access to broadband than cable TV and all its assorted wonders.

Our study found that simply permitting deregulation of cable TV caused a pleasing increase in broadband adoption, ranging from 1.66 percent of households in Louisiana to 5.88 percent in Vermont.

Here in Indiana, 2.47 percent of households (more than 225,000 families) have broadband because the state allowed competition in cable TV markets. Of course, this is a small percentage compared to the overall number of households who bought broadband, but for 225,000 Hoosier families who have cheaper and more available access to the Internet, this is yet another happy by-product of an otherwise smart public policy.•

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Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.

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