Subsidising Universal Broadband may Harm not Benefit Consumers

Many entrepreneurial firms are offering broadband services in less economic, hard to reach areas. Against this background, is a Universal Service subsidy designed to correct a market failure really needed?

The potential for a Universal Service Obligation (USO) to ensure all consumers can get access to broadband wherever they live is much on the mind of policy makers in Europe and elsewhere. The UK government, for example, launched a consultation paper on this subject in March 2016 One possible policy tool to help push broadband into rural areas is a subsidy to cover the additional costs of serving the most hard to reach households and businesses.

 

This edition of Hexagon examines the economic case for and against a subsidy in the event that an entrant could offer higher speed access in hard to reach areas, albeit at a greater cost.