The Timing of Broadband Provision : The Role of Competition and Demographics

We examine the supply of DSL broadband by the incumbent local exchange company (LEC) in five U.S. states in the earlier years of deployment. Our empirical analysis shows that income, other demographics, and cost factors are important determinants of entry and availability, and thus, the supply side of the digital divide. After controlling for other factors, the racial characteristics of the area do not affect DSL provision. Active competition in broadband from competitive LECs reduces deployment of DSL by the incumbent, but potential competition from competitive LECs has the opposite effect. Competition from cable companies also negatively influences the incumbent's decision to supply DSL. Our objective in gauging the importance of the various factors is to highlight the important drivers of broadband provision for policy makers. Even though some form of broadband access is available in most areas of the U.S. today, the lessons learned from looking at the early years of adoption are still important for two reasons. Understanding what drives initial DSL deployment lends insight into what drives increasing competition, the best hope for lower service prices. Furthermore, many less developed countries around the world are in situations today similar to where the U.S. was five years ago