Broadband Diffusion: Testing for Vintage Capital, Learning by Doing, Information Barriers and Network Effects

Abstract

This paper examines the factors that affect the uptake of broadband in the residential and SME markets. We searched the economics literature on diffusion theory and identified five different models that potentially provide insights into the broadband phenomenon. These models were applied to the New Zealand market using detailed product and market data from an index ISP and the major telecommunications network provider which we consider representative of the market as a whole.We find evidence to suggest that the adoption of ADSL the dominant broadband technology in New Zealand is driven differently in the residential and SME markets. SMEs pay a fixed fee for each telephone circuit plus a toll tariff for all calls including local calls. An SME with multiple computers accessing the Internet requiring multiple telephone lines or with a reasonable level of traffic generating toll charges can cost-justify prematurely retiringmodem capital and introducing ADSL as there are immediate cost benefits. However an SME with little traffic and only one telephone line may still find that dial-up modems provide adequate service at a lower price.