Can Competition-Enhancing Regulation Bridge the Quality Divide in Internet Provision?

Abstract

Differences in network quality are driving an increasingly critical form of digital inequity. Internet users in countries with low network quality are hampered in their ability to benefit from the full range of online applications and content. Many applications, including cloud computing, VoIP, media streaming, high-frequency trading, network gaming, video conferencing and telemedicine, are sensitive to one or a combination of network quality of service (QoS) parameters such as connection speed/throughput, jitter, latency and packet loss. Yet, an overwhelming majority of studies on Internet digital divides remain focused on explaining gaps in penetration and use while QoS remains an underexplored facet. In this paper, we investigate the reasons underpinning cross-country differences in Internet QoS to draw policy insights for narrowing this aspect of the digital divide. In particular, we examine how national regulations geared to encourage competition in telecommunication and broadband markets impact average quality of service across countries. In liberalized telecommunication markets, the oft-cited rationale of government regulation is to curb abuses of market power and encourage competition. However, regulations can also restrict entry and competition. For example, complicated licensing requirements can just as easily limit entry into telecommunication and Internet markets. Therefore, the net effect of a sum of regulations could be pro- or anti-competitive. To take this into consideration, the main explanatory variable of interest is constructed as a score indicating the presence of a cluster of pro-competition rules. Our hypothesis is that countries with more rules designed to strengthen competition and to facilitate ease of entry in telecommunication markets achieve better outcomes for quality of service. To test this hypothesis, we analyse a panel dataset of 160 countries covering the years 2008-2016. Our analysis focuses on explaining differences in average connection speed per country per year using a pro-competition regulatory score constructed from country responses to an annual survey of national ICT regulators conducted by the International Telecommunication Union (ITU). The score is based on the reported presence of pro-competition rules such as technology-neutral licensing and license exemption, publication of interconnection offers and prices, requirement of number portability, mandated infrastructure sharing and co-location, local loop unbundling, existence of a competition authority, existence of a legal concept of market dominance, and acceptance of foreign ownership and participation. The analysis shows that Internet QoS can be significantly improved through a regulatory cocktail that enhances market competition but will require complementary policy measures in order to be effective in closing the quality divide. In developing countries, other policy measures or more active government investment may also be needed to supplement pro-competition regulation as a tool for closing the quality divide.