The impact of competition and regulation on broadband internet deployment in the telecommunications industry

Abstract

Broadband deployment continues to be an important focus of policy makers, and competition and regulation are important determinants of how firms deploy Telecommunications technology. To study this further, I first examine how market entry impacts an incumbent's decision to deploy broadband technologies and further delineate this outcome by entrant and incumbent characteristics. The level of broadband deployment is proxied through two different metrics: upgrades within existing technology platforms and the maximum download speed advertised. This paper finds evidence that entry into the local market does increase the deployment of upgrades, and it leads to overall faster maximum speeds advertised within the tract across DSL, cable, and fiber incumbents. Additionally, this paper examines the incumbent's product line choices and finds entry induces firms to expand into new technology platforms and increase the number of versions within technology type. Endogeneity is controlled for by utilizing a tract-firm fixed effects model. A novel instrument is incorporated which removes possible omitted variable bias by capturing the incumbent's poor performance in the market. The IV utilizes cities' partnership with Next Century Cities, a non-profit that works to reduce entry barriers for potential ISP entrants. This paper offers empirical evidence that more competitive markets induce incumbents to provide better technology to the regions they serve. Thus, these findings have important policy implications in the telecommunications industry - where more can be done to lower barriers to entry. The second chapter examines factors that induce internet service providers to enter a market and then measures how incumbents react when they face a market disruption like entry announcements. This paper finds empirical evidence of an announcement effect by using the case study of Google Fiber and AT\&T. The analysis focuses on areas that were impacted by Google Fiber's 2013 announcements and utilizes three separate control groups. One of the control groups is a synthetically created one based off the method set forth by Abadie et al. (2010). There is significant evidence across all three control groups to support the hypothesis that AT\&T indeed reacts to Google's planned entry by increasing their fiber deployment and average maximum speeds advertised. Therefore, this paper shows incumbents react to the threat of entry and not just to actual entry itself. This paper has important policy implications that more should be done to foster entry into this industry in order to motivate deployment by incumbents. The third chapter examines how local regulations impact the rate of deployment of internet broadband. There remains a large discrepancy in state policies across the United States. Twenty one of the states have some form of regulation that restricts cities from developing their own broadband technology. In Colorado by 2015 over 45 cities had voted to ignore state-wide restrictions. Entities that have passed the referendum are compared to entities that pass the referendum after the sample period, and results are mixed. Initial results show rural areas receive fewer DSL upgrades and smaller increases to download speeds compared to their counterparts when the state-wide ban is lifted. While this is counter-intuitive it could be explained if these incumbents are acquiescing these markets because they fear they will not be able to obtain profits to recoup investments once municipal provision is available. Another potential reason is that these providers are shifting investment to other areas where there is still local regulations protecting them from municipality competition with the hope that the upgrades will help fend off a future regulation change. Thus an IV method is utilized, and the IV results show rural areas benefit from the repeal of the state-ban more than cities. Thus, there is evidence that state-wide bans disproportionately hurt areas that do not have the demand to induce incumbent investment.