The 117^th Congress is considering whether to devote significant federal resources toward promoting broadband access in underserved communities. Legislative proposals to do so include President Joe Biden’s draft American Jobs Plan—a $2.3 trillion budget-reconciliation package that sets aside $100 billion for broadband infrastructure. They also include the Accessible, Affordable Internet for All Act, which would create a $79.5 billion federal program.

The instinct to promote network buildout is understandable, particularly in the wake of the COVID-19 pandemic and the various socioeconomic disparities it highlighted. But precisely how that infrastructure funding is deployed will determine whether such proposals succeed or fail.

In fact, the U.S. broadband market is already healthy, and in most cases, competitive outcomes are close to optimal. Charges that broadband markets are dominated by monopolies or oligopolies and that they are therefore stagnant, over-priced, and of low quality do not comport with the empirical and economic realities. To take but one example, even with the overall rise of prices across the economy, and in the face of surging demand during the COVID-19 pandemic, U.S. broadband prices fell.

Concentration is a poor predictor of competitiveness, and broadband markets with even a small number of competitors can be—and are—quite healthy. Indeed, the multi-year, multi-billion-dollar investment plans broadband firms execute—amid constant pressure from alternative modes of Internet access like 5G, fixed wireless, and satellite—tell the story of a highly competitive, dynamic market.

To be sure, there are a few areas where there has been no meaningful wireline broadband buildout: Approximately 4.4 percent of the U.S. population does not have access to at least 25/3 Mbps fixed service. Even then, however, many of those areas are served by wireless Internet service providers (WISPs), cellular broadband, and/or satellite service.

But while the digital divide—both rural and urban—may be real, that fact alone does not justify wholesale intervention into broadband markets. Instead, the actual scope of the problem should be assessed, and policies tailored to remedy specific needs. The policies required to reach that stubborn 4.4 percent tail of broadband rollout are likely to be very different than those that facilitated the buildout of the first 95.6 percent.

Policies designed to close the digital divide should have two broad features: they should reach consumers where they are, and they should not disrupt the otherwise healthy broadband market. Reaching consumers where they are means targeting subsidies directly to consumers to make it more viable for existing providers to build out into new areas. Such policies should be technology-neutral and designed to stimulate demand to jumpstart markets that have otherwise proven too costly for any provider to enter. Avoiding disruption of healthy markets entails refraining from interventions that artificially introduce new competitors, skew investment planning by broadband providers, or dictate how and where providers should build networks.

There is much that can be done to encourage better and timelier broadband rollout, but not all solutions are equally effective. As we detail below, policymakers must choose carefully among competing options to realize the best possible result.

This paper aims to address common misconceptions associated with broadband competition that, in turn, undercut practical solutions for connecting the unconnected. It first details some of those misconceptions and contrasts them with the realities of current broadband markets. It then provides an overview of how to properly understand healthy competition in local broadband markets. It then provides a critique of commonly advanced proposals that are based on fundamental misunderstandings of how broadband markets work. And finally, it offers an approach to policy that incorporates a variety of solutions for connecting the unconnected.

Read the full white paper here.

* NOTE: Section 1.b was updated July 13, 2021, to reflect feedback regarding the paper’s interpretation of certain relevant economic studies.

Background…

Claims that the U.S. broadband market is insufficiently competitive have prompted public policy proposals to stimulate market entry, including through subsidies to government-run broadband service. The White House has incorporated similar proposals into its American Jobs Plan, while Congress also is considering increased subsidies for broadband as part of its infrastructure package.

But…

Competition in the broadband market is stronger than critics claim. Economists have long recognized that a market’s level of competition is not solely determined by the number of competitors. Seeking to increase the number of firms beyond what that market can profitably bear will lower societal welfare. A better way to encourage broadband buildout would be to remove regulatory barriers to entry.

Read the full explainer here.

May 31 is World No Tobacco Day and the World Health Organization wants smokers to “commit to quit.” Unfortunately, as with so many issues recently, the WHO misunderstands the problem—and its solution is both patronizing and ineffective. Worse, other WHO policies, such as its opposition to less harmful nicotine products, actually make it more difficult for smokers to quit.

Read the full piece here.

Virtually all countries in the world have adopted competition laws over the last three decades. In a recent Mercatus Foundation Research Paper, I argue that the spread of these laws has benefits and risks. The abstract of my Paper states…

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The European Commission recently issued a formal Statement of Objections (SO) in which it charges Apple with antitrust breach. In a nutshell, the commission argues that Apple prevents app developers—in this case, Spotify—from using alternative in-app purchase systems (IAPs) other than Apple’s own, or steering them towards other, cheaper payment methods on another site. This, the commission says, results in higher prices for consumers in the audio streaming and ebook/audiobook markets.

Read the full piece here.

ICLE Director of Innovation Policy Kristian Stout joined a digital panel organized by WifiForward and the Wi-Fi Alliance on the state of the Wi-Fi 6E market. The full video is embedded below.

These proposals threaten to go even further, and run the risk of causing significant harms that the CMA has ignored. It’s now up to the government whether the agency gets these powers. It should stand up for dynamic, competitive markets by saying no.

Read the full piece here.

The Digital Markets Act (“DMA”) is a complex piece of regulation. It includes some great ideas (as tackling predatory innovation) while being surprisingly conservative (defined as “?the wish to resist great or sudden change” by the Oxford Dictionary).

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In The Hidden Rules of a Modern Antitrust, Ramsi Woodcock argues that courts’ systematic use of the rule of reason, which underpins most of contemporary antitrust law, effectively amounts to an unwarranted blanket exemption from liability for potentially egregious practices. According to Woodcock, this is due to the interaction between the exorbitant cost of prosecuting cases under this standard (compared to the cost of enforcing per se rules), the courts’ increasing application of the rule of reason, and the shrinking budgets of antitrust enforcement agencies.

As this Response discusses, Woodcock’s bold claims ignore or misconstrue several critical aspects of the modern antitrust apparatus. Chief among these is the uncertainty that underpins antitrust enforcement, and the rule of reason’s role in decreasing this uncertainty. It takes time and experience for courts to form an opinion about the value of certain forms of business conduct, and rule of reason litigation increases the accuracy of all subsequent litigation—and the ability of both economic actors and antitrust enforcers to predict judicial outcomes and adjust their practices accordingly. This stands in stark contrast to Woodcock’s model, which assumes that courts are unable to differentiate between forms of ambiguous conduct (and yet simultaneously well informed enough about enforcers’ budget constraints to know whether they can “afford” to litigate under the rule of reason).

Winston Churchill famously quipped that “it has been said that democracy is the worst form of Government except for all those other forms that have been tried from time to time . . . .”  Much of the same could be said about the rule of reason. While it is certainly not perfect, policymakers have yet to find another standard that provides the same flexibility to accommodate ever-evolving forms of conduct with initially ambiguous effects on consumer welfare. Woodcock’s paper underplays these important virtues, while his more pointed critiques often miss the mark.