Local authorities are often involved in determining the competitive landscape of important services. In particular, Section 253 of the Telecommunications Act, in part, states that a local authority cannot ‘prohibit or have the effect of prohibiting the ability of any entity to provide any interstate or intrastate telecommunications service.’
Our paper will analyze how a local authority’s attempt to introduce competition (through subsidization of an ISP) in a high fixed cost and advanced technology industry, such as the broadband internet market, could actually worsen competition by restricting incumbents’ ability to compete and provide services. Our analysis will calibrate a simple model of intertemporal entry and competition of the broadband internet market to anonymized proprietary data obtained from a cable broadband provider. Our data consists of information on network buildout costs at various levels of the network, from the digging of the conduit network to the last mile drop conduit. Our model will map out the space of a set of structural parameters where various competitive equilibria arise. Key parameters will reflect important aspects of the broadband internet market. Of particular interest are aspects that local authorities guide policies over, for example, the technological compatibility of subsidized infrastructure, fair access to subsidized infrastructure, and the granting of rights-of-way (ROW) to market participants. With the model’s parameter space mapped out we will discuss the considerations a local authority must consider before subsidizing an entrant ISP. Our research is of particular relevance to contemporary communications policy as access to affordable high-speed internet becomes an integral part of our lives, and federal, state, and local authorities are looking for ways to achieve this.