Free Service is Not a Panacea to Digital Divide: An Empirical Analysis of Free Rural Broadband Policy

Abstract:     
Availability and affordability affect broadband adoption of rural areas. However, low subscription rates of free rural broadband service argue whether free service is a panacea to digital divide.

Broadband to Every Village, a common slogan in developing countries, has been implemented in Taiwan. Some Internet service providers are fully subsidized by the National Communications Commission (NCC) using universal service fund to deploy optic fiber for 350 rural villages in seven years. The expense of hookup service is waived and the monthly broadband is free of charge during the first two years for subscribers in these villages. The data, collected in March 2012, covers the 155 villages with free broadband connection established. Subscription rates range with great differences from zero to 100 percent, but the average subscription rate is only 18 percent. Our regression model indicates that education, population density, local telephone line penetration rates and age are four significant factors explaining 87 percentages of variation of the subscription rates. In contrast, ethnicity, whether village residents are aboriginals or not, is insignificant. The empirical research also highlights the importance of broadband education and computer skills to the implementation of “Free Broadband to Every Village policy.” Finally, the regression model can assist policy makers to forecast broadband demand of each rural village and decide priority list for offering broadband service.

Keywords: Universal service, Connectivity, Demand, Policy, Free broadband, Digital divide

JEL Classification: D12, I38, O18

working papers series