Demand Side Subsidies and Universal Access to Basic Communication Services: Lessons from Lifeline in Puerto Rico's Economic Recovery
Posted: 16 Mar 2018
Date Written: March 16, 2018
Recognizing the importance of Internet connectivity to social and economic participation, most governments have adopted policies with the stated objective of enabling universal access to high-speed Internet access services. Historically, supply side subsidies that aim to enhance private sector incentives to invest in network infrastructure have served as the primary instrument for expanding network coverage and adoption of new technologies (e.g. direct subsidies, tax breaks, monopoly rights). As coverage of high-speed networks has become increasingly ubiquitous in high-income countries, it has become increasingly apparent that affordability of Internet access services can represent a substantive barrier to accessing basic telecommunications services for low-income individuals and other marginalized groups. This is particularly the case in jurisdictions with relatively limited competition, high prices in market for Internet connectivity and significant economic inequality. Demand side subsidies that target making access more affordable to low-income groups have emerged as one possible solution to mitigating this aspect of the digital divide. This paper analyzes demand for the development of the Federal Communications Commission (FCC)’s Lifeline program, with a focus on its relevance for ensuring that everybody has access to basic communications services in Puerto Rico. For residents of Puerto Rico Lifeline has been critical to ensuring connectivity for those struggling to make ends meet. Of the population eligible for Lifeline, Puerto Rico has the highest participation rate at 60% of any U.S. state or territory. Additionally, when the FCC initiated a series of pilot projects to connect individuals to broadband - the pilot in Puerto Rico was the most successful in attracting service provider participation and take-up by low-income individuals. The experience with Lifeline in Puerto Rico highlights the desire and need for low-income individuals to be connected to broadband service, as well as the capacity of demand side subsidy mechanisms such as Lifeline to stimulate private sector investment and competition. The first part of the paper will analyze the state of Internet connectivity and the magnitude of the digital divide driving the strong demand for Lifeline in Puerto Rico. We then evaluate the unique challenges facing the residents in the wake of the devastation caused by Hurricanes Irma and Maria, the importance of enabling affordable access to basic communication services as they rebuild their communities and ensuring that low-income residents are not marginalized further from social and economic opportunities. We further discuss the implications of FCC’s proposed changes to the Lifeline program, which threaten to disconnect over 75% of Puerto Rico’s current Lifeline recipients and would make it hard, if not impossible, for those that now qualify for Lifeline following the storms to benefit from the program. Given that the FCC’s proposed changes to the design of Lifeline are likely to significantly reduce its effectiveness, the paper concludes by exploring the role that lower levels of government and the private sector can play in ensuring that everybody can afford to access basic communication services as they need to reconnect as they rebuild their lives.
Keywords: Lifeline, broadband, affordability, telecommunications
JEL Classification: 131, 128, K23
Suggested Citation: Suggested Citation