Technological Innovation and Quality Improvement in U.S. Broadband
37 Pages Posted: 17 Dec 2020
Date Written: December 15, 2020
The availability and quality of broadband service in the United States has been elevated as a salient policy issue by the migration of both households and firms to online activities in response to the Covid-19 pandemic. This paper investigates the effects of entry by non-incumbent broadband internet service providers (ISPs) making use of innovative, new non-legacy technologies (i.e., fiber and wireless) on residential broadband service quality offered by incumbent legacy (i.e., cable and DSL) ISPs.
In 2019, the Federal Communications Commission released major corrections to its previously released Form 477 data on U.S. broadband deployment over the 2014-18 period that greatly reduces estimates of entry by new broadband ISPs into urban census blocks. Overall, entry into U.S. urban broadband markets falls by about half, compared to previously released, uncorrected data.
Using data from this and multiple other sources, we build a rich panel data set covering all residential broadband services available, by ISP, technology and maximum advertised download speed for each of approximately six million populated U.S. census blocks between December 2014 and December 2018. In contrast with the previous literature, we utilize highly disaggregated data, control for evolving government subsidies to underserved census blocks, and relax strong statistical and economic assumptions maintained in prior work.
This paper explores causal effects by estimating variants of a difference-in-differences model with a rich set of control variables. Our model controls for time-invariant unobservable heterogeneity using census block fixed effects. These allow us to identify the effects of entry of new ISPs on service quality in legacy networks serving urban residential customers in spatially disaggregated local markets. We also study reduced form models explaining ISP entry and assess the strength of candidate instruments to mitigate potential endogeneity caused by measurement error in counts of fixed wireless competitors, as well as possible unobserved time-varying census block heterogeneity relevant to ISP entry and exit.
Our results suggest that entry into a 2014 “legacy duopoly” census block (about 40 percent of US census blocks were legacy—cable and DSL—terrestrial broadband duopolies in 2014) by other legacy ISPs had a large and statistically significant impact on improvements to maximum broadband quality offered to consumers by legacy ISPs serving a given block. Increased competition in local broadband markets from such “overbuilding” by established broadband providers seemed to result in significant quality improvements within a block.
These results are consistent with a previous empirical literature that shows mixed, but generally positive effects of increased competition on product quality. More striking is the relatively small impact of increased competition on legacy ISP service quality in comparison to the apparent impacts of underlying time trends on legacy broadband speeds, trends that we believe primarily reflect dramatic technological changes over the 2014-18 period.
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