Impact of Municipal and Cooperative Internet Provision on Broadband Entry and Competition

Abstract

The broadband market is unique for municipal (government-owned) and cooperative (member-owned) competitors. Their participation, however, raises conflict of interest concerns. Both municipalities and cooperatives are owners of utility poles that are an essential input for broadband deployment. Internet service providers (ISPs) must lease pole attachment space. While most investor-owned (i.e., private) pole attachment rates are regulated, municipal and cooperative pole owners are exempt by Section 224 of the Telecommunications Act. This paper studies the differential competitive effects of municipal and cooperative ISPs, on broadband entry and quality at the census block level. As part of this analysis, we additionally add to existing literature by designing a method to clean the Federal Communications Commission’s (FCC) Form 477 broadband data, building a geographic dataset for municipal and cooperative non-ISP service areas in Illinois, and developing a novel geographic entry threat model and creating a census block level measure of adjacency threat in Illinois. Looking at Illinois from June 2015 to December 2020, we find that the presence of a municipal ISP or a cooperative ISP lowers the probability of further market entry controlling for existing incumbents, adjacency threat by nearby ISPs, and other market factors.

Keywords: Broadband deployment, Public enterprise, Anticompetitive practices, Government Broadband, Municipal Broadband, Cooperative Utility Broadband, Digital Divide

JEL Classification: L32, L41, L96