Document(s): 

subsidising_the_next_generation_infrastructures._consumer-side_or_supply-side.pdf

Author(s): 

François Jeanjean

Year of publication: 

2009

The constant increase of households’ bandwidth consumption reveals the need of an
ultra broadband infrastructure. Furthermore, it is widely accepted that such
infrastructure will improve economic growth and employment. However, the cost of
such a roll out is high and the households’ rate of adoption is uncertain. Therefore
operators hesitate to invest massively. In such a context, public intervention could
help rollout.
But what exactly is the most efficient form of intervention and to what degree is
each form most appropriate. This paper studies, more specifically, subsidy strategies:
Subsidizing the demand by a contribution to each household’s subscription fee for a
predetermined amount of time (a refund, a tax cut) or subsidizing the infrastructure by
means of a contribution to operators’ infrastructure costs? In this paper, we explain
that subsidizing the demand is more efficient, in welfare terms, than infrastructure
subsidies as long as the consumers’ demand for ultra broadband remains elastic
enough and that the decrease in costs is dynamic enough to allow private operators to
extend the roll out of the infrastructure fast enough without subsidies.