Michael Stern

America has spent billions trying to close the Digital Divide, but adoption disparities along many dimensions persist. The COVID pandemic has rekindled the strong interest in broadband adoption, with many in Congress now proposing to spend billions more to shrink the adoption gap. As might be expected, the Phoenix Center’s economic analysis prescribes that money should be spent where it is most effective (per dollar) at increasing adoption.

In this bulletin, we attempt to shed some light on the optimal design of Federal Communications Commission rules and practices for addressing interference disputes. Since spectrum licenses produce no benefits without large and mostly sunk investments in communications networks, our focus is on investment incentives. We argue that the Federal Communications Commission’s optimal interference policy would necessarily deal with different license holders differently when their sunk network investments vary.

We focus on sunk investments because if interference-causing repurposings are permitted and the significant sunk assets to provide services using spectrum are given short shrift, then the rational response of private parties is to curb investment. Put bluntly, regulatory policy towards interference concerns should favor those licensees with more “skin in the game,” with attention focused on actual capital investments in networks and not spectrum licenses alone. To provide context, we use the continuing saga of LightSquared Networks—a spectrum speculator now branded as Ligado—as a case study, though the analysis is in no way limited to the specifics of this ongoing proceeding.

Building and maintaining broadband networks is a tremendously expensive endeavor and even where networks are built they provide less benefit if vast swaths of the earth’s population does not see any value in using them. Research indicates that awareness, digital literacy, and affordability are the key barriers to adoption. A successful program, whether implemented by the public or private sectors, must expose nonusers to the benefits of being on-line and do so at low prices (or even free). While some governments have attempted to spur deployment and adoption, the public sector operates with limited resources.

Using subscriptions from the Lifeline program in the United States, we find that the use of the subsidy program rises with increases in unemployment and poverty. We suspect that private programs such as Facebook’s Free Basics may even be more effective than public programs, since the private programs are not influenced by political concerns and are available through participating operators to everyone for free without eligibility criteria.