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Broadband toolkit: Provider and consumer incentives

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What is it and what does it aim to do?

Governments in the UK and elsewhere have used a range of tools to encourage firms and households to take up broadband. Providers may be incentivised to improve broadband access through direct support (loans, subsidies and tax credits), through measures aimed at cost reduction (e.g. by making rights of way easier to obtain) or through the provision of market information (e.g. on the state of broadband coverage in local areas). Broadband access may also be incentivised by using demand aggregation policies (policies that co-ordinate households and/or firms to buy in bulk) or public sector commitment to takeup of broadband.

Other forms of consumer subsidy include user subsidies such as the UK’s SME broadband voucher. Other ways of encouraging consumer take-up are provision of complementary computers or IT training programmes.

How effective are they?

Four out of five studies find positive effects on firm or household adoption for at least one form of provider incentive policy, but there is some variation in success across types of support. Loans have a positive effect in two out of three studies. Administrative simplification has a positive effect in one out of two studies. A study on demand aggregation and a study on public demand both find positive impacts. A study on grants finds no effect. Finally, two studies that look at tax credits and territorial mapping systems find no effects.

Evidence from three studies suggests consumer incentives – in the form of user subsidies, provision of computers and complementary training – have a positive effect on household adoption. There is a lack of evidence on the effect of incentives on broadband speed and price. One study finds provider incentives lead to an increase in the market share of a faster form of internet (fibre optic) but do not lead to cheaper access (for fibre optic). However, it is not possible to say if these findings would generalise for standard broadband. There is no evidence on the impact of consumer incentives on broadband price or speed.

The limited available evidence suggests that certain forms of provider incentives (loans for provision) may impact positively on some measures of firm performance. One study finds a positive effect on firm revenue of loans. Another study finds positive effects on the number of firms, employees, and payroll, but only for loans with lax requirements and only in metropolitan areas.

How secure is the evidence?

This toolkit summarises the available ex-post (i.e. after introduction) evaluations of the effect of incentives for broadband. The majority of the existing literature uses case study approaches or qualitative interview techniques, often involving small numbers of participants to assess the impacts of policy responses to broadband incentive. This toolkit does not consider this evidence. Instead, we focus on evaluations that identify effects that can be attributed, with some degree of certainty, to the support provided. (More details and discussion of our inclusion criteria are covered in the annex.) We found 8 evaluations that meet our minimum evidence standards. There are five sub-national studies that examine two different programmes, all in the US. There are three cross-country studies that look at incentives across OECD countries.

No studies evaluating UK policies or support mechanisms met the evidence standards for inclusion in this toolkit.

Are incentives cost effective?

Three studies – all of them examining loans and grants – provide information that allows calculation of cost-effectiveness. One study reports loan amounts of £4,015 (for the pilot) and £3,785 (roll-out) per new firm connection. These figures are fairly similar, although the pilot may have been more costly to the exchequer due to higher default rates. This study examines outcomes for farm business only so may not be particularly representative. Another study of the same programme finds positive effects for firm outcomes only for the pilot programme and only in metropolitan areas. These effects imply loan amounts of £8,500 to increase payroll by £100, £1,448 per new employee, and £13,042 per new establishment. Note, however, that the pilot programme in non-metropolitan areas and the wider roll-out programme had no significant effect on these outcomes so the programme was not cost effective in those cases.

A study of a general telecoms programme (mostly grants and loans) reports costs of between £1161 and £1,355 per additional household broadband subscription. This is a smaller figure than that given above for adoption for farm businesses, suggesting that encouraging adoption may be more costly for firms than for households.

There are no cost effectiveness calculations for any other forms of provider incentive or for any consumer incentive policy.

Things to consider

  • Should incentives be targeted at consumers or providers? One study suggests that incentives aimed at consumers increase household broadband adoption more effectively than incentives aimed at providers. This is particularly true in countries with a high level of broadband penetration. The study also finds that demand subsidies are associated with the largest effects on adoption, followed by demand aggregation, loans for provision, and public demand.
  • Which areas should receive incentives aimed at providers? Evidence suggests that grants are an effective policy tool for both rural and urban areas if the aim is to increase broadband adoption, but only for urban areas if the aim is to impact on economic outcomes such as employment. These differences in impact across areas are consistent with the findings of our broadband evidence review.
  • How tight should loan requirements be for loans programmes? One study finds that the roll-out version of a loan programme (with tighter requirements) was more cost-effective at increasing adoption than the pilot (with laxer requirements). However, another study of the same programme finds that the roll-out has no effect on firm employment or number of firms. The study finds that only in the pilot, and only in metropolitan areas, did the loan have a positive effect on these outcomes.
  • How can governments increase broadband take-up for households that are not using broadband despite availability of infrastructure and service affordability? Households in underserved areas may not use broadband even when infrastructure is provided. In this case, government may need to pursue complementary policies that make broadband more appealing if it wants to increase adoption. One study finds that complementary programmes – providing digital literacy programmes or subsidising computers – are more effective than provision programmes alone.
Broadband toolkit: Provider and consumer incentives