Policy Analysis No. 410

Broadband Deployment and the Digital Divide: A Primer

By Wayne A. Leighton
August 7, 2001

Executive Summary

In the New Deal of the 1930s the Rural Electrification Administration used federal subsidies to extend electricity to rural and isolated communities across the country. By subsidizing the significant capital investment needed to run wires and build infrastructure, REA support brought electricity to households that might otherwise have waited many years for such service.

Today, similar arguments are being made for subsidizing new technologies, such as broad-band Internet service. Some people are promoting the equivalent of an “REA for broadband” to ensure that rural and low-income communities gain access to high-speed communications connections. However, the REA analogy is not only misplaced, it is harmful. The wires over which broadband service can be transmitted are already in place—owned by telephone, cable, and even electricity providers. Upgrades are needed to provide broadband, but not the massive investment that is required to run a new line to every customer’s home. And wireless transmission from both satellite and land-based systems has just begun. Whereas electricity has traditionally been provided by a single distributor, broadband Internet service has many potential distributors that use a variety of technologies.

Tax credits or subsidies to promote broadband deployment would distort competition between those technologies, enriching incumbents and thwarting the technologies of tomorrow. For an industry in which the technologies of today were unheard of just a few years ago, nothing could threaten progress more. And for those consumers who are waiting for prices to fall or service to extend to their communities, new technologies and competition will offer the best solution.

Lost in this debate, moreover, is the fact that access to the information superhighway does not require broadband. While broadband is superior, it is not necessary for access.

The first question, then, is whether low-income, rural, and other households are gaining access to the Internet at all. The second question is whether those households—and for that matter, all Americans—are gaining broadband Internet access. To both questions, the answers are decidedly positive. In light of this, broadband tax credits or subsidies appear to be an unwise, unnecessary, and expensive approach to what is quickly becoming a nonproblem.

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Wayne A. Leighton, now an economist at the Federal Communications Commission, previously served as a senior economist for the Banking Committee of the U.S. Senate. The views expressed in this article are those of the author and do not necessarily represent the views of the U.S. government or the FCC.