Public Policy Institute of California CEP California Economic Policy Ellen Hanak, editor Volume 3, Number 2 n July 2007 Broadband for All? Gaps in California’s Broadband Adoption and Availability By Jed Kolko SUMMARY early half of California households have broadband (high- speed) Internet access. Broadband is more widely available Nin higher-income and higher-density areas, and there are large gaps in access between the urbanized coastal regions of California and the more rural inland areas. Differences in broadband adoption rates between different racial and ethnic groups are also significant, although some of these are due to different rates of computer ownership. The technical features of broadband, including the scale economies in providing broadband infrastructure, make some regions of California more profitable to serve than others, leading to gaps in availability. Even where broadband is available, the cost of service, as well as the cost of computer hardware, results in higher rates of adoption for some than others. However, these gaps are hard to measure. This issue of California Economic Policy assesses the extent of inequalities in broadband adoption and availability in California, using an innovative method to measure its availability. All levels of government—federal, state, and local—have policies to make broadband more widely available: Policymakers hope to raise the overall level of adoption and to close the gaps between those who have access and those who do not. This report reviews the policy approaches that California and its cities are taking to raise broadband adoption and availability, includ- ing local efforts to provide municipal Wi-Fi (wireless broadband). It concludes that broadband policy in California should focus on increasing availability in rural areas and helping raise adoption rates among disadvantaged groups in urban areas. California Economic Policy is a series analyzing and discussing policy issues affecting the California economy. California Economic Policy Broadband for All? Introduction more available to businesses encourage job growth, increase profits, or raise productivity? Does mak- alifornia policymakers both locally and at ing broadband more available to public workers the state level are undertaking numerous lower crime rates or improve emergency response? initiatives to raise the level of residential C The answers to these essential questions are largely broadband Internet adoption in the state. Through unknown, and academic research is only beginning regulation, subsidies, and direct provision, state to approach them. and local governments seek to make broadband Nonetheless, there are several cogent argu- more widely available and, where available, to raise ments for the proposition that government should adoption rates among groups less likely to have be involved in raising broadband availability and access. However, in trying to overcome these gaps adoption and that—in the absence of government in availability and adoption, policymakers lack clear involvement—broadband use could be below a information about who in California has access to socially optimal level. On the supply side, broad- broadband and who can get it. In fact, the only band provision involves high fixed costs, especially comprehensive measure of availability widely used in rural areas; if providers were to spread the fixed by policymakers is flawed and certainly overstates cost of provision among subscribers, prices would the level of broadband availability in the state. be above marginal cost and too few people would This report uses an alternative measure to adopt. Furthermore, broadband is most efficiently assess the extent of broadband availability, adop- provided using publicly owned resources: Digital tion, and the digital divide within California. It subscriber lines (DSL) and cable lines follow exist- seeks to answer the following questions: ing rights-of-way, and wireless networks involve • Does California lead or lag the country in siting antennae on public property. On the demand broadband adoption?1 side, there might be positive externalities in broad- • Are there inequalities in broadband availabil- band adoption, so that the benefits to society of ity within California? someone adopting broadband exceed individual • Are there inequalities in adoption within Cali- benefit. Also, broadband adoption encourages some fornia and, if so, are such inequalities more online behaviors, such as looking up medical infor- pronounced for broadband adoption or com- mation, leading to better health outcomes—some- puter ownership? thing most societies consider to be a public benefit. Why should overcoming a broadband digital Finally, businesses may be drawn to places where divide, or raising the level of broadband adoption, broadband is more widely available, both for bet- be a policy goal? No one argues ter infrastructure and for a workforce that is more that government should boost technologically literate, so governments consider Through regulation, ownership of other technologies broadband to be an economic development tool.2 subsidies, and direct such as DVD players and digital The first section of this report reviews the dif- ferent aspects of the term “digital divide.” The provision, state and local cameras. The difference is that broadband access (and Internet second section explains the economics of broad- governments seek to access generally) is believed to band and the technical features that could lead to make broadband more give social or economic benefits geographic differences in availability. The third widely available and, that are in the public interest. But section outlines current broadband policy at the where available, to raise does making broadband more federal, state, and local levels. The fourth explains available to residents improve an alternative approach to measuring broadband adoption rates among health outcomes, lower unem- availability: This involves inferring availability groups less likely to have ployment, or improve job qual- from adoption patterns found in a particularly rich access. ity? Does making broadband dataset, and it overcomes important shortcomings 2 PU B L ic P O L ic Y I N S tit U te O F C A L if ORN ia California Economic Policy Broadband for All? Text Box 1. Should We Care About Closing the Digital Divide? Some research has found positive effects of Internet use A companion study (Kolko, 2007) looks at how generally, although not broadband specifically, on social broadband adoption changes online behaviors—it has and economic outcomes. For example, using the Inter- a positive and significant effect on downloading music, net to get vehicle price information lowers costs to con- purchasing, visiting adult sites, and researching medica- sumers by around 2 percent; furthermore, online vehicle tions and medical conditions. Adopting broadband has price information eliminates the price premium that racial no statistically significant effect, however, on visiting job minorities pay offline for new cars (see Morton, Zettel- or government sites—two of the many goals that govern- meyer, and Silva-Risso, 2001, 2003). A separate study finds ments regularly hope for when considering municipal that home computer adoption is greater among people wireless initiatives. whose family or friends are more likely to use computers Some studies have attempted to measure the aggre- and, specifically, email. This finding suggests that Internet gate economic effect of higher broadband adoption, use offers a positive externality, which although not a part focusing on the effect of wider broadband deployment of the public debate about broadband policy, is the kind on job growth (especially in telecom industries respon- of justification for public spending that economists find sible for building the infrastructure), cost savings from compelling (see Goolsbee and Klenow, 2002). increased business efficiency, and the increase in con- Other research, however, finds that the Internet does sumer well-being. Estimates of the economic benefit not necessarily lower consumer prices or even benefit its of broadband are highly sensitive to methodology and users. Average online book prices are no lower than in tra- assumptions: One study’s estimates range from $32 bil- ditional bookstores, and online sellers exhibit significant lion to $350 billion per year in consumer surplus nation- dispersion associated with differentiated strategies (see ally, depending on assumptions about the shape of the Clay et al., 2002). Job searchers who use the Internet do demand curve (Criterion Economics, 2003).3 not have shorter unemployment durations than searchers who do not (see Kuhn and Skuterud, 2004). in other measures of broadband availability tradi- ties in how much benefit indi- tionally used in policy analysis. The fifth section viduals get from information Why should overcoming presents findings about broadband availability and technology. Furthermore, the a broadband digital adoption in California. The final section draws digital divide can refer to a wide divide, or raising the level conclusions and suggests courses of action. range of information technolo- gies. This report focuses on the of broadband adoption, digital divide in broadband, and be a policy goal? Gaps in Broadband Availability this section describes how avail- ability, adoption, and complementary skills con- and Adoption tribute to the broadband digital divide. This report general definition of the digital divide is also considers the digital