Transition of non-regulatory public policy towards broadband:a multi-countries analysis
Mingchan Cheng
Graduate school of Economics, Kyushu University
Abstract: Due to the process of liberalization and privatization in 80s, attention had been
focused primarily on opening the market, a growing agreement has favored the idea that thefinancing of infrastructures should be a matter to be entrusted entirely to the market. Hence,
direct public intervention was ruled out and the role of policymakers was limited to regulatory
actions, which designed by independent regulatory authorities supervising firms withsignificant market power. However, when broadband was targeted, the high cost of
construction of broadband lines and the low propensity of investing in rural and peripheral
areas have again placed the issue of financing telecommunications networks in the hands ofpolicymakers. How the intervention should be articulated became the issue of the debate.
There is a discrepancy in previous studies about the timing and interaction between demandside and supply-side policies. It is mainly due to the fact that the specific conditions and thecontext in which these tools are applied matter. Thus, taking the time dimension into
consideration, this paper examines the direct public policies which have been adopted inselected countries, and provides a description how those policies have been adjusted.
Keywords: broadband penetration, direct public intervention
Introduction
The benefits of broadband use have been widely realized and broadband diffusion is one of
the items at the top of the topic for information and technology related polices of governments
worldwide. However, there is a wide variation in broadband penetration both among countries
and within each country. Thus, precisely grasp why broadband connections still prone to havea patchy diffusion across countries and within each country raises a challenging issue for bothresearchers and policymakers.
The level of broadband development and the growth rate of broadband penetration are thecomplex outcome of many complementary factors, ranging from socio-economic
determinants (including income, location, education and other factors) to regulatory actions(indirect policy) and to non-regulatory public policy(or direct public policy). The nonregulatory factors refer to the direct forms of public policy interventions in broadband
diffusion (e.g. subsidy) which is also the focus of this paper.
The worldwide countries have been anxiously pursuing public policies to promote broadband
uptake and the upgrade of existing networks. Various policies have been adopted by different
countries over time. However, the performance of those policies are not fully studied. Only ahandful of articles have been specifically investigating the effectiveness of public policies forbroadband promotion with inconsistent conclusions, and most of them are qualitative research,empirical studies are rarely conducted. Thus, this paper would like to further examine thenon-regulatory public policies and the process of broadband diffusion.
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Figure 1 Factors influencing development of broadband

Framework of this paper
The paper will firstly conduct a survey of literature regarding to direct public intervention,
including the debate on government intervention in broadband diffusion, categorization of
government intervention, concentrating on the issue of by what means public policy candirectly exert the governmental impact on the development of broadband, and the influence of
public policy on broadband diffusion, addressing the effectiveness of direct public policy.
Then, an analytical framework for IT innovations diffusion will be discussed. Through a
comparative study on broadband policy, applying the aforementioned framework, in UK,
Sweden, Korea and Australia, a description how those policies have been adjusted is provided
and a hypothesis is proposed.
An analytical framework for IT innovations diffusion
The analytical framework applied in this study was proposed by King et.al.1, which is often
used for examining how and to what extent the institutions intervene in ICT diffusion. The
model is constructed on two dimensions of potential institutional action: influence andregulation which institutions might exert, supply-push and demand-pull forces which provide
a context for the government actions. Combing the two types of intervention with two way ofdriving forces, the researchers classified these actions into six general kinds: knowledge
building, knowledge deployment, subsidy, mobilization, standard setting, and innovation
directive.
Supply push
Influence

demand pull

Knowledge building

Knowledge deployment

Knowledge deployment

Subsidy

Subsidy

Mobilization

Innovation directive
Regulation

Ⅰ

Ⅱ

Ⅲ

Ⅳ

Knowledge deployment

Subsidy

SubsidyStandards settingStandard setting

Innovation directive

Innovation directive

Dimensions of institutional intervention (Source: King et al., 1994)
1 King, J. L., V. Gurbaxani, et al. (1994). Institutional factors in information technology innovation. Information Systems

Research 5(2), 139-169.

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Since the current paper focus on the non-regulatory public policies, based on the above
framework, but only on the side of influence.
Despite the inconsistent definition used in the technology-push and demand-pull spectrum,
this study follows the description by King et al. (1994) that the influence of demand-sideforces is exerted on subscriber. The demand side forces refer to a pull arising from thewillingness of potential users to adopt broadband service, while the supply side forces are
related to a push for broadband coverage coming from the provision of resources to support
operators and the construction of broadband infrastructures. Relating to this study, the author
applies the description of interventional actions in broadband diffusion as follows.
The strategies of knowledge building refers to financial support for research and development
activities of technology. Knowledge deployment means the dispersion of key concepts andtechniques through education or training programs funded by governments. Subsidies areprovided whenever an institution uses its resources to defray the otherwise unavoidable costs
and risks to operators and users in process of broadband diffusion in use. Mobilization
basically expresses the intention of the government to make individuals to perceive thepotential benefit of broadband and understand the best practice for spurring them to do.
Innovation directive is a command to engage in some activity in order to set an example forcompanies and individuals that tend to use the technology.
According to the objective of intervention, the non-regulatory public policies are categorized
as follow.
Supply-side policy tools
objective

Types

Instrument
diffusion

Reducing private operators'
costs of deployment

Fiscal incentives

Knowledge building, subsidy

Administrative simplification

Innovation directive

Long-term loans

subsidy

Enhancing private operators'
access to the market

Territorial mapping

Knowledge deployment

Directinvestment
broadband infrastructures

Investment in the constructionof a backbone network

SubsidyInnovation directive

Creationofapublicinformation infrastructure

Knowledge deployment
Innovation directive
Subsidy

Provisionofbroadband
services through municipal
utilities

Knowledge deployment
Innovation directive
Subsidy

objective

Types

Instrument
diffusion

Increase value of broadband
access(vanquish
digitalIncrease
usefulavailabilityofof

technology

Demand-side policy tools

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contentoftechnology

Knowledge deployment
Innovation directive

illiteracy and increase theperceived value of broadband
for non-adopters)

Increase IT skills

Knowledge deployment

Increase awareness

Mobilization

Reducing cost of broadband
subscription

Subsidy and incentives toprivate and business demand

Subsidy

Demand aggregation

Knowledge deployment

Discussion
After examining the direct public polices of UK, Sweden, Korea, Australia, inserting the time
dimension into the framework, the transition of non-regulatory policy towards broadband inselected countries, using institutional intervention aforementioned can be described as follow.
The direct public policies pursued by the UK government initially mostly tended to be on the
demand-side, relying largely on market forces to deploy broadband service. Directgovernment investment in infrastructure was limited. From 2003, UK government began toimplement supply-side policies. Government support projects was initiated and direct
investment has been put into broadband infrastructures.
The Swedish government has had been actively involved in rolling out broadband
infrastructure through public investment. Supply side policies to promote broadband diffusion
have been widely employed by Swedish government since 2000, and the penetration has
increased from then on. Until 2007, the growth slowed down as the market matures, supplyside polices were mainly adopted to support the infrastructure development in remote area.
However, it must be mentioned, early in 1998, Swedish government had taken demand-side
policies to increase PC ownership, since previous empirical research shows broadband takeup significantly benefits from computer penetration, and raise the public perception ofbroadband as a better Internet access technology.
The Korean government has taken great interest and played a significant role in developing
broadband and launched a series of related technological initiatives. Korea was the first to
establish a national policy to promote the deployment of information technology in the public
and private sectors as early as 1987. The use of IT in government agencies and digital literacy
were promoted by government at a very early time. From the mid-1990s, ambitious supplyside policies, KII, BcN and UBcN, have been announced by government to construct anadvanced national information infrastructure of communication networks. On the demandside, along with the supply-side policies, the Korean government has also implemented anumber of initiatives to promote broadband take-up. However, in recent year, the government
intervention are primarily allocated on supply side to support technology development.
An observation from Australia’s direct public policies shows direct public policies havelargely been implemented on the supply-side, while, demand-side policies were not perceived
as important contributions to national broadband success stories. By 2006, demand side
subsidies were introduced to increase broadband adoption. Still, government shows great
propensity for building infrastructure, large public investment were planned to allocate on theambitious program NBN.

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UK
Demand-pull

Demand-pull/supply-pushsupply- push(broadband was introduced)

SwedenDemand-pull

supply-push/demand-pull

supply-push/demand-pull(broadband was introduced)

Korea
Demand-pull

supply-push/demand-pull

supply-push(broadband was introduced)

Australia
Supply-pushsupply-push/demand-pull

supply-push/demand-pull(broadband was introduced)

By observing the transition of non-regulatory policies, questions may arise that, the diffusionof broadband is driven by market demand or supply push, since different policy makers haveadopted different combination of instruments in direct intervention, leading to various
performance.
However, the issue that broadband, as an innovation product is subject to demand-pull or
supply-push has not been widely discussed. From the observation in this paper, a hypothesis is
proposed:
Broadband diffusion is more likely to be demand-constrained rather than supplyconstrained, with supply side policies can efficiently facilitating the process of diffusion at theinitial stages.
The hypothesis has two implications:
1. Broadband is primarily demand-constrained and market, users are the key driving forces.
In light of the fact that government interventions have been historically allocated on supply
side, the hypothesis may seem surprising. And there is also no empirical researchdemonstrating that market demand was the major factor for broadband diffusion. However,justifications can be deduced from previous research and found from the observation.
Theoretically, broadband is not only an innovation product, but also an incremental product.
Since other less advance Internet access technology (e.g. dail-up) had been perceived byconsumer before, broadband, as a manifestation of technical advance in communications
technology, should be identified as incremental innovation. Thus, it is reasonable to assume
user demand is the primary factor and that markets should be the key drivers of broadband
diffusion (Incremental innovations are consistently regarded as being driven by demand-pullin despite of the long debated whether innovations is driven by market demand or bytechnological shifts.).
Observationally, despite of the active governmental involvement in supply side, we can noticethat demand side initiatives were implemented in both Korea and Sweden, which have been
regarded as top performers in broadband provision and adoption around the world, to raise thedemand for broadband services before the supply side intervention was allocated to deploy
infrastructure. In contrast, there was little effort to generate demand in Australia but high5

public investment in telecoms infrastructure. Correspondingly, the broadband adoption is very
low with high coverage (Figure 3). So it is hardly surprising Australia were was well behind
the OECD average for total broadband subscribers per 100 inhabitants in the early 2000s.
2. Supply side policies can efficiently facilitating the process of broadband diffusion at theinitial stage.
Comparing to the conclusion for incremental innovation, which did not discuss whether, or
how a supply push can work during the diffusion process, the hypothesis, taking the timing
into consideration, suggests a supply push can positively impact the broadband diffusion at
the initial stage.
First, the role of supply side polices have played in broadband diffusion is a facilitator which
implies it is possible to reach the expected achievement without those interventions.
Second, it can not deny that supply side policies can efficiently facilitate broadband diffusion,at least initially. It is can be seen that, in the case of Korea, Sweden and UK, once the supply
side supports were provided, the broadband penetration started to take-off.
Third, there is no theoretical/empirical research demonstrating that supply side policies cancontinually influence broadband diffusion in efficient over time. It is reasonable to assume
that the broadband firstly reaches to metropolitan area with remote area subsequently being
covered, correspondently, the willingness to subscribe broadband service is higher in urban
area. At an advanced stage, operators was going to reach those low willingness consumer.
However, the available access to broadband service without being adopted by users rarely
contributes to broadband penetration.
Finally, there are some limitations in this study. First of all, programs included are notexhaustive. On the other hand, the current study has been restricted to 4 developed countries.
Further step should be to increase the number of countries included in the study andempirically test the hypothesis proposed in this preliminary work.
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Korea

coverage of DSL

SwedenUnited Kingdom

broadband penetration

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0.00

Figure 2 Broadband growth from 1997 to 2011

Figure 3 Broadband penetration and DSL coverageof selected countries(the population covered) in Australia

2(Source: OECD )2OECD. Broadband Portal, Retrieved from <http://www.oecd.org/sti/broadbandandtelecom/oe cdbroadbandportal.htm>.

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