Why unconditional broadband subsidies can be bad

Posted on February 1, 2009 / 3 Comments

The stimulus packages being worked up by governments the world over all seem to have a broadband component. Even the Sri Lanka government which barely has enough money to pay its bills, is thinking of launching a USD 100 million satellite for high speed Internet (I guess this means broadband?). Leaving aside the insanity of the Government of Sri Lanka operating satellites, even the other proposals to provide government subsidies to rollout fiber networks can have bad effects that need to be thought about, before taxpayer money is doled out. As the Economist points out:

Another drawback with big state subsidies for broadband is that they could distort the market and create regulatory problems. Fibre networks are already being built by private companies in many countries; the prospect of handouts might cause them to delay their plans, in the hope that the state will pay for things they were going to do anyway. Weaker operators, unable to finance new networks, would certainly like governments to come to their aid. To ensure that governments do not end up creating new monopolies, it makes sense to insist that any firm that builds a network using state subsidies must also open it to rivals, unpopular though this is with those lobbying for aid.

LIRNEasia’s evidence based views on this question can be found both in our book and on our blog.

3 Comments

Chanuka Wattegama
February 2, 2009, 7:47 am
Two questions posed to Amali Nanayakkara, CEO, AirTel Lanka by a local journalist and her answers below:

Q: Do you use satellite technology to provide mobile connections in India?

A: No

Q: Did you have any idea of using that technology in Sri Lanka?

A: It was what some people thought. I don’t know why. We were this late because we took time to build towers. In India we use towers and in Sri Lanka too we do that.

(Divaina Sunday Edition – Feb 01, 2009)

What is this sudden satellite madness? I am clueless. Can somebody shed some light?
Rohan Samarajiva
February 2, 2009, 12:10 pm
“The TRC chief said these satellites would bring about a huge foreign exchange saving as Sri Lanka was now dependent on satellites of other countries for broadcasting, telecommunications and even defence-related information.” This is a direct quote from the Sunday Times article on the launch of a Sri Lanka satellite(s).

I suppose the Director General believes that Thuraya is the real competition to Dialog, Airtel, et al.? And that Rupavahini signals are being picked up by invisible satellite antenna inside the TV set? And that Defense.lk is hosted on a satellite (I am sure he does not think it is hosted on mobiles like some people in government thought at one point about porn). These are just wild guesses. I have no clue, like you. Perhaps the wisdom of the crowd can help.

Just a note to the Times reporter: one must never say or write “foreign exchange”; it must always be said and written as “valuable foreign exchange.”
Rohan Samarajiva
February 3, 2009, 2:22 pm
More debate on spending taxpayer money on broadband rollout in the US. The US has imposed open access rules on operators that accept subsidies, which is a good thing.