Tuesday, December 06, 2005

No market failures in Dutch broadband market

Yesterday the Dutch central planning bureau CPB published a long-awaited study on broadband. According to the CPB the Netherlands scores well in comparison to other countries. The penetration is one of the highest in the world. Investments in innovation have led to ever higher download speeds for consumers against ever lower costs . This is possible due to the fierce competition between ADSL and cable providers.

As broadband telecommunication is seen as a source of productivity gains, the European Union and other regions are encouraging the deployment of a secure broadband infrastructure. In the Netherlands, there is some concern whether the supply of broadband capacity will meet the strongly increasing demand. This report analyses the broadband market and asks whether a specific role of government is necessary. The main conclusions are that presently, given current broadband policy, no considerable market failures exist. Firms have adequate incentives to invest in broadband, partly induced by specific regulation of access to the local copper loop.
Hence, there is no need for changes in current broadband policy. Market failures in terms of knowledge spillovers are taken care of by other policies. As the broadband markets are very dynamic, unforeseen developments may emerge such as the appearance of new dominant techniques and market players. The best strategy for the government, in particular the competition authority, is to continuously monitor these markets, making timely intervention easier when needed.

The CPB notes that there is no proof of market failure, which necessitates government interference. The present policy of of the Dutch government offer enough incentives for market players in order to invest in broadband. The CPB warns for the negative effects of a more active government influence such as subsidies. Implicitly there is a reference to the glass policy which the Dutch government and municipalities (Amsterdam, The Hague and Rotterdam) are striving after. CPB indicates that government and municipalities might make the wrong technology, which the market does not like.

The report notes that there is no serious geographical digital divide in the Netherlands. Most households have access to either DSL or cable. To some extent, a social digital divide occurs and this finding is linked to labour market issues. Elderly people and low-income groups have relatively less Internet connections. In the course of time, this digital divide will diminish as next generations will be more and more experienced computer users.

The 130-pages study with great stats is in the English language with a Dutch summary and can be downloaded as a PDF.

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