Public Provisioning of Telecommunication Networks - Historical Case Studies and Application to Broadband Development

Abstract: The availability of high speed broadband access networks is widely considered a key factor for national competitiveness and economic growth. However, the construction of these networks creates two main challenges in the liberalized and privatized telecommunication markets, which may lead to private undersupply. First, the replacement of the access network wiring requires large asset specific investments, which are subject to regulatory hold-up. Second, access networks possibly create very large positive externalities. We are interested, if and under what conditions public provisioning is a superior provisioning regime in contrast to (regulated) private provisioning. Public provisioning can be used as an instrument to address market failure, facilitate economic growth, or provide non-cash transfers. We adopt a politico-economic perspective and view policy makers as utility maximizing individuals, whose scope of actions are constraint by a set of incomplete contracts. Public provisioning may thus be influenced by political bargaining about the quasi rents of the infrastructure investments. A distinctive feature of the public sector is that the outcomes of the political bargaining process can be, within the limits of the institutional environment, administered to the market by coercion. We provide long term case studies on the organizational structure of telecommunications provisioning from the mid 19th century to the present in Europe (Germany, and the United Kingdom), North America (the USA), and Asia (Japan, and South Korea), to analyze the motivations and outcomes of public provisioning.