Investment, Subsidies, and Universal Service: Broadband Internet in the United States

Access to the internet is critical for participating in modern society, yet, 17% of Americans lack access to broadband internet, according to the Federal Communications Commission (FCC). A key objective of the FCC is to promote policies that advance the availability of quality telecommunications services across the United States. To that end, the FCC has recently secured funding to provide subsidies to internet service providers on a massive scale, and has been given considerable flexibility in the distribution of these funds. The aim of this paper is to identify the determinants of internet service providers' decisions about entry into new markets and upgrades to existing infrastructure, and to use this information to provide policy recommendations about how to target subsidies in order to best accomplish the longstanding goal of Universal Service. To do this, I develop a dynamic model, which encapsulates potential entrants' decisions to enter new markets as a low-speed or high-speed provider, as well as incumbents' decisions to upgrade their infrastructure, maintain service, or exit markets. I then estimate this model using data from the National Broadband Map, a recent initiative to precisely track availability of broadband internet across the United States. Then, I use this model to perform counterfactuals, which generate predictions of firm behaviors under a variety of proposed subsidy structures.