New Zealand offers a through-provoking case study of the effects of different competition and regulatory policies on broadband diffusion rates. Despite having one of the highest rates of Internet connection and usage in the OECD, widely available broadband infrastructure, and low broadband prices, broadband uptake per capita languishes in the bottom third of the OECD. While low uptake has typically been attributed to competition and regulatory factors associated with New Zealand’s ‘light-handed’ regulatory regime, this chapter proposes that a more credible explanation lies in a combination of New Zealand’s legacy of demand-side regulations, in particular the retail tariff options for voice telephony, and the limited value being derived by New Zealand residential consumers from the small range and narrow adoption of applications used currently that necessitate broadband connections. The New Zealand case illustrates the effect that legacy regulations can have on both the diffusion of new technologies per se and the choices made by consumers between different generational variants within that technology. The case indicates a need for more research on the effect of telecommunications industry regulations on demand-side uptake factors.
Key Terms in this Chapter
Flat-Rate Tariff: A variation of a two-part tariff where the second tariff is set at zero.
Variable Cost: A cost that increases in direct proportion to the number of units produced (suppliers) or consumed (consumers).
Monopoly: A single seller in a market.
Information Asymmetries: Differences among individuals in their information, especially when this information is relevant to determining an efficient plan or to evaluating individual performance.
Fixed Cost: A cost that does not vary with the number of units produced (for suppliers) or consumed (for consumers).
Local Loop Unbundling (LLU): A form of regulatory access requirement whereby an incumbent network provider is required to lease elements of the proprietary network (principally the twisted copper pair connecting end users’ premises to the local switching infrastructure) to competitors, to enable the competitors to provide a service in competition to the incumbent. Competitors may then add their own equipment to the incumbent’s equipment, and/or differentiate other aspects of the service provided, such as sales, product, and service bundles. For a full description, see Cave (2006).
Utility Function: A numerical representation of an individual’s preferences over different possible choices or situations.
Market Power: The ability of a firm to set prices profitably above competitive levels (marginal cost).
Two-Part Tariff: A firm charges a consumer a fee (the first tariff) for the right to buy as many units of the product as the consumer wants at a specified price (the second tariff). See Carlton and Perloff (2000, pp. 297-331).