Competition, regulation, and broadband access to the internet

► The framework allows for an evaluation of policy measures to bridge the digital divide and to promote investment.► A welfare analysis compares service-based with facilities-based competition.► The paper highlights the importance of population density for whether firms provide internet access.► The analysis reveals a trade-off between coverage and penetration.

This paper reexamines the effect of the regulatory regime on both penetration and coverage of broadband access to the internet. The framework allows for an evaluation of policy initiatives, guidelines and measures to bridge the digital divide and to promote investment. A welfare analysis compares service-based with facilities-based competition and asks whether and how high-speed access to the internet should be subsidized. Using an approach similar to Valletti, Barros, and Hoernig (2002), the paper highlights the importance of population density for whether firms invest to provide internet access. The analysis reveals a trade-off between coverage and penetration.