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Assigning Broadband Rights

May 2004
Working Paper
03-027
By  Bruce Owen
Should rights of access to local broadband facilities be reassigned from investors and, if so, to whom: users, ISPs and content providers, a collective, or no one? A prominent reason for considering such a policy would be a barrier that prevented the voluntary transfer of such rights in response to a differentially higher valuation by someone other than the initial investor. No such barrier appears to exist. Indeed, access to broadband facilities is now routinely offered for sale and broadband facilities investors adhere, not surprisingly, to the prevailing technical standards that permit their transmission services to be useful for transmission.

This article is devoted to analysis of the costs and benefits of alternative rights assignments in the cases of, first, access to broadband facilities, and second, the right to define and use technical standards that establish interconnection and transmission possibilities. A market reassignment cannot be relied upon in the case of rights of broadband access or standard-setting. Therefore, unless content providers are indeed the most efficient holders of access rights, it would be an error, potentially grave and costly for the government to assign access rights to them. The “natural” or default initial assignment of rights to control the use of a commercial facility is with the person who invested in its creation. Otherwise, the facility is unlikely to be constructed.

There may be reason to disturb the “natural” assignment if market transfers to more efficient holders are difficult and expensive. One obvious reason for reassignment is market power. A second reason for favoring reassignment of initial property rights is spillover effects, or “externalities”. A third reason for intervention to reassign initial property rights may be that leaving those rights where they fall can lead to technical decisions that inadvertently discourage innovation and investment by others.