Tuesday, September 27, 2016

Free Basics and Other Sampling Programs Help Solve Both Demand and Supply Issues for Internet Access

Ultimately, demand might be the bigger barrier to ubiquitous Internet usage than supply, even if both supply cost and demand value are key issues in most markets, according to the Phoenix Center for Advanced Legal and Economic Public Policy Studies.

On the supply side, the high cost of infrastructure is the main barrier, suggesting that mobile networks will be the way most people eventually get access to the internet.

Despite differences in the economic fundamentals of nations, the barriers to deployment and adoption are categorically of the same underlying nature.

On the supply side, the lack of access to broadband is mostly a financial issue driven by the high infrastructure costs of network deployment relative to the revenue potential.

On the demand side, awareness and digital literacy as well as affordability are the key issues. “Awareness” means use of Internet apps and services is an experience good.

An experience good is a product for which the value is difficult to ascertain prior to its consumption. One proven way to solve that problem is to allow “sampling” of the product. That is the idea behind Free Basics, the Internet.org initiative that provides access to a suite of apps without requiring that users buy a data plan.

The issue is sustainability: how to balance the use of promotions and sampling with the longer-term goal of generating enough revenue to build and maintain the access networks.

And that is where economics suggests the value of a mix of retail offers, including the sampling programs at low or no cost and other packages that add incremental value for incremental cost.

In other words, “free but limited,” combined with “for fee” packages, contributes to the overall goal of enabling Internet access and use of apps for everyone.

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