Retail acquisition prices of this type of equipment are driven by supply and demand conditions, in particular manufacturing economies of scale and component costs. Fixed broadband requires the acquisition of a personal computer, while mobile broadband could be supported through either a personal computer or a smartphone. Initial adoption is constrained by device acquisition, its corresponding tax burden, service activation cost, and expected recurring costs derived from subscription retail fees and taxes.ĭevice retail prices and their corresponding taxes vary between fixed and mobile broadband. However, pricing needs to be decomposed among its different elements because they affect broadband initial adoption and usage in different manners. *Īs a general principle, telecommunications services have negative elasticities: higher prices imply lower demand.
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Total cost of ownership is the sum of the cost of usage (service) plus part of the cost of the access device, which is assumed to be amortized throughout its lifetime, usually between two and four years, depending on the device. The economic structural factors driving broadband purchasing need to be assessed in terms of the total cost of ownership, a concept that allows factoring in purchasing cost of devices, initial activation costs, as well as the recurring costs resulting from monthly service charges. This review will serve as a basis to discuss the impact of taxation on total cost of ownership of broadband, and present examples of policy initiatives to tackle broadband taxation. This area will review the different equipment levies (import duties, value added taxes, and sector specific) and service taxes (value added and sector specific).
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The fourth section will focus on taxation. In this context, several potential programs aimed at reducing device pricing will be presented. Since pricing dynamics (and capabilities) vary greatly across devices, the demand structural factors linked to device access will be discussed in two distinct sections: personal computers and mobile devices. They range from computers supplemented with a modem (called USB modem, dongle, or air card) to smartphones, netbooks, and tablets. Broadband access requires devices capable of accessing the Internet. The third section will turn to device pricing. It will first introduce an approach for conducting comparative pricing analysis, followed by presenting models of service price elasticity, ending with a review of potential policy initiatives to reduce service pricing. Service pricing will be discussed in terms of fixed and mobile broadband independently.
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The second section will review the service pricing obstacle and policies to tackle it. Three types of initiatives, targeting the affordability obstacle will be reviewed (see figure 6.25). This introduction will serve as a basis to discuss the potential policy initiatives addressing the broadband affordability obstacle.
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They comprise device acquisition and other on-time costs, service subscription retail pricing (with multiple sub-components), and service taxation. The section will introduce all the components driving the total cost of ownership of the technology. In the first section of this chapter, the economics of broadband adoption will be presented. In that regard, research indicates that limited affordability is a critical adoption obstacle when broadband penetration ranges between 3% and 20%, which is the stage at which most emerging countries are. Moreover, research also indicated that, at higher penetration levels of broadband, price elasticity coefficients start to decline, indicating the lower importance of affordability as an adoption factor. The research reviewed in section 6.2 indicated that while price does not play a significant role among early adopters of broadband, once service coverage has reached a tipping point, affordability becomes the most important variable driving penetration. This chapter focuses on one of the three dominant adoption obstacles needed to be tackled to achieve broadband diffusion among residential subscribers: limited affordability.