Internet Access Via Broadband Access Networks - Oecd

48 Telektronikk 3/4.2008

1 Introduction

Internet access via broadband access networks is now

widely adopted throughout the 30 member countries

of the Organisation for Economic Co-operation and

Development (OECD). On average, there are 18.8

broadband subscribers per 100 inhabitants. However,

this average varies from a high of 34.3 % in Denmark

to just 4.6 % in Mexico, as shown in Figure 1.

We also find that there are substantial variations in

the price of broadband access. According to the

OECD's Broadband Portal (http://www.oecd.org/sti

/ict/broadband), in October 2007 the highest average

subscription price per month is found in the Czech

Republic ($ 88.91) and the lowest in Finland

($ 31.18). There is also a substantial variation in the

level of income measured as GDP1) per capita:

$ 77,841 in Luxembourg down to $ 8,571 in Turkey.

In this brief paper we explore the relationship

between price, wealth and broadband adoption to

determine the importance of price as a driver of

demand.

2 The Data

All the data used in our model of price and income

elasticity are sourced from the OECD and are briefly

described overleaf. The capitalised text in parentheses

refers to the label given to the variable in our model.

3 Model Specification

We were only able to obtain data for a single point in

time. We have therefore created a cross section model

as at October 2007.

We have found that the best models are based on

logged values of PEN, PRICE and GDPPC. YSL and

YSL2 have not been converted to log values as they

need to be kept in level values. The model therefore

takes the functional form:

log(PEN) = α + β log(PRICE) + χ log(GDPPC)

+ δYSL + φYSL2 + ε

A useful characteristic of log models is that the value

of the coefficient on log(PRICE) and log(GDPPC)

can be interpreted as the elasticity.

Price and Income Elasticity of Demand for Broadband

Subscriptions: A Cross-Sectional Model of OECD Countries

R I C H A R D C A D M A N , C H R I S D I N E E N

Richard Cadman

is Director of

SPC Network,

Norwich, UK

Chris Dineen is a

Consultant with

SPC Network

based in Ottawa,

Canada

In this brief paper we explore the relationship between price, wealth and broadband adoption to

determine the importance of price as a driver of demand.

Figure 1 Broadband Subscriber per 100 inhabitants (Source: OECD Broadband Portal)

1) Gross Domestic Product.

Broadband subscribers per 100 inhabitants

0

5

10

15

20

25

30

35

40

Denmark

Netherlands

Switzerland

Korea

Norway

Iceland

Finland

Sweden

Canada

Belgium

United Kingdom

Australia

France

Luxembourg

United States

Japan

Germany

Austria

Spain

New Zealand

Italy

Ireland

Portugal

Czech Republic

Hungary

Poland

Greece

Slovak Republic

Turkey

Mexico

ISSN 0085-7130 ©Telenor ASA 2009

Telektronikk 3/4.2008 49

4 Results

The results of the model, based on 28 observations,

are presented in the table below. The Slovak Republic

was excluded due to lack of YSL data as was Spain

due to lack of comparable PRICE data: only a simple

average price was available whereas for all other

countries a weighted average price has been used.