Workout Solution

Buenos Aires, Wi-Fi city

Buenos Aires and its suburb (the Great Buenos Aires) constitute a really big city of around 12 million inhabitants and almost 4 thousand square kilometers. It is natural that a city of this size has a lot of problems of transport and communication. The transport problem is more difficult to solve, but the communication problem may have a good solution, using the new technologies.

The first possibility is to make the main communication companies invest more in infrastructure to provide a better service. But I hope this has already been tried and didn´t work for some reason. That is why a very big public provider may be another alternative.

What happens if the local government decides to provide free Wi-Fi in the entire city? Of course, this would imply a very important investment. But, most of it is the investment the private companies have to do, but they don´t. So, the local government can do it, but at the cost (for them) of losing the market. If the local government provides a good and free internet service in the entire city, nobody would want to pay to the private companies. Of course, the service has to be financed in some way. To do so, it may be a good idea to rise or create some tax. Even though this is unpopular, it wouldn´t be if the tax is lower than what it is now paid for the service. And this situation is very likely, because for economies of scale the local government can lower the costs.

This solution is clearly a public good, i.e., non-excludable and non-rivalrous. Everyone with a computer, tablet or smart phone will be able to use the service and the use of one person won´t stop the using of another person. To do so, the signal have to be very good, because if not the service may be congested.

The positive externalities are enormous. First of all, all the people would spend less money for the same service. What is more, if the service is good enough, the telephone service wouldn´t be paid either. Nowadays, with programs like Skype or even Whatsapp, phone calls can be made. Another positive externality is that all inhabitants would have internet service everywhere in the city and the equity would improve, given that everybody would have the same service no matter of how rich or poor you are.

There are some negative externalities too. The first one is that the telecommunication companies would probably close. This would let some people unemployed. But, to provide the service, the local government would have to hire some people, and those who were fired are the best candidates due to its experience in the sector. Another negative externality is that, if the service works correctly, nobody would be able to use the excuse “I didn´t get the call” or “I had no signal”…

To sum up, the communication service is, nowadays, really bad in Buenos Aires. It may be because the public sector haven´t established the right condition for the telecommunication companies to make the investments to provide a good service. But companies, for sure, don´t care as long as they get high profits. This is why the public provider can be a good solution. This would reduce the cost of the service and it might improve it. Besides, the positive externalities seem to be higher than the negatives. Thus, I think the local government should stop trying to improve the service through the private companies. Instead, it can take advantage the fact that the WI-FI service is a public good and provide it. This should improve the situation of almost all the inhabitants, except for, of course, the private companies’ owners.