Round-Up for the Week of July 20-24, 2020
The Open Technology Institute’s latest study of the price of internet service, The Cost of Connectivity 2020, finds substantial evidence of an affordability crisis in the United States. From service plans that meet the current Federal Communications Commission definition for broadband at 25/3 Mbps to bigger, bolder standards, U.S. consumers pay more for monthly internet prices on average than European consumers based on advertised metrics. And, perhaps just as importantly, U.S. consumers must wade through confusing billing schemes, hidden costs, and surprise fees. There has never been a greater need for policies that promote competition, increase billing transparency, and make internet service more affordable for more people, OTI concludes.
OTI collected information on 760 broadband internet access service plans spanning 28 cities across Europe, Asia, and North America. Major findings of the research include:
- The United States has some of the highest prices in OTI’s global dataset. Across North America, Europe, and Asia, OTI finds the highest average monthly prices in the United States. Only one U.S. city ranks in the top 10 cities when ranked by average monthly costs. The overwhelming majority of the U.S. cities in OTI’s dataset rank in the bottom half for average monthly costs.
- Consumers must navigate a maze of additional fees and hidden costs to determine the total price of internet service. These fees include equipment rental fees, installation and activation fees, data overage penalties, and contract termination fees—and they are often substantial. Modem fees can add an additional 75 percent to a monthly bill, compared to just 30 percent abroad.
- Municipal networks appear to offer some of the best value in the United States. The most affordable U.S. city in OTI’s ranking is Ammon, Idaho, a city with a municipally-owned open access network that OTI studied in an earlier report. A growing body of evidence indicates that these locally-owned networks yield faster speeds and significant cost savings for consumers.
- The U.S. market suffers from a lack of competition. The U.S. market for internet service is dominated by just four companies: AT&T, Charter, Comcast, and Verizon. This lack of choice directly affects the cost and quality of internet service. Evidence of ISPs’ market power is documented throughout this year’s report.
- There is virtually no pricing transparency in the United States. No government agency collects internet pricing data, and ISPs do not make this data readily available to consumers. Consumers struggle to understand what they are paying for and avoid hidden fees.
To make broadband service more affordable, OTI offers six policy recommendations:
- The FCC Should Collect Better Data on the Cost and Availability of Internet Service: Currently, broadband providers do not publicly disclose any datasets about their prices. No government agency collects pricing data, either. The government must collect more accurate and granular data on actual deployment, available speeds, and pricing.
- ISPs Should Clearly Disclose Price and Service Terms in a “Broadband Nutrition Label”: The cost of connectivity is difficult to find and often hidden in convoluted pricing schemes or obscure contract terms. Consumers cannot make informed decisions in this environment. Accordingly, the United States needs better truth-in-billing requirements for internet service. OTI has long advocated for a “broadband nutrition label,” a standardized format—similar to the Food and Drug Administration’s (FDA) familiar nutrition labels—that broadband providers can use to disclose the prices, speeds, and terms of their various services. In 2016, the FCC created a broadband consumer label that largely adopted these concepts. But the FCC has done little to promote or encourage its adoption in recent years. The FCC should do more to revive the label so it becomes as familiar to consumers as the FDA’s nutrition labels.
- The Government Should Expand Lifeline and Other Low-Income Internet Discounts: The FCC and Congress, which oversee the Lifeline program, should focus on expanding the program and connecting more low-income families. Lifeline has long suffered from underutilization and a lack of public awareness. The FCC should focus on efforts that will expand participation and increase the subsidy to cover a more meaningful portion of the cost of internet service.
- Congress Should Legalize Municipal Networks in Every State: Municipal networks deliver some of the most affordable and fastest internet service in the United States. However, municipal networks are not fully permitted under the laws of many states. At least 20 states restrict or outright prohibit these networks from existing. These laws must be repealed.
- The Government Should Protect Consumers from Landlord-Tenant Scams and Digital Redlining: The internet services examined in the OTI study are often not available to every resident in a city due to a variety of anti-consumer practices that limit consumer choice. The government should take steps to protect consumers from at least two of these practices: landlord exclusivity deals and digital redlining.
- The Government Should Strengthen Antitrust Enforcement in the Internet Services Market: Economists like Thomas Philippon have attributed higher U.S. prices to a lack of competition and weak U.S. competition policy. U.S. antitrust enforcers—namely the FCC and the Department of Justice (DOJ)—must do more to ensure a competitive marketplace and block harmful mergers that further undermine competition. Ultimately, stronger enforcement of the nation’s antitrust laws could block anti-competitive ISP practices, prevent harmful mergers, or break up ISPs that have become too big. Better antitrust enforcement creates healthier markets, which leads to lower prices.
The Cost of Connectivity in an Increasingly Broadband-Dependent World
OTI’s research reiterates what Benton Senior Fellow Jonathan Sallet has been hearing from broadband experts across America: too many U.S. households are served by only one or two broadband internet access service providers, effectively locking consumers into monopoly or duopoly markets. We can expect people with only one choice to pay monopoly prices, and people with only two choices to pay the higher prices typically charged by duopolies. People with three or more choices typically pay less. Clearly, people who can barely afford to pay a competitive price, say, low-income Americans, are particularly vulnerable to artificially high prices.
OTI’s recommends a number of smart policy solutions.
To address our nation’s barriers to full broadband adoption, broadband providers should be required to supply accurate information about what services they actually provide and the locations where they are actually available. The FCC should collect broadband deployment data that allow for apples-to-apples pricing comparisons (explaining the impact of discounts, introductory offers, and bundled pricing, and inclusive of set-up and other charges). Congress should reinstate its Broadband Consumer Disclosure Label, which will empower consumers to make better-informed choices.
Like OTI, Benton believes that states should repeal and, if necessary, Congress should pre-empt current state laws that restrict municipalities and counties from experimenting with various ways of increasing broadband deployment. In fact, policymakers at all levels should be encouraging new, competitive entrants and local experiments in public-private collaboration to expand broadband’s reach and affordability.
Encouraging competition in apartment buildings and other “multi-tenant environments” (MTEs) could reduce broadband prices and help to connect countless families who are struggling to afford broadband service. Too many apartment and condominium residents are forced to pay their landlords or property managers a premium to access a prechosen broadband provider as part of bulk billing packages. Paid priority agreements and restrictive access requirements can functionally prohibit other broadband providers from reaching potential customers.
Sallet has proposed America’s Broadband Credit (ABC) to make broadband subscriptions affordable for low-income households. Sallet suggests a subsidy of $50 for symmetrical 50/50 broadband service, which is roughly the cost of medium-tier plans in urban settings. In areas where 50/50 service is not yet available, ABC should subsidize the fastest service that is available in the area. ABC would allow eligible participants to choose their broadband provider, which gives them more options and helps to boost competition (where there is competition).
Research like OTI’s new report tells us that more broadband competition matters: pushing rivals to up their game, saving money for consumers, increasing the quality of service. Let’s hope policymakers address high broadband costs.