Monday, December 19, 2016

Most U.S. Consumers Choose Not to Buy the "Fastest" Available Internet Access Speed

Methodology always matters. “What” one chooses to account and “how” one chooses to count always affect the results. There also is a difference between what providers choose to supply and what consumers choose to buy.

The former can point to gaps in supply, the latter to the nature of demand.

The latest Federal Communications Commission’s latest report on fixed network internet access illustrates the interplay between consumer demand and supply. That is to say, it is easy to mistake “what is available” from “what people buy.”

The FCC report illustrates the services “most people buy,”  and not directly “what people could buy, if they wanted.” Services faster than 300 Mbps, if offered, are not included in the analysis if less than five percent of consumers choose to buy them (where available).

To be sure, what gets bought is in substantial part driven by what suppliers choose to make available, and at what prices, including promotions and other packaging mechanisms that actually obscure the actual “retail price.”

In other words, the FCC study reflects what most people choose to buy, which itself is shaped by the inducements (bundle offers) offered by ISPs. When the offers change, so will the data.

A similar, but different methodological problem applies to estimating the average “price” of internet access. Advertised plans are not necessarily the ones people actually buy.

That is necessary, at least in part, because most consumers buy bundles (two or three services, typically) for a flat monthly fee. By some estimates, in 2015 some 61 percent of U.S. consumers bought a bundle.  So it actually is something of a guess what the actual internet access service “costs.”

In such cases, it is necessary to “impute retail prices” for consumers who buy bundles, since they do not pay a separate retail internet access fee.

Those methodological issues noted, among the clearest conclusions one might draw from the the Federal Communications Commission’s latest report on fixed network internet access, based on 2015 data, is that median U.S. internet access speeds are growing; that consumers are buying faster tiers; and that cable companies have driven most of the speed increases and gained the most accounts in the 100-Mbps and faster ranges.

Conversely, digital subscriber line speeds are stagnant, and gigabit services either had not been significant enough by 2015 to affect the median speeds, or the FCC simply chose not to track them (presumably on the correct assumption they could not yet be among the “most popular” tiers of service, as availability was still too limited in 2015).

The study arguably also indicates that--at least in 2015--the interplay between demand and supply. On the supply side (what consumers are able to buy), the “most popular” services actually purchased by consumers were in the 100-Mbps range.

That is not to say these tiers were the “fastest” speed tiers available, but that these were the tiers most consumers chose to buy. That is a key distinction. Consumers in some markets are able to buy gigabit service from Google Fiber, AT&T or CenturyLink, for example, but it does not appear that many consumers actually do so.

The most popular advertised speed plans purchased by consumers tend to range about 100 Mbps for cable providers. AT&T U-verse plans generally were in the 45 Mbps range in 2015, while DSL speeds (all-copper access)  were quite low, in comparison, and have not changed in several years. Verizon FiOS speeds are generally in the 80-Mbps range.
 

The study reflects deliberate policy choices by internet service providers, with cable operators choosing to boost speeds the most, and providers of fiber-to-home services already have scale choosing to maintain speeds.

It arguably is the case that most suppliers of DSL services face technology constraints, so the lack of progress on that front is a reflection of decisions not to upgrade either to fiber to neighborhood or fiber to home platforms.

Such choices also are evident for fiber-to-home services. Among participating ISPs, only Frontier and Verizon use fiber as the access technology for a substantial number of their customers, the FCC notes. While the maximum supplied download speed for Frontier’s Fiber product has remained 25 Mbps, the maximum popular download speed included in the FCC survey for Verizon more than doubled from 35 Mbps to 75 Mbps in 2012 and has remained at that speed in subsequent years.

The report shows median internet access speeds of about 39 Mbps, with that increase of 22 percent over the prior year driven almost entirely by cable TV providers, as digital subscriber line accounts have increased little, if at all, and deployment of  new fiber-to-home services was too small to affect the overall results.

The maximum advertised download speed among the most popular service tiers, weighted by the number of panelists in each tier, increased from 72 Mbps in September 2014 to 105 Mbps in September 2015, a growth of 45 percent, the FCC says.

Likewise, the percentage of customers able to buy gigabit connections remains small, and actually cannot be tracked in the report, as the study examined only the “most popular” tiers of service, which top out at 300 Mbps.



The point is that consumer purchasing behavior, which indicates “most” consumers buying services at lower rates than a gigabit, is partly a matter of supplier investments and packaging (including price points and bundling) as well as consumer demand. Most consumers do not seem to buy the “fastest” tier of service.

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