Home Broadband Prices have Fallen, But People Don't Believe It

Based on the Producer Price Index (PPI), both home broadband and mobile broadband prices

have fallen consistently since 2016, while prices for electricity, natural gas and postal services have climbed.

The opposite claim--that home broadband prices have risen sharply--often is asserted. So why does it seem as though prices have increased? Because people are buying different products than they once did.

source: Phoenix Center

People once purchased dial-up connections operating at 56 kbps. Now they can buy connections operating at 2 Gbps, 5 Gbps or more. Or they can buy services operating at 100 Mbps to 1 Gbps. 

The faster services cost more, so people spend more. But on an like-compared-to-like basis, recurring prices actually have declined. I used to buy a 56  kbps service for about $20 a month; a 756 kbps service for more than $300 a month. More recently I have bought 300 Mbps or 500 Mbps or 600 Mbps services for prices ranging from $50 to $90 a month (plus assorted taxes and fees). 

My 1-Gbps asymmetrical service (plus taxes, fees, equipment rental, unlimited usage) topped $120. My latest symmetrical gig connection costs less than $90, everything included (taxes, fees, unlimited usage). 

One can argue I am "paying more" than I used to, but what I buy has changed. My speeds are four magnitudes of order higher than they used to be, and prices are less than an order of magnitude higher. Ignoring inlfation effects, one can argue I am "paying more" for home broadband. 

But home broadband comes in different tiers, and I do not buy the same tiers I once did, as I buy different consumer products than I once did. In some cases I pay less; in other cases I pay more, based on the "quality" or "features" of those products. 

And that might help explain why the "home broadband prices are higher" argument seems to make sense. 

One nuance also could be that the PPI measures selling prices for domestic goods and services, essentially tracking inflation at the wholesale level.

So some might argue that the Consumer Price Index (CPI) is the better gauge of what consumers are spending, but since 2015 home broadband prices for speed tiers other than the slowest 10 Mbps downstream product have declined, with the biggest declines coming in the faster speed tiers that most consumers are buying. 

 source: Tech Policy Institute 

All that noted, the reason the “home broadband prices have risen a lot” argument seems to resonate at times is that people are buying different products than they used to. Economists call changes in product quality “hedonic,” meaning that existing products can offer more value over time. 

Hedonic change has been a major trend for electronics products for many decades. 

Product Category	1980s Characteristics	2020s Characteristics	Hedonic Change
Televisions	Bulky CRT displays - Limited screen sizes (under 30 inches) - Standard definition (SD) resolution	Flat-panel displays (LCD, OLED) - Large screen sizes (over 65 inches) - High definition (HD), Ultra High Definition (UHD) or 4K resolution - Smart features with internet connectivity	Increased picture quality, size, functionality
Automobiles	Lower fuel efficiency - Fewer safety features (airbags, ABS) - Manual transmissions common	Improved fuel efficiency - Advanced safety features (automatic emergency braking, lane departure warning) - Automatic transmissions dominant - In-car entertainment systems with navigation and internet connectivity	Increased safety, comfort, and technology features
Smartphones	Brick phones with limited functionality (calls, basic games) - No cameras - No internet access	Large touchscreens - High-resolution cameras - Powerful processors for gaming and apps - Constant internet connectivity	Increased functionality, processing power, and connectivity
Home Appliances	Limited automation (manual controls) - Lower energy efficiency - Fewer features	Smart appliances with programmable features and remote control - Energy-efficient designs - Additional features like ice makers and water dispensers in refrigerators	Increased automation, efficiency, and functionality
Home Computers	Large desktop computers - Limited processing power and storage - No internet access for most	Sleek laptops and desktops - Powerful processors and ample storage - Ubiquitous internet access	Increased portability, processing power, and connectivity

Hedonic change refers to a shift in consumer preferences towards products with higher perceived quality, even if the core function of the product remains the same. The implication is that consumers are willing to pay more for these enhancements that bring greater satisfaction or enjoyment. 

And that is why home broadband prices seem to be “rising” when they actually might be “falling.” Customers are substituting higher-value (and higher price) services for those they once purchased.