Real Internet Access Prices are about $50 a Month, Globally

Some argue U.S. consumers suffer from high prices for internet access. It is a highly-nuanced matter, though. Some issues are methodological. To make a valid price comparison, any researcher has to choose a method--picking plans that are widespread enough to be comparable across many or most nations.

source: cable.co.uk

Then one has to adjust prices using some measure of currency conversion that accounts for relative price differences for all manner of goods and services in any particular country. The reason is that general price levels for the same products are higher or lower in different countries, across the board. 

Add to that cases where half of all purchases occur in bundles that obscure the “price” of service. 

Then there is the matter of value. Price is one thing, while typical speeds and service quality or(outage performance) are different. There is no convenient way to adjust prices to incorporate quality differences (cost per Mbps, for example).

Also, customers in different countries buy different plans. As always, the method of determining “average” matters. Median (half higher, half lower) prices can be quite different from “mean” prices (average of all plans) when plans cover a high range (high to low). 

It matters greatly which plans are most-often purchased, in other words. In the U.S. market, 60 percent to 75 percent of internet access plans are bought in a bundle, so there is no way to directly state the internet access price. Price has to be inferred. 

To my knowledge, nobody actually uses bundle prices to compare internet access prices across nations. So comparisons are made on the basis of published retail prices for stand-alone internet access. By definition, up to 75 percent of U.S. consumers do not buy internet access that way. 

So the price comparisons are made on the basis of retail tariffs alone, without considering the frequency of plan purchase. Under such conditions, all one can say is that published retail tariffs are at certain levels. That tells us nothing about which products customers actually buy, at what volume, and therefore the effective or actual purchase price.

The further nuance is that posted retail prices often are not “final prices” paid by consumers, since taxes, fees, equipment charges and so forth are included. No comparison of retail prices captures the final price. 

In the U.S. market, where 60 percent to 75 percent of all purchases are on bundle plans where price cannot be determined, prices are inferred based on allocations. The easy method is to take the total price of the bundle and then divide by the number of services in the bundle to derive an “average” price. 

There are obvious methodological issues. Video service tends to be twice as expensive as internet access. And internet access tends to be twice as expensive as voice service. So some method of weighting is required. So the cost pattern is 4:2:1. 

Consider a bundle costing $175 a month. The simple “divide total cost by number of services” method gives you a mean cost of $58 a month for each service.

That ignores the retail price differential for each service, however. Retail prices might have a pattern something like $90 for video, $50 for internet access and $30 for voice (after including taxes, fees, customer equipment rentals). So the $175-per-month bundle has video at 53 percent of total cost, internet access at about 29 percent of total cost, and voice at about 18 percent of total cost. 

So in a $175 a month package, internet access might cost about $50 a month (including taxes, fees, CPE). That is just an allocation, though. One could argue for a higher or lower price, making different assumptions about the cost of the other components. Video often represents a higher cost, voice arguably a lower cost, in many packages. 

And then one has to adjust for internet access price tiers, since faster service costs more than slower service. This deconstruction of bundle prices actually agrees with the cable.co.uk estimates. 

Those prices are not adjusted for price levels in each country, however. So comparisons often adjust for purchasing power parity, normalizing for general price level differences across countries. This look at country cost of living indexes, for example, shows areas in red that have higher living costs generally. So all prices would normally be expected to be higher in those areas. Note that these comparisons are not adjusted for purchasing power parity, though. 

source: Numbeo 

One analysis of the costs of fixed network internet access, using the purchasing power parity method, shows that by 2016, internet access prices--adjusted for differences in local prices--actually were quite consistent across nations.

In all countries, prices hovered around a $50 a month level, after PPP adjustments. 

source: ITU

The point is that, even if nominal retail posted prices in the U.S. market seem higher than in Western Europe, Japan, South Korea or China, PPP prices in all countries are about the same.

Home Broadband Costs--for the Plans People Actually Buy--Have Dropped Since 2015

According to US Telecom, U.S. home broadband prices continue to fall, when looking at the most popular service plans consumers actually buy. The BPI-Consumer Choice compares providers’ most popular speed tier of broadband service in a given year to its most comparable 2022 service.

The BPI-Speed compares providers’ fastest speed tier option in a given year to the comparable plan in 2022. 

source: US Telecom 

Using what is called the “Real Broadband Price IndexI-Consumer Choice method (looking at prices for the service plans most people actually buy),broadband prices dropped by 14.7 percent from 2021 to 2022, UST says. 

Over a longer time span, Real BPI-Consumer Choice tier prices dropped by 44.6 percent from 2015 to 2022, UST adds, while Real BPI-Speed tier prices dropped by 52.7 percent from 2015 to 2022. 

source: US Telecom 

Real BPI-Speed broadband prices dropped by 11.6 percent from 2021 to 2022, the group says. In contrast, the cost of overall goods and services rose by eight percent from 2021 to 2022, UST says. 

Other analyses support similar conclusions. Because of inflation, price levels rise over time. So virtually any product can be accused of “costing more” in 2022 than it cost in 1996. 

Some may intuitively feel this cannot be the full story where it comes to digital products, which keep getting better, while prices either stay the same or decline. Such hedonic change applies to  home broadband. 

Hedonic qualIty adjustment is a method used by economists to adjust prices whenever the characteristics of the products included in the consumer price index change because of innovation. Hedonic quality adjustment also is used when older products are improved and become new products. 

That often has been the case for computing products, televisions, consumer electronics and--dare we note--broadband internet access services. 

Hedonically adjusted price indices for broadband internet access in the U.S. market then looks like this:

source: Bureau of Labor Statistics 

 

Quality improvements also are seen globally. 

Adjusting for currency and living cost differentials, however, broadband access prices globally are remarkably uniform. 

The 2019 average price of a broadband internet access connection--globally--was $72..92, down $0.12 from 2017 levels, according to comparison site Cable. Other comparisons say the average global price for a fixed connection is $67 a month. 

Looking at 95 countries globally with internet access speeds of at least 60 Mbps, U.S. prices were $62.74 a month, with the highest price being $100.42 in the United Arab Emirates and the lowest price being $4.88 in the Ukraine. 

According to comparethemarket.com, the United States is not the most affordable of 50 countries analyzed. On the other hand, the United States ranks fifth among 50 for downstream speeds. 

Another study by Deutsche Bank, looking at cities in a number of countries, with a modest 8 Mbps rate, found  prices ranging between $50 to $52 a month. That still places prices for major U.S. cities such as New York, San Francisco and Boston at the top of the price range for cities studied, but do not seem to be adjusted for purchasing power parity, which attempts to adjust prices based on how much a particular unit of currency buys in each country. 

The other normalization technique used by the International Telecommunications Union is to attempt to normalize by comparing prices to gross national income per person. There are methodological issues when doing so, one can argue. Gross national income is not household income, and per-capita measures might not always be the best way to compare prices, income or other metrics. But at a high level, measuring prices as a percentage of income provides some relative measure of affordability. 

Looking at internet access prices using the PPP method, developed nation prices are around $35 to $40 a month. In absolute terms, developed nation prices are less than $30 a month. 

According to an analysis by NetCredit, which shows U.S. consumers spending about 0.16 percent of income on internet access, “making it the most affordable broadband in North America,” says NetCredit.

Looking at internet access prices using the purchasing power parity method, developed nation prices are around $35 to $40 a month. In absolute terms, developed nation prices are less than $30 a month.  

Methodology always matters. The average U.S. home broadband service  costs about $64 a month. In fact, U.S. home broadband inflation-adjusted costs have declined since the mid-1990s, according to an analysis  of U.S. Consumer Price Index data. 

That will often not be obvious when observers consider only “current” prices for home broadband, and compare them to past “retail” prices.  

Despite the oft-repeated claims that U.S. home broadband is “too expensive,” careful analysis suggests the answer is far from clear. In fact, using measures to normalize prices for different costs across countries; accounting for inflation; taking into account the actual plans people actually buy; including cost per gigabit per second of speed and also accounting for hedonic product change, the opposite conclusion might be reached.

20 Mbps for Everybody, for $20 a Month, by 2020?

One should understandably be skeptical about much of what gets said by government officials, for the obvious reason that much of what gets said is for some political purpose, and is not necessarily reflected in real-world policy.

But there probably are reasons to believe that multiple pronouncements by government and non-governmental group officials will actually correspond to a high degree with actual supply of broadband services by private suppliers. First, the pronouncements.

The Secretary-General of the International Telecommunication Union, Dr Hamadoun Touré, is in favor of setting a United Nations goal of ensuring that everybody in the world can access broadband Internet access at speeds of 20 Mbps, selling for $20 a month (£13.25) by 2020.

More to the point, are the corollaries also true? If consumers can buy 20 Mbps access for $20 a month, will they also be able to buy 10 Mbps for $10 a month, or 5 Mbps for $5 a month, or 2.5 Mbps for $2.50 a month?

One way of estimating demand is to note that in many markets, once households reach income of about $10 a day ($300 a month), the possibility of those households falling back into poverty decrease dramatically. And financial stability is conducive to discretionary purchases. At $300 a month income, a household might reasonably expect to afford Internet access costing $9 a month.

The key is more a matter of economics than anything else. How fast will substantial numbers of users in the developing world reach monthly incomes of $100 a month? At that level of income, it is reasonable to expect users to pay $2.50 to $3 a month for broadband.

If one assumes that in 2005 the middle class population of China was about eight percent, by 2030 it will be as high as 72 percent. In India, where the percentage of middle class people in 2005 was perhaps in the low single digits, by 2030 some 41 percent of India’s people will be middle class, defined as households with annual disposal income between 200,000 rupees up to one million rupees ($3,606 to $18,031 in annual disposable income).

Over the last decade, there has been a 50 percent jump in the number of people in the “middle class in Latin America and the Caribbean, The World Bank reports. Roughly speaking, about 30 percent of people in the Latin American and Caribbean region were middle class in 2009, using a definition of income between $10 a day and $50 a day.

A report on the Latin American middle class  found that the middle class in the region grew to an estimated 152 million in 2009, compared to 103 million in 2003, an increase of 50 percent. Even if one assumes a slowing rate of growth, there comes a point where the ability to pay $2.50 to $3 for broadband is predictable.

Even more predictable is the ability of more households to buy access packages providing higher speeds.

The other important development is that ISPs are finding ways to slash costs. Between 2008 and 2009, 125 countries saw reductions in access prices Internet access prices 

, some by as much as 80 percent, the ITU says.  

Between 2009 and 2011, for example, prices for fixed broadband have dropped by 52.2 percent on average and mobile broadband prices by 22 percent, globally.

Affordable broadband programs are starting to emerge in countries such as Sri Lanka and India, with service providers offering connectivity solutions starting as low as US$2 per month.

At present the United Nations (UN) global digital development targets for internet access are focused on ensuring that “all countries should have a national broadband plan or strategy or include broadband in their Universal Access / Service Definitions” by 2015.

The existing goal also includes affordable broadband. By 2015, entry-level broadband services should be made affordable in developing countries, quantified as a monthly price that is less than five percent of average monthly income.

By 2015, 40 percent of households in developing countries should have Internet access.

By 2015, Internet user penetration should reach 60 percent worldwide, 50 percent in developing countries and 15 percent in the Least Developed Countries, the U.N. already says.

Europe’s Digital Agenda expects 100 percent of EU households to have access to service speeds of at least 30 Mbps by 2020, while the United Kingdom is aiming for 90 percent of people to have access to speeds of 25 Mbps  by 2015.

The point is that we have reasons to be quite optimistic about such goals.

Fixed Network Internet Access Prices are Remarkably Consistent Globally

One often hears it argued that U.S. consumers already pay the highest prices for mobile data globally. Of course, that statement has to be placed in context. Consider fixed network internet access. A casual glance would suggest that prices vary substantially. 

source: cable.co.uk

That also would--at first glance--to be the case for mobile data. 

source: Statista

Matters are different when one adjusts for differences in general price levels in each country. The cost of living, for example, is highest in North America, Japan and Korea, Australia and New Zealand and Western Europe. Not surprisingly, costs for almost any product are higher in those countries, on a global basis. 

source: MoveHub

However, adjusting for such differences, it turns out that consumer fixed network internet costs, in real terms, are about $50 per month, globally. 

Mobile data retail prices, likewise, are lowest, in real terms, in developed nations, including the United States.

source: ITU

Nominal prices are one thing; real prices, adjusted for local cost of living, is something else. In real terms, fixed or mobile internet access costs about the same, most places globally.

What if 5G Really Does Not Generate So Much New Value?

There can be no denying that connectivity providers would love to transform their business models in ways that represent more value and command higher market prices. It is natural that 5G would be seen as a tool in that process. But hopes often do not match reality.

“There is a strong consensus that 5G’s greatest commercial feature will shift away from acting purely as a  connectivity pipe, says Telecoms.com. Such beliefs can be both reasonable and inconsequential at the time. 

Ultra low latency performance might be both an important or key feature, and yet also have only slight impact on the ability of connectivity providers to escape their role. 

A survey of executives found industry insider belief that low-latency, sensor communications, network slicing and edge computing capabilities with most commercial significance. Again, that can be simultaneously true and yet very impactful in terms of revenue generation or ability to enhance value and role in the ecosystem. 

source: Telecoms.com

As with most other features and capabilities, 5G can be a source of competitive differentiation when other competitors cannot match a particular feature as well. At the same time, the amount of differentiation is inherently limited, as all competitors have access to the same platforms. 

Spectrum assets, on the other hand, provide a clearer case of differentiation, where ownership of licenses for various types of spectrum is disparate. T-Mobile, for example, has so far been able to leverage its greater mid-band spectrum resources against rivals whose positions still are developing. 

As always, much hinges on how customers and users behave. The values of ultra-low latency performance, for example, can be obtained in various ways, not always to the revenue benefit of mobile operators. Network slicing value can be replicated in some instances by enterprise edge computing. The same is true of ultra-low latency and predictability, which can be created by private networks as well as 5G public networks; edge computing or private 5G. 

It is understandable that industry executives hope for revenue and role outcomes that help service providers augment their connectivity role. Those hopes are likely to be hard to fulfill. 

Even if network slicing, edge computing, private networks and sensor network support generate some incremental revenues, the volume of incremental revenue will not be as large as many hope to gain. 

It is conceivable that mobile operators globally will make more money providing home broadband using fixed wireless than they will earn from the flashier, trendy new revenue sources such as private networks, edge computing and internet of things. 

source: Ericsson 

Wells Fargo telecom and media analysts Eric Luebchow and Steven Cahall predict fixed wireless access will grow from 7.1 million total subscribers at the end of 2021 to 17.6 million in 2027, growth that largely will come at the expense of cable operators. 

source: Polaris Market Research 

If 5G fixed wireless accounts and revenue grow as fast as some envision, $14 billion to $24 billion in fixed wireless home broadband revenue would be created in 2025. 

5G Fixed Wireless Forecast
	2019	2020	2021	2022	2023	2024	2025
Revenue $ M @99% growth rate	389	774	1540	3066	6100	12140	24158
Revenue $ M @ 16% growth rate	1.16	451	898	1787	3556	7077	14082
source: IP Carrier estimate

Consider the U.S. market. By some estimates, U.S. home broadband generates $60 billion to more than $130 billion in annual revenues.

If the market is valued at $60 billion in 2021 and grows at four percent annually, then home broadband revenue could reach $73 billion by 2026. $24 billion would represent about 33 percent of total home broadband revenues. 

		2022	2023	2024	2025	2026
Home Broadband Revenue $B	60	62	65	67	70	73
Growth Rate 4%
Higher Revenue $B	110	114	119	124	129	134
source: IP Carrier estimate

If we use the higher revenue base and the lower growth rate, then 5G fixed wireless might represent about 10 percent of the installed base, which will seem more reasonable to many observers. 

Assuming $50 per month in revenue, with no price increases at all to 2026, 5G fixed wireless still would amount to about $10.6 billion in annual revenue by 2026 or so. That would have 5G fixed wireless representing about 14 percent of home broadband revenue, assuming a total 2026 market of $73 billion.

If the home broadband market were $134 billion in 2026, then 5G fixed wireless would represent about eight percent of home broadband revenue. 

Do you believe U.S. mobile operators will make more than $14 billion to $24 billion in revenues from edge computing, IoT or private networks?

Nor might private networks or edge computing revenues be especially important as components of total revenue. It is almost certain that global service provider revenues from multi-access edge computing, for example, will be in the single-digit billions ($ billion) range over the next few years. 

The same is true of forecasts of service provider internet of things revenue. The service provider 4G or 5G private networks revenue stream is likely to be small as well. 

All that implies that 5G fixed wireless might be the most-material--and largest--source of new service revenues for mobile operators.

Some estimates have total MEC revenues exceeding $25 billion by perhaps 2027 and close to $70 billion by 2032.  Other estimates suggest annual revenue of close to $17 billion by 2027.  

But those forecasts virtually always lump together revenues earned by hardware, software and services suppliers: infrastructure and platform plus computing as a service revenues. And computing as a service revenues will likely be dominated by hyperscalers, not mobile operators. 

Connectivity providers will profit from real estate support and some increase in connectivity revenues, but relatively rarely from the actual “edge computing as a service” revenues. 

For example, assume 2021 MEC revenues of $1.6 billion globally; a cumulative average growth rate of 33 percent per year; services share of 30 percent; telco share of service revenue at 10 percent. 

Multi-access Edge Computing Forecast
Year	2021	2022	2023	2024	2025	2026	2027	2028
Revenue $B	1.6	2.1	2.8	3.8	5.0	6.7	8.9	11.8
Services Share	0.3	0.6	0.8	1.1	1.5	2.0	2.7	3.5
Growth Rate	0.33
Telco Share	0.1
Telco Revenue	0.2	0.2	0.3	0.4	0.5	0.7	0.9	1.2
source: IP Carrier

The actual MEC revenue from MEC is quite small by 2028. In fact, too small to measure. Of course, all forecasts are about assumptions. 

One can assume higher or lower growth rates; different amounts of connectivity provider participation in the services business; different telco shares of the actual “computing as a service” revenue stream; greater or lesser contributions from mobile connectivity revenue from MEC. 

The point is that actual MEC revenues earned by mobile operators or other connectivity providers might actually be quite low. So value earned from all those infrastructure investments would have to come in other ways.

Higher subscription rates; higher profit margins; lower churn; higher average revenue per account are some of the ways MEC could provide a return on invested capital. Some service providers might actually provide the “computing as a service” function as well, in which case MEC revenues could be two to three times higher. 

But many observers are likely to be disappointed by the actual direct revenue MEC creates for a connectivity provider.