U.S. Home Broadband Actually is Neither Slow Nor Expensive

Critics of U.S. home broadband often claim that service is slow and expensive. Both opinions can be challenged. In fact, U.S. median home broadband speeds were among the fastest in the world in 2021 and climbed in 2022. 

source: Ookla 

“Price” sometimes is a bit more subtle. Though prices have declined in every speed category, some might still argue “prices are too high.”

For example, ana analysis shows that U.S. home broadband prices have fallen since 2016, according to a study by Broadband Now. 

Broadband Now says that the average price for internet in each speed bucket starting in the first quarter of 2016 compared to the fourth quarter of 2021 has fallen:

• The average price decreased by $8.80 or 14% for 25 – 99 Mbps.

• The average price decreased by $32.35 or 33% for 100 – 199 Mbps.

• The average price decreased by $34.39 or 35% for 200 – 499 Mbps.

• The average price decreased by $59.22 or 42% for 500+ Mbps.

The analysis is subtle because if there is a movement by customers from lower speeds to higher speeds, which clearly is happening, then “prices” might climb, though not for the same products. Customers are choosing to buy higher-priced, higher-performance products, instead of the lower-priced, lower-performance products they used to buy. 

Other studies show the same trend.  

Also, 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. 

U.S. home broadband is neither “slow” nor “expensive.”

Correlation is Not Causation

There are two diametrically opposed ways of explaining this data correlating fixed network download speeds with gross domestic product per person (adjusted using the purchasing power parity method). We can see that speeds and GDP are positively correlated. 

source: Ookla 

Higher GDP per person correlates with higher downstream home broadband speeds. What we cannot assert is that higher speeds “cause” higher per-capita GDP. We only know that speed and per-capita GDP are correlated. 

Policy advocates always argue that higher investment in home broadband capability leads to higher economic growth and therefore higher GDP. They might point to such data as evidence.

The reverse hypothesis might also be advanced: higher per-capita GDP leads to more ability to pay, and therefore higher-quality home broadband. In other words, higher economic growth and per-capita GDP leads to stronger demand for quality broadband. 

Higher income is correlated with internet adoption rates, for example. Higher adoption rates also are correlated with age and educational attainment. But we cannot argue that broadband “causes” that higher educational attainment, anymore than broadband causes age. 

source: Phoenix Center for Advanced Legal & Economic Public Policy Studies 

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.

When "Data" Does Not Match "Perceived Reality" Perhaps the Data or Your Perceptions are "Wrong"

Trying to figure out what people really pay for home broadband is tricky. Prices differ by provider, location and the number of competitors in a market. Prices also vary by the level of government subsidies and take rates of such subsidies. 

One has to decide which plans to compare, and those choices shape the outcomes. The other issue is the inability to adjust the analysis for discounts and promotions that affect what customers actually pay. In other words, the retail tariffs we choose to compare  are not necessarily reflective of active consumer behavior. 

The most recent example of this is an analysis of home broadband costs by the Internatiomal Telecommunications Union, which reports that the “lowest-priced home broadband plan” offered by the largest U.S. supplier average more than $130 a month.

If you follow U.S. broadband prices, you know that is incorrect. Since the largest U.S. ISP is Comcast, the ITU must have looked at Comcast’s stated prices. And if you check, you can see that the stated retail price (after a promotional period) does jibe with the ITU figures. 

source: ITU 

 

The issue is that Comcast customers do not seem to be paying triple-digits for the “lowest-cost” home broadband plans. 

That seems wildly incorrect. Methodology is an issue. The lowest-cost budget plans typically are in the $10 to $15 a month range and support speeds around 50 Mbps (moving higher, as do speeds on all plans). 

Those are the plans ITU should have reviewed were it looking at the comparable “lowest-cost plans offering 5 Gbytes of usage and minimum speeds.” 

source: HighSpeedInternet.com. 

But those plans are rarely listed on websites showing available plans. You would have to hunt to find plans offered by all leading ISPs for low-income households. 

Instead, the ITU researchers seemingly looked at prices shown on the Comcast websites that do not represent the comparable lowest-cost plans. To be sure, Comcast, the largest U.S. ISP, shows charges of $30 a month for services operating at 100 Mbps. 

And, to be sure, Comcast also says those prices are good only for one year, with sharp price increases after 12 months. Comcast says its 100-Mbps plan will grow to $81 a month after 12 months. 

The issue is that it would be hard to find anybody who actually pays that amount for a 100-Mbps service, even after a 12-month period. 

The average U.S. home broadband service  costs about $64 a month. If the cost of the lowest-priced plan really were more than $100 a month, as the ITU analysis suggests, the “average” U.S. price could not be as low as $64. By definition, the average would have to be much higher. 

According to Openvault, only about 20 percent of U.S. households purchased services operating at 100 Mbps or less in the second quarter of 2021 and only 18 percent in the third quarter of 2021 and 17 percent by the fourth quarter of 2021. 

source: Openvault 

And that is why methodology is so important. Actual measurements of home broadband speed show only 17 percent of subscribers are provisioned for speeds less than 100 Mbps. Only nine percent are provisioned for speeds of 50 Mbps or slower. 

The point is that any analysis of home broadband focused on the lowest tier of service, in terms of speed or price, would not tell you very much, in any country. What is arguably much more useful is an analysis of the “typical” plans customers buy, and not the highest or lowest price plans; fastest or slowest speed options available. 

Unless one is clear about methodology, it is easy to make unclear or misleading statements, such as “X percent of customers do not have access to Y speeds.” Does that mean such customers cannot buy because the service is not available? Or does it mean they could buy, because the service is available, but they choose not to buy, preferring some other plan?

The answers matter. 

I may choose not to buy a Tesla. That does not mean I cannot buy a Tesla. Some will rightly argue that home broadband is a necessity, and a Tesla is not. Noted. But virtually all the global data shows that, over time, the cost of home broadband globally has declined, measured as a percentage of gross national income per person. 

To be sure, according to the ITU, fixed broadband prices (adjusted using the purchasing power parity method) have risen since 2015, after dropping since 2008, while mobile data costs have dropped steadily. 

But 2020 prices were still lower than in 2008, and that assumes we accept the data as accurate, which I do not. If the same methodological issue applies to other markets, then prices are overstated. 

Beyond all that, there are hedonic adjustments, referring to the change in a product’s performance over time. Beyond price, the performance of our smartphones, personal computers or home broadband are vastly different than they were 20 years ago. 

Is the $300-per month 756 kbps internet access connection I was buying about 1996 the same product as the gigabit connection I now buy that costs possibly $85 a month? Is that gigabit connection the same product as the 300-Mbps connection I was buying a year ago, even if that product “cost less” than the gigabit connection?

Methodology always matters when evaluating home broadband availability, quality and cost. In this case, the ITU analysis seems quite flawed.

Home Broadband Prices Dropped 10% in 2021, Speeds Increased 32%

If there are any iron rules about the home broadband business, it is that prices tend to fall while the amount of supplied bandwidth tends to increase. 

In 2021, the average monthly cost of fiber-based residential broadband decreased nearly 10 percent, according to Point Topic.

In the same period, the price of cable broadband increased by 1.2 percent,  while the average subscription to copper-based broadband services increased by 0.5 percent.

The average monthly charge for residential broadband services fell by 10.4 percent in 2021 and cost $82 per month, adjusted using the purchasing power parity method.

At the same time, the average downstream bandwidth provided to residential subscribers has gone up by 32 percent.

Global Bandwidth and Retail Price (adjusted for purchasing power parity)
Region (Residential Broadband)	Average Downstream Speed, Mbps (Q4 2020)	Average Downstream Speed, Mbps (Q4 2021)	Average Monthly Charge, $PPP (Q4 2020)	Average Monthly Charge, $PPP (Q4 2021)
Asia-Pacific	856	1,355	$    63.45	$ 61.53
Eastern Europe	232	278	$    66.68	$ 66.46
Latin America	158	254	$  166.38	$  115.62
Middle East/ Africa	91	155	$  160.93	$  155.28
North America	358	396	$    83.93	$ 88.31
South, East Asia	371	393	$    83.16	$ 66.43
Western Europe	325	403	$    68.00	$ 68.20

source: Point Topic