City of New York Internet Access: Is it Worse than Natiional Averages?

“Lies, damn lies and statistics” is the quip once made by Samuel Clemens, the author otherwise known as Mark Twain about statistics and their relationship to “truth.” It is worth keeping in mind. 

Consider statistics cited by the City of New York about residents who do not buy internet access.

As many as 917,239 New York City households, or 29 percent of all households, “are without broadband internet access,” a report by the city of New York indicates. The phrase is meant to indicate that this percentage of households do not buy fixed network internet access, not to describe the availability of internet access to those households. 

Either meaning would be surprising to many, especially when compared with other coastal cities such as Seattle, where the lowest percentage of homes buying fixed network internet access is 93 percent, and the “average” buy rate is about 96 percent.

Keep in mind that nationally, U.S. household purchasing of fixed network internet access internet access is about 77 percent, according to the Pew Research Center. If that seems low, consider that between 17 percent and 20 percent of U.S. households are “mobile-only” for internet access. In that context, the 71 percent buy rate claimed for New York City is roughly in line with national figures. 

Actually, the New York figures arguably are close to U.S. national averages. According to the Pew Research Center, 17 percent of U.S. households are mobile only for internet access, including 23 percent of black households and 25 percent of Hispanic households. 

The New York study claims 30 percent of Hispanic and black New Yorkers do not buy fixed network internet access.

According to Pew, some 26 percent of U.S. households with household income of less than $30,000 are mobile-only and not buy fixed network internet access. 

The New York City study says “44 percent of New Yorkers in poverty” do not buy fixed network internet access. Two caveats: persons are not households, and fixed network internet access is purchased “by the household.” 

Also, keep in mind that New York uses a different definition of poverty, setting the benchmark higher at $33,600 per household. The New York definition is about 12 percent higher than the U.S. federal government definition. 

In other words, New York buying rates for lower-income households are roughly in line with national averages, when considering the different definitions. The Pew data is based on households. 

The New York City study sometimes uses “persons” as the unit of analysis. But 44 percent of people, using the 2.4 persons-per-household metric, yields a non-buy rate of about 18 percent for homes in poverty. Again, in line with U.S. national averages. 

Likewise, about 26 percent of U.S. households not buying fixed network internet access are headed by people with a high school diploma or less are mobile-only for internet access, according to Pew. 

The New York City study says 33 percent of New Yorkers who are high school graduates do not buy fixed network internet access. That might represent about 14 percent of households. 

Of households headed by someone with less than a high school degree, about 41 percent of people do not purchase fixed network internet access. That might represent about 17 percent of households. 

If the populations represented by high school graduates and less-than-high-school persons are exclusive of each other, then possibly 31 percent of New York City households headed by someone with a high school degree or less. 

The point is that people and households living in New York City do not buy fixed network internet access at rates that are roughly in line with U.S. national averages. 

No Business Model for 5G?

It always is difficult to fully anticipate the business value provided by each successive generation of mobile networks. There always is a stated business case, of course. From the first generation to the second, the advantage was the transition from analog to digital, with the advantages that normally represents.

The shift from 2G to 3G was supposed to be “new applications.” That eventually happened, but not right away. First mobile email and then mobile Internet access were new apps of note, though the use of mobile hotspots also was an important development.

The shift from 3G to 4G generally was said to be “more bandwidth” supporting new applications.

Video apps generally have been the most notable new apps, compared to 3G, although user experience when using the Internet also is far better with 4G. And though it often goes unnoticed, 4G speeds have allowed any number of users to substitute mobile for Internet access.

More U.S. households now seem to be abandoning even fixed Internet access in favor of mobile access, as it now is common for households to rely on mobile voice (more than 46 percent of U.S. households now are “mobile only” for voice) , instead of fixed network voice, or over the top video entertainment in place of traditional subscription services.

In fact, because of mobile use, fixed network Internet access rates actually are dropping in the United States, having reached an apparent peak in 2011.

source: NTIA

Still, it is reasonable to argue that there is not yet a clear business case for 5G. But some might argue that has been the case for at least two successive generations of mobile networks. Both 3G and 4G were supposed to lead to development of many new apps.

That has happened, but mostly because of the contributions of third party app developers. On the other hand, both 3G and 4G have offered efficiency gains, something of clear importance for a mature business featuring high competition and therefore margin pressure, plus declining revenue from the legacy apps.

“The business reality is that there is no new money,” argues William Webb, CEO of Weightless SIG and a communications consultant. “So either 5G will need to be delivered within the confines of current operator revenue or it will need to deliver new services that consumers are prepared to pay more for.”

To some extent, both requirements (“no new money” and “new services needed to boost revenue”) likely will be part of the eventual business case.

Actually, one might argue that the percentage of household income devoted to mobile communications actually has grown over the last decade. So there actually is some amount of “new money” being devoted to mobile services, even if that comes with less use of other services, such as fixed network services.

To be sure, U.S. consumer spending on communications is a relatively small portion of household spending, too small to be broken out by the Bureau of Labor Statistics, for example.

In most U.S households, and definitely for households with more than the “mean” number of household members (2.5),  spending on mobile services virtually certainly outpaces spending on all other services, as well as topping spending on component subscriptions (high speed access, all entertainment video and fixed network voice).

From 2007 to 2014, expenditures for mobile phone services increased from a range of 38.7 percent for one-person consumer units to 70.9 percent for consumer units of five or more persons, according to the U.S. Bureau of Labor Statistics.

Also, mobile now represents 73 percent to 80 percent of total household spending on communications.

One-person consumer units have the lowest share of cellular expenditures compared with telephone service expenditures for all household size groups, but the share increased from 49 percent in 2007 to 64.3 percent in 2014.

In contrast, fixed network voice accounted in 2014 for just about 27 percent of household spending. The perhaps-obvious question is how much is spent on high speed Internet access, something hard to glean from Bureau of Labor Statistics data.

More significantly, BLS data shows that U.S. household spending on communications is growing, and has been growing since 1990.

source: Bureau of Labor Statistics

In the United Kingdom, households spend between three percent and four percent of income on communications.

Source: Ofcom

source: Bureau of Labor Statistics

In households with five or more people, mobile accounts for about 80 percent of spending on “telecommunications.

source: Bureau of Labor Statistics

The other issue is whether new services will develop that generate more revenue. That is an open question at the moment. But many argue that Internet of Things apps will drive additional service revenue, while customers are showing willingness to spend more money for faster Internet connections, as well.

Of course, there are regional variations. Average revenue per user, or per account, has shrunk in Western Europe, but climbed in the U.S. market.

And there are other complications. Smartphones tend to have much higher ARPU than tablet connections. Internet of Things connections are expected to have lower ARPU than tablets. So revenue per account and revenue per connection will diverge.

In my own household, ARPU (per device) is relatively stable, but the revenue per account has grown, as more devices have been added, and bigger usage allowances have been purchased.

The point is that there is evidence of growing household spending on mobile services, and at least a pathway to new spending on new services. There will be a business model for 5G. It might take some time to develop in a clear way, though.

The other angle is that mobile networks get replaced about every 10 years, so the revenue from the older generation of networks is captured, and built upon, by the new network.

In other words, revenue shifts from older networks to newer networks, which also tend to be more efficient, and therefore less costly. That tends to be the case even under new circumstances, where legacy revenue sources are replaced by new sources.

Mobile voice and messaging revenue, for example, is dropping in many markets, but mobile Internet access revenue is growing. The issue is the magnitude of blended revenue.

Even without knowing the particulars, some of us would argue that, as a shift to gigabit access in the fixed network will lift ARPU, so too will gigabit access in the mobile network.

Digital Redlining or Response to Demand?

Terms such as digital redlining imply that U.S. internet service providers upgrade neighborhoods able to pay for higher speed internet access underinvesting in poorer neighborhoods. At some level, it is hard to argue with that point of view, at least where it comes to gigabit internet access. 

Google itself pioneered the tactic of building in neighborhoods where there is demonstrated demand, building Google Fiber first in neighborhoods (typically higher-income areas) where potential customers were most interested. Other gigabit service providers have used the placing of deposits for the same reason. 

And regulatory officials at the local level seem to now agree that “universal service” (building a gigabit network past every home and business) is desirable in some cases, but not absolutely mandatory in all cases. The thinking is that allowing new internet service providers or facilities to be built wherever possible is a better outcome than requiring ubiquity, and getting nothing. 

Also, higher-speed facilities often are not found everywhere in a single market or city. CenturyLink does sell gigabit internet access in Denver, just not everywhere in the metro area. That is not necessarily “redlining,” but likely based on capital available to invest; expectations about financial return; customer density or any other combination of business issues that discourages the investment in new access facilities. 

The economics of communication networks also are clear. Density and cost per location are inversely related. Mobile networks typically have 10 percent of cell sites supporting 50 percent of usage. About 30 percent of sites carry about 80 percent of traffic. That has been true since at least the 3G era.  

In fixed networks, network cost and density also are inversely related. So population density has a direct bearing on network costs. In the U.S. market, network unavailability is concentrated on the last couple of percent of locations.  

With cable operators already holding at least 70 percent share of the internet access installed base of customers, any new investment in faster facilities faces a tough challenge. Any new fiber to home network, for example, essentially is playing catch-up to a cable operator, as roughly 80 percent of U.S. households already also are reached by gigabit speed cable networks. 

And cable share has grown, up from possibly 67 percent share in 2017. 

That noted, internet speeds do vary by geography: speeds in urban areas frequently are higher than in rural areas. But the argument that large numbers of U.S. households are underserved often is correct, depending on what standard one wished to apply, and how one defines the supplier market.

Some claim 42 million U.S. residents are unable to buy broadband internet access, defined as minimum speeds of 25 Mbps in the downstream.  That actually is incorrect. 

Virtually every household in the continental United States is able to buy 25 Mbps or faster service from at least two different satellite providers. But those who claim “42 million” people cannot buy broadband simply ignore those choices, and focus only on the claimed availability of 25 Mbps service by fixed network providers. 

There are other estimates which also vary wildly. Roughly 10 percent of U.S. households are in rural areas, the places where it is most expensive to install fast fixed network internet access facilities, and where the greatest speed gaps--compared to urban areas--almost certainly continue to exist.

In its own work with TV white spaces, Microsoft has targeted perhaps two million people, or roughly a million households, that have no fixed network internet access. That assumes there are two people living in a typical household, which is below the U.S. average of roughly 2.3 to 2.5 per household.

Recall that the definition of broadband is 25 Mbps downstream. Microsoft has argued that 20 million people (about 10 million homes) or perhaps eight percent of the population (perhaps four percent of homes) cannot get such speeds from any fixed network service provider.

Microsoft also has cited figures suggesting 25 million people cannot buy broadband--presumably using the 25 Mbps minimum standard, most of those people living in rural areas. 

That conflicts with data from Openvault that suggests 95 percent of the U.S. population can buy internet access at a minimum of 25 Mbps, while 91 percent to 92 percent can buy service at a minimum of 100 Mbps. 

Using the average 2.5 persons per U.S. household average, that suggests a universe of about 10 million U.S. homes unable to purchase internet access at 25 Mbps from a fixed network supplier, in 2018. What is not so clear is the percentage of households or persons who can do so using a mobile network. 

None of that explains urban areas with slow speeds, though. There the issue is more likely to be high construction costs in urban areas where underground construction is necessary, along with demand expectations that are lower than in suburban areas. That is true whether it is electrical lines or communications networks being considered.   

But at least one Microsoft analysis suggests that about half of all U.S. households are not using 25 Mbps access. The claim is that 162.8 million people are “not using the internet at broadband speeds.” That seems to clearly contradict data gathered by firms such as Ookla and Opensignal suggesting that average U.S. speeds are in triple digits.

In 2018, the average U.S. broadband speed was 94 Mbps, according to the NCTA. That same year, Ookla reported the average U.S. speed was 96 Mbps. 

It is not quite clear how the Microsoft data was generated, though one blog post suggested it was based on an analysis of “anonymized data that we collect as part of our ongoing work to improve the performance and security of our software and services.” 

The claim of 162.8 million people “not using the internet at broadband speeds” (probably using 25 Mbps as the definition) equates to about 65 million households, using the 2.5 persons per household definition. That does not seem to match other data, including the statistics Microsoft itself cites. 

What remains difficult, but might explain the divergence, is if applications and services include both apps run on smartphones as well as PCs and other devices connected to fixed networks. That would explain the number of users, while usage on mobile networks might account for large numbers of sessions where 25 Mbps speeds downstream were not noted, or perhaps it was the upstream speed definition (minimum of 3 Mbps) that was the issue.  

Even then, downstream average 4G speeds in 2018 were in excess of 40 Mbps downstream, so even that explanation is a bit difficult. 

Perhaps there are other ways to make sense of the data. There is a difference between users (people) and households. There is a difference between usage and availability; usage by device (mobile, PC, tablet, gaming device, sensor); application bandwidth and network bandwidth. 

Perhaps the issue is application performance on a wide range of devices including mobiles and untethered devices using Wi-Fi, which would reduce average experienced speeds, compared to “delivered access speed.” 

Methodology does matter. So do the costs and benefits of broadband capital investment under competitive conditions, in areas with high construction costs or low demand for advanced services, especially when newer platforms with better economics are being commercialized. 

Telecommunications is a business like any other. Investments are made in expectation of profits. Where a sustainable business case does not exist, subsidies for high-cost areas or universal service support exist. 

The point is that every human activity has a business and revenue model: it can be product sales, advertising, memberships, subscriptions, tax support, fees, donations or inheritances. Children have a “parents support me” revenue model, supported in turn by any of the aforementioned revenue models. 

But every sustainable activity has a revenue model, direct or indirect. The whole global communications business now operates on very different principles than the pre-competitive monopoly business prior to the 1980s. We still have a “universal service” low end, but we increasingly rely on end user demand to drive the high end. 

Our notions of low end change--and higher--over time. We once defined “broadband” as any data rate of 1.544 Mbps or higher. These days we might use functional definitions of 25 Mbps or 30 Mbps. Recall that 30 Mbps--in 2020--was called “superfast” as a goal for U.K. fixed network broadband. 

Few of us would consider 30 Mbps “superfast” any longer. Some might say the new “superfast” is gigabit per second speeds. But that is the change in real-world communications over just a decade. What was a goal in 2010 now is far surpassed. 

What some call “redlining” is simply a response to huge changes in the internet access and communications business. “Maximum” is a moving target that responds to customer demand. “Minimums” tend to be set by government regulators in search of universal service. 

As independent internet service providers cherry pick service areas where they believe the greatest demand for gigabit per second internet access exists, so do incumbents. 

Similar choices are made by providers of metro business services; builders of subsea connectivity networks or suppliers of low earth orbit satellite constellations and fixed wireless networks. They build first--or pick customer segments--where they think the demand is greatest.

Up Next: Mobile Substitution for Fixed Internet Access

Mobile substitution has been a huge driver of revenue, market share and profit margin change in the consumer connectivity industry. Long distance revenues, voice revenues have been the big obvious examples. 

The next areas to watch are video entertainment and internet access. 

Parks Associates, for example, reports more than 12 million U.S. households have cancelled their home broadband service and use only mobile broadband for internet access.

That equates to more than 15 million households using mobile broadband service exclusively. Some three million of those households that have never had a home internet subscription, and have been mobile-only from the start. 

Other estimates of mobile-only internet access support that observation. As much as 20 percent of U.S. households were mobile only for internet access in 2017, Deloitte estimated, with take rates correlating with household income. Mobile-only behavior occurred in 15 percent of richer homes and 20 percent in poorer households. 

The new wrinkle is 5G for fixed wireless, which some proponents suggest could add another 15 percent to 20 percent market share for mobile operators, with share taken directly from fixed network suppliers.  

Over the top application substitution has been the other big driver of revenue and profit margin change, diminishing service provider revenues and profits from text messaging, long distance calling and voice calling. 

In the connectivity business, the "mobile substitution" trend has occurred in phases, and affected a wider range of products over time.

Mobile voice supplanted fixed voice as the preferred consumer use case. "Mobile substitution" for voice has been a global trend since the advent of 2G networks. In fact, mobile is the only sort of ubiquitous network in most parts of the world. But that now might become an issue for internet access as well.

“I will say over time--a three to five year time horizon--unequivocally 5G will serve as a broadband, a fixed broadband replacement product,” former AT&T CEO Randall Stephenson said. “I am very convinced that that will be the case.”

“Back in the 90s everybody was saying wireless would never serve as a substitute for fixed line voice because there wasn't sufficient capacity,” Stephenson said. “Well it is a substitute for voice.”

Mobile messaging displaced voice. Mobile social media displaced fixed modes. Mobile turn-by-turn navigation displaced dedicated GPS devices and maps.

Mobile phones displaced watches, cameras, music players and flashlights. Mobile entertainment video is encroaching on fixed modes of viewing (TV sets, PC or tablet screens).

Mobile internet access, which began to find niches in the 3G era, found many more use cases in the 4G era (both for home broadband replacement and on-the-go access). In developing regions, mobile internet access is the preferred form of access.

In the 5G era, we will see a big test of fixed wireless and mobile wireless as a substitute for fixed network access in a wider range of settings. No later than 6G, we might routinely be using mobile access as a substitute for home broadband. The key enabling trends are higher routine speeds and some shifts of pricing plans and consumer behavior.

source: Parks Associates 

Cost and speed are cited by cord cutters as reasons for ditching fixed network internet access. Obviously that behavior could change if cabled network speeds are upgraded and cost becomes more appealing. 

At least initially, it can be hypothesized that mobile substitution will be most appealing for households with modest bandwidth requirements, as that is where the best match of fixed wireless speeds and pricing with customer demand. 

If the average U.S. household consumes 269 GB per month, according to OpenVault, and the average number of people per household is 2.5, than per-user consumption is about 108 GB per month.  

If a typical household spends $66 for fixed internet and between $40 and $60 a month for mobile data, we can roughly estimate the breakeven point where going all-mobile for internet access costs no more than what already is spent for mobile and fixed internet access, ignoring a bit of hassle factor for doing so.

Assume per-user mobile data costs $50 a month, while per-household fixed data costs $70 a month, and about $28 per user in each household. For a multi-user household of an average 2.5 users, that implies something like $78 per user for an all-mobile approach.

It’s a rough estimate, but that implies usage allowances currently set at about 110 GB, priced at about $80, would be competitive offers for many users, and allow substitution for fixed internet access.

U.S. Broadband Faster, More Available Than in Europe, Study Finds

On some measures, U.S. consumers have access to, and use, faster Internet access services, more than consumers in Europe, in large part because U.S. policies have encouraged investment, compared to European policies that historically have been more focused on wholesale access to encourage competition.

It also would be fair to note that most communities have access to at least two facilities-based providers, a fact that arguably has encouraged investment in upgraded facilities.

Google Fiber’s entry also has had a direct impact, encouraging other Internet service providers to drop their prices to $70 to $80 a month for gigabit access, and to invest in such facilities.

Some would argue Google Fiber’s decision not to allow wholesale access, and thus reap the benefits of capital and operating investments, is one example of how there are incentives to invest. Google Fiber cannot be compelled to sell wholesale access, especially at low rates, to other competitors.

A far greater percentage of U.S. households have access to Internet access at 25 Mbps or faster, the study argues.

On a national basis, 82 percent of U.S. consumers can buy access at 25 Mbps or faster, compared to 54 percent of Europeans.

In rural areas, 48 percent of U.S. rural consumers have access to 25 Mbps or faster services, compared to 12 percent in Europe, according to a study by Christopher Yoo, University of Pennsylvania law school professor.

The study also found that the United States had 23 percent fiber-to-premises coverage, compared to 12 percent in Europe.

The United States also has 86 percent coverage of Long-Term Evolution (4G LTE), compared to 27 percent LTE coverage in Europe.

U.S. download speeds during peak times (weekday evenings) averaged 15 Mbps, below the European average of 19 Mbps, however.

During peak hours, U.S. actual download speeds were 96 percent of what was advertised, compared to Europe, where consumers received only 74 percent of advertised download speeds.

U.S. consumer experience in the areas of latency and packet loss also was better than in Europe.

U.S. broadband “stand-alone” prices were cheaper than European broadband for all speed tiers below 12 Mbps.

U.S. broadband was more expensive for higher speed tiers. The caveat is that most U.S. consumers do not appear to pay “stand-alone” prices for fixed network broadband, typically buying bundles that in essence discount prices.

Consider that 97 percent of AT&T customers bundle their video subscription service with other AT&T services.  Cable providers have 75 percent or more of their subscribers on a bundle of video and broadband, AT&T notes.

Standard coverage is available in 99.5 percent of U.S. households and 99.4 percent  of European households. Standard fixed coverage is available in 95.8 percent of U.S. households and 95.5 percent of European households, the study found.

Mobile broadband coverage at 3G speeds also fall within quite similar ranges, covering

98.5 percent of U.S. households and 96.3 percent of European homes.

Yoo attributes a regulatory “light touch” for higher U.S. investment in broadband and expanded access to high-speed internet in the US compared to Europe.

The University of Pennsylvania Law School study also showed that Europe’s treatment of broadband as a public utility, which some net-neutrality advocates are pushing for in the US, has hindered internet access growth there.

The study notes that, in Europe, where telecom service revenues have fallen by more than 12 per cent since 2008, the financial return for investing in next-generation networks is less promising, since those facilities must be leased to competitors, allowing them to avoid building their own networks.

Those rules also reduce the “scarcity value” of new networks, though.

“The empirical evidence thus confirms that the United States is faring better than Europe in the broadband race and provides a strong endorsement of the regulatory approach taken so far by the US,” said the study, which was written by law professor Christopher Yoo.

The differences in regulatory regimes also contributed to $562 of broadband investment per household in the US versus $244 per household in Europe, where regulators treat broadband as a public utility and promote service-based competition where new players lease existing facilities at wholesale cost.

U.S. policy has emphasized facilities-based competition by firms that can build new facilities, and then reap any rewards, without enabling competitors.

U.S. policy also shows the importance of competition between cable TV and telcos. Although many advocates regard telco fiber to the home as the primary platform for faster networks, the data suggest otherwise.

In Europe, DOCSIS 3 (39 percent coverage as of 2012) and VDSL (25 percent) both contribute more to fast network coverage than does FTTP at 12 percent.

In terms of actual subscriptions, the distribution skews even more heavily towards cable connections (DOCSIS 3), with 57 percent of subscribers, followed by FTTP at 26 percent,

and VDSL at 15 percent.

Even if one were to focus exclusively on FTTP coverage, the data clearly give the edge to the U.S. market. As of the end of 2011, FTTP service was available in 17 percent of U.S.

households and 10 percent of European households. By the end of 2012, FTTP service increased to 23 percent of U.S. households and 12 percent of European households, the study found.

But mobile Internet access now is more important than ever. As of the end of 2011, Long Term Evolution networks covered 68 percent of the U.S. population and eight percent of European households.

By the end of 2012, LTE coverage increased to 86 percent of the U.S. population and 27 percent of European households. Note the difference in data collection, though. European dat is “by household.” U.S. data is by “person.” That understates European coverage figures, to the extent that households have more than a single occupant.

On the other hand, average download speeds at peak periods are higher in Europe, compared to the United States.