Is U.S. Internet Access Unaffordable?

Whether a product is affordable or not often depends on one’s standpoint and assumptions. The average price of a broadband internet access connection--globally--is $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 downspeeds. 

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. 

source: ITU

That is worth keeping in mind as some argue affordability of U.S. fixed network internet access is a big issue. According to BroadbandNow, less than half of U.S. households have access to fixed network internet access at prices of $60 or less per month. The implication is that this is a problem. 

Maybe it is not a problem, if the average global price of a fixed network internet access connection is $73 a month. 

The important caveat is that comparing fixed network internet access prices across regions and nations requires normalizing for purchasing power; picking plans to compare; and adjusting for differences in retail plans (such as usage limits, if any). Absolute price, for any particular set of analyzed plans, is one thing. Price per gigabyte might be quite another. 

And since much of the world’s people use mobile internet access, it is not so clear how valuable measures of fixed network cost actually are. 

With global broadband speeds growing by 23 percent on average between 2017 and 2018, one might expect similar shifts in pricing. However, the average price of a broadband access plan globally remains stable, decreasing by 1.64 percent between 2017 and 2018, for example, according to comparison site Cable.

source: BroadbandNow

The point, some might argue, is that U.S. fixed network internet access prices actually are not too expensive, when compared with prices in other developed nations. ]

Internet Access Got Dramatically Better--60% for Mobile, 32% for Fixed--Over the Last Year

Despite perennial complaints that internet access simply is not available enough, cheap enough or good enough, global internet access keeps getting faster, more available and arguably even more affordable. 

According to Ookla, mobile download speed improved 60 percent  over the last year globally, while fixed broadband speeds got 32 percent faster. 

The global mean of download speeds improved over the last 12 months on both mobile and fixed broadband to 55.07 Mbps (mobile) and 107.50 Mbps (fixed network) in July 2021, Ookla says.  

Mean (average) download speed over mobile was 99 percent faster in July 2021 than in July 2019, 141 percent faster when comparing July 2021 to July 2018, and 194 percent faster when comparing July 2021 to June 2017.

source: Ookla 

On fixed networks, mean download speed was 68 percent faster in July 2021 than in July 2019, 131 percent faster in July 2021 than in July 2018 and 196 percent faster in July 2021 than in June 2017.

On the price front, observers sometimes cite posted retail prices and argue that “ prices are too high.” That remains true in many developing countries, but in developed countries the story is not correct. Internet access is not very expensive. 

When some claim prices are too high, the typical argument is that U.S. a la carte prices (the retail tariff for internet access, not purchased in a bundle) are higher than prices in other countries.  

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 a new 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.  

In Europe, a majority of consumers pay less than one percent of their average wages to get broadband access, NetCredit says. In Singapore, Hong Kong, New Zealand and Japan,  10 Mbps service costs between 0.15 percent and 0.28 percent of income. 

A normalization technique used by the International Telecommunications Union is to attempt to compare prices to gross national income per person, or to adjust posted retail prices using a purchasing power parity method. 

source: ITU 

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 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.  

First of all, the product people buy is different over time. Customers are buying faster packages than they used to. To the extent that faster tiers of service cost more, “average” prices will climb. On a cost-per-Mbps basis, costs are dropping. 

But there are limits to price levels. Consumers will only spend so much on internet access. That figure tends to a small percent of household income, with all forms of communication service spending amounting to perhaps 

Prices for fixed network service have dropped about 92 percent over the last decade, for example, on a cost-per-megabit-per-second basis. Customers also use much more data than they used to, as well. Competition accounts for some of the improvement, even if observers sometimes argue “there is no competition” for consumer broadband services.  

The point is that internet access keeps getting better, and more affordable as well.

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.”

Internet Access Too Expensive; Too Slow?

One often hears complaints that U.S. broadband is “too expensive” or “too slow,” as one hears that municipal internet access services are needed to do the job internet service providers will not do. It always is worth evaluating such claims.

Is U.S. broadband “too slow.” Maybe not. About 80 percent of U.S. households can buy gigabit per second service if they choose, looking only at coverage by cable TV networks. Yes, households in rural areas often cannot buy service at such speeds, but speeds improve all the time, for a greater number of locations. 

According to comparethemarket.com, the United States ranks fifth among 50 for downspeeds.

Is U.S. internet access too expensive? Maybe not. According to a new 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.  

In Europe, a majority of consumers pay less than one percent of their average wages to get broadband access, NetCredit says. In Singapore, Hong Kong, New Zealand and Japan,  10 Mbps service costs between 0.15 percent and 0.28 percent of income. 

Back in 2017, actual U.S. broadband speed was more than 100 Mbps, on average, according to Akamai. Upstream speeds varied by location, but are at or above plan goals in most cities, with performance varying by provider.   

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.

source: McKinsey  

This chart from McKinsey compares cost trends for various products purchased by consumers in the 22 Organization for Economic Cooperation and Development countries. It shows price changes, indexed to inflation, between 2002 and 2018, covering nearly two most-recent decades. 

Here is a Bureau of Labor Statistics analysis of U.S. prices for about the same time period.  It shows that U.S. mobile communications prices have dropped almost identically with the OECD data for communications services. 

That matters since mobile phones are the clear consumer choice for using voice services . 

source: BLS 

One can see the same general downward price trend for U.S. internet access, normalizing for higher consumption over time. 

source: Strategy Analytics 

Some will argue that is the wrong way to look at consumer internet access prices. Some will point to non-inflation-adjusted retail prices, or note that posted U.S. retail prices are high by global standards. Without adjusting for different costs of living in different countries, one can conclude U.S. Internet prices are too high. 

Adjusting for local prices, as when comparing the cost of an Internet access subscription to national income statistics, yields a different answer, namely that prices are quite low in developed countries. 

Granted, there always are challenges. Rural areas are harder to serve than urban areas. Poorer countries have a harder time supplying access at low prices than richer countries. 

A normalization technique used by the International Telecommunications Union is to attempt to compare prices to gross national income per person, or to adjust posted retail prices using a purchasing power parity method. 

There are methodological issues. 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. 

source: ITU

That is worth keeping in mind.

According to BroadbandNow, less than half of U.S. households have access to fixed network internet access at prices of $60 or less per month. The implication is that this is a problem. 

Maybe it is not generally a problem. The average global price of a fixed network internet access connection is $73 a month. So average U.S. prices are significantly lower than the global average.

Facts Do Not Support Charge that Internet Access Prices Climb "Without Net Neutrality"

One often hears, in discussions of network neutrality, assertions that without such rules, internet access costs will skyrocket. Oddly enough, internet access has--for nearly all its history--been an unregulated service where internet service providers have been able to charge whatever the market will bear.

Since, for all of the time U.S. consumers have purchased internet access, the same fundamental rules (internet access is a data service, and therefore unregulated as are other data applications) have been in place, with the exception of the the few years when internet access was deemed to be a regulated “telecom” service, we can look at the whole history of prices to evaluate whether prices actually have shown evidence of “price gouging.”

History suggests prices have done nothing but drop--and drop by orders of magnitude--over the whole history of consumer internet access services.

Some might argue that this might be true on a “cost per bit” basis. Others will argue it is true on an absolute price basis. Those of you who were buying internet access early in the broadband era (around the turn of the century) can remember spending $200 to $300 a month for 756 kbps service. We routinely now pay $50 to $70 a month for service of 100 Mbps.

Value is higher and price is lower, on an absolute basis, without adjusting for inflation. And prices continue to fall, even faster, on a “value compared to price” basis. Schools buying internet access between 2013 and 2017, for example, saw prices decline 78 percent, on a cost per Mbps basis.

source: Infrastructure USA

That same price trend can be seen globally, in developing countries. The same trend was seen in mobile voice, internet transit (where prices often decline 33 percent per year).

Consumer internet access also can be characterized as having Moore’s Law rates of change. In other words, connection speed increases 50 percent per year, every year, while prices drop, remain stable or increase only modestly.

source: Statista

It is obvious that consumer internet access prices, despite improvements, do not increase 50 percent per year. In fact, without adjusting for inflation or changes in end user demand for products, it is hard to argue that U.S. consumer internet access prices actually have increased much at all.

Real prices are often hidden because most consumers do not buy the “stand alone” prices for access, but instead buy bundles of services where the actual discounts are not visible.

Some might argue internet access prices rise two percent or perhaps three percent a year. That is not surprising, as this represents the underlying rate of inflation.  

source: Jacob Nielsen    

The point is that actual access prices are not--as many claim--increasing in the U.S. market because there is no competition or because there is no “network neutrality.”

Some studies suggest prices are higher than they actually are, because the quotes are for “standalone” prices, at retail, even when most consumers do not buy those products, but rather bundles or other promotional plans.

Of course, one also has to adjust nominal (actual) retail prices across countries, as overall price levels vary across countries. Adjusting using the purchasing power parity approach, to normalize retail prices for actual price levels in each country, global internet access prices average between $50 to $80 a month, according to Point Topic studies.

source: Point Topic