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.

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.”

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.

5G Fixed Wireless Might be the Biggest Near-Term New Use Case, in Terms of New Revenue Sources

As easy as it might be to dismiss fixed wireless, it might be equally easy to overstate its impact. At the end of 2021 there might have been about 70 million fixed wireless connections in service globally, according to Deloitte. Ericsson believes there were as many as 90 million fixed wireless connections in service in 2021.  

So how significant is that? Perhaps not so significant when service providers have other alternatives. But fixed wireless might be highly consequential for service providers that can use fixed wireless to compete in the home broadband market where they had not be able to do so, in the past.

source: Deloitte 

By the end of 2021 there were about one billion fixed network internet access subscriptions, according to Point Topic. So fixed wireless represented possible seven percent to nine percent of fixed network internet access connections globally. 

source: Point Topic 

So fixed wireless clearly is incremental to use of other platforms, though arguably of high importance to many infrastructure suppliers.

On the other hand, fixed wireless can be incrementally important for some service providers. For some service providers it might represent a business case that other platforms cannot match, allowing those firms to compete in the home broadband for the first time, or more effectively.

That might especially be true in geographies where the cost of building cabled networks is not feasible, or where subsidies of some sort are not available to help defray the cost.

Mobile-only firms formerly unable to compete in the home broadband market, or unable to compete for much of that market, might find 5G fixed wireless viable. 

5G fixed wireless connections could--in many cases--provide significant incremental revenue growth, allowing mobile operators to compete for home broadband accounts now largely the province of fixed network operators. 

Assume global  gross national income per capita of about $11,600 and a monthly home broadband cost of five percent of GNI per capita. That is about $580 in annual revenue per line. 

So 75 million new fixed wireless accounts represents perhaps $43.5 billion in new annual revenue for mobile service providers. That can take the form of new accounts or market share taken from other suppliers. 

Fixed wireless using 5G will by 2026 support 180 million connections globally and generate US$70 billion in revenue, accounting for 40 percent  of the total fixed wireless access market, according to ABI Research. 

Adoption likely will be highest in markets where the cost of deploying fiber to home or hybrid fiber coax remains unworkable, and where demand for moderate-speed internet access is high. Some might argue that 5G fixed wireless is most directly the successor for 4G fixed wireless and digital subscriber line. In some markets that opportunity might last for a substantial amount of time.

5G fixed wireless might be especially important for firms that have not yet been able to compete in all of most of the home broadband market. For T-Mobile in the U.S. market, that represents a huge opportunity, since T-Mobile has had zero percent share of the home broadband market. 

And Verizon expects that fixed wireless will underpin as much as 71 percent of the potential locations it will reach for home broadband service by about 2025. 

Some will counter that 5G fixed wireless speeds will not generally match those of fiber to home or cable modem services. That is likely to be true.

But 5G fixed wireless is likely to be attractive to a substantial portion of the market. In rural areas, where service might only be available in the 50 Mbps range, that still could be competitive.

Overall, about 20 percent of U.S. home broadband buyers purchase services operating no faster than 100 Mbps. So the issue is general availability of fixed wireless services offering speeds of 100 Mbps to  200 Mbps. 

source: Openvault

Nearly half the market presently buys service operating between 100 Mbps and 200 Mbps. And nearly 68 percent of the U.S. market buys service operating no faster than 200 Mbps. 

Also, the U.S. home broadband market is big enough that gaining just a couple of points of the installed base and market share generates substantial revenue. By 2023, fixed wireless might represent about 4.5 percent of all home broadband accounts , some estimate.  

To put that into perspective, consider projected revenue for other new services. In 2024, it is conceivable that  IoT connectivity revenues for mobile operators globally could  be in the low millions to tens of millions of dollars, according to Machina Research. Millions, not billions. 

In 2026 the global multi-access edge computing market might generate $1.72 billion. Even if one assumes all that revenue is connectivity revenue booked by mobile operators, it still is a far smaller new revenue stream than fixed wireless represents. 

In 2020 there were perhaps 80 million fixed wireless subscriptions in service. Researchers at Mobile Experts see that number growing to almost 200 million by 2026. 

Ericsson notes that more than 70 percent of all service providers now offer fixed wireless access   services. Ericsson also predicts that fixed wireless connections will exceed 180 million by the end of 2026.

By 2026, assuming these forecasts are accurate, fixed wireless will represent about 12 percent of fixed network broadband connections, Ericsson estimates.  

Keep in mind that the incremental revenue from 75 million 5G fixed wireless connections does not include the revenue from 4G fixed wireless connections, which might represent another 110 million connections. 

That represents an additional $104.3 billion in annual revenue, assuming a global average of $48 per month, per line. 

The point is that incremental revenue from 5G fixed wireless might dwarf new revenues earned by mobile operators from edge computing and internet of things.

Regulators Cannot Keep Up with Pace of Change in Computing and Communications

It often has been said that regulators cannot keep up with the pace of change in computing, broadband and applications. That has proven to be true for regulators looking at home broadband performance. 

About 2010 or so Ofcom, the U.K. regulator laid out a national goal for “superfast” internet access of about 30 Mbps, at a time when the typical speed most consumers were able to use was about 6 Mbps.

Average actual U.K. fixed-line residential broadband speeds grew from about 3,6 Mbps in 2008 to about 15 Mbps in 2013. 

source: Ofcom 

In 2011, Ofcom warned of low interest in 50-Mbps services, for example. 

Ofcom also worried about low interest in 30 Mbps services as well. 

That same year, a 50-Mbps internet access connection (home broadband) cost close to $100 a month. 

The next formal goal will be gigabit per second access, which shows you just how fast improvements are coming in the home broadband business. 

That same degree of improvement was seen in the U.S. market as well. Back in 2010 average U.S. home broadband speeds were about 5 Mbps. By 2019 speeds had climbed to about 33 Mbps. 

U.S. median home broadband speeds were about 131 Mbps in October 2021.  

source: Nielsen Norman Group 

By 2050 the home broadband headline speeds are likely to be in terabits per second. Though the average or typical consumer does not buy the “fastest possible” tier of service, the steady growth of headline tier speed since the time of dial-up access is quite linear. 

And the growth trend--50 percent per year speed increases--known as Nielsen’s Law--has operated since the days of dial-up internet access. Even if the “typical” consumer buys speeds an order of magnitude less than the headline speed, that still suggests the typical consumer--at a time when the fastest-possible speed is 100 Gbps to 1,000 Gbps--still will be buying service operating at speeds not less than 1 Gbps to 10 Gbps. 

Though typical internet access speeds in Europe and other regions at the moment are not yet routinely in the 300-Mbps range, gigabit per second speeds eventually will be the norm, globally, as crazy as that might seem, by perhaps 2050. 

The reason is simply that the historical growth of retail internet bandwidth suggests that will happen. Over any decade period, internet speeds have grown 57 times. Since 2050 is three decades off, headline speeds of tens to hundreds of terabits per second are easy to predict. 

source: FuturistSpeaker 

Some will argue that Nielsen’s Law cannot continue indefinitely, as most would agree Moore’s Law cannot continue unchanged, either. Even with some significant tapering of the rate of progress, the point is that headline speeds in the hundreds of gigabits per second still are feasible by 2050. And if the typical buyer still prefers services an order of magnitude less fast, that still indicates typical speeds of 10 Gbps 30 Gbps or so. 

Speeds of a gigabit per second might be the “economy” tier as early as 2030, when headline speed might be 100 Gbps and the typical consumer buys a 10-Gbps service. 

source: Nielsen Norman Group