Demand is a 5G Issue, Not Simply Supply

A foundational claim about any sort of digital divide is that supply is the problem. Networks do not reach everyone; or quality networks do not reach everyone or prices are too high. Those all are supply-side ills.

What often gets confused or forgotten is that there are demand-side drivers as well. Consumers might prefer to buy based on their own perceived needs. Most often, consumers buy home broadband services that are in the middle of what is available, in terms of price and perceived value.

The same thing might apply to mobile services as well.

Where it comes to supply and demand, pundits often assume that slower 5G uptake is to be blamed on supply, not demand. That is not necessarily the case. Subscriber levels for 4G in a few European countries have always been below what we might expect, and availability cannot, at this point, be the main culprit. 

Some might point to lagging 5G uptake and suspect that supply issues are at work. 

source: Ookla 

Customer demand also shapes uptake. Nearly half of all German mobile subscriptions appear to use 3G, instead of 4G. nearly a decade after 4G was introduced, according to a study by Opensignal. 

Governments and policymakers always are quick to quantify supply-based gaps in uptake, quality or availability of communications services, which is among the reasons stories about any form of digital divide are evergreen. 

Most often, studies about service gaps rely on supply or demand indices, including network availability, typical speeds and cost. 

Demand side choices by consumers tend to be overlooked. In other words, some “gaps” might reflect consumer choices, not failures of supply. And that matters for 5G, as much as it did for 4G.

We often are surprised at the resilience of legacy services, as those use of legacy services is always a case of supply failure. Not always. Sometimes demand choices are at work. In other words, a huge percentage of German mobile users seem to be opting to remain on 3G networks even when 4G networks now are in good supply, with good performance metrics. 

Rural Home Broadband Might Not Always--or Even Often--be an Example of Digital Divide

Rural areas always face challenges when it comes to home broadband, for simple reasons: the cost of fixed networks in areas of low population and housing density is challenging. But the latest survey data from NTCA suggests matters have improved dramatically. 

The NTCA’s latest poll of its members indicates 61 percent of residents can buy service with downstream speeds of at least 1 Gbps, up from 55 percent in 2021,  45 percent in 2020, and 25 percent in 2019. 

source: NTCA 

Customers unable to buy service at speeds up to 25 Mbps have dropped to about nine percent. 

The 2021 report indicated as much as 76 percent of customers are able to buy services running from 100 Mbps to multi-gigabit speeds. About 55 percent of customers were  in the “1 Gbps or faster” category.

source: NTCA 

There are issues, to be sure. One might argue that non-reporting firms probably support lower speeds than the 38 percent of rural ISPs that responded to the survey request. Keep in mind that the respondents report an average of 4,287 residential and 648 business fixed broadband connections in service. 

It is likely that most of the non-responders are even smaller entities. In other words, as in most markets, it is likely that a small subset of ISPs in the U.S. rural ISP market represent most of the total potential customers. 

The important takeaway is that rural home broadband is improving fast and already is on a par with urban service levels in many cases. That is not the impression a casual observer might get if reading, seeing or hearing about the digital divide in news reports. 

As often is the case, reality can be distorted unless “both sides of the story” are told.

How Big a Problem is the "Digital Divide?"

One always-present issue when looking at any particular social or economic problem is that we always face multiple problems at the same time. Drug overdoses, malnutrition, carbon and methane emissions, traffic, inflation, joblessness, homelessness, lack of medical care, uneven or inadequate educational opportunities, domestic violence, fair treatment of ehtnic, racial, religious or other minorities, corruption, crime and many other problems have to be tackled simultaneously. 

And it never is possible to rank order all of those problems in terms of allocating resources to solve the problems, in a holistic way, in real time, even assuming we have our means-ends causality chains correctly understood. 

In that vein, the “digital divide” is a bigger problem some places, compared to others, even if it can be seen as a problem no matter where we find it. 

That clearly is the case for people in many lower-income or middle-income countries, where internet access in lower-income countries exceeds four percent of monthly gross domestic product, for example. 

In most middle-income countries greater progress has been made, with costs below the International Telecommunications Union target of two percent of monthly GDP. 

In developed countries, the problems are mostly confined to rural areas or high-cost areas, as monthly recurring costs are below one percent of GDP. There still are issues to be solved, but they are relatively trivial compared to other problems we also face. 

source: ITU

Mixed Progress Globally in 2018 Connecting the Unconnected

The goal of “everyone connected to the internet” saw mixed progress in 2018, one report suggests.  “We are seeing steady progress in the number and percentage of households connected to the Internet, narrowing the gender gap and improving accessibility for people with disabilities,” the latest Inclusive Internet Index report says.

Some might focus on a digital divide that appears to be widening at the bottom of the income pyramid, according to the latest iteration of the Inclusive Internet Index. Others would point to the progress being made.

On one hand, “growth in Internet connections is slowing, especially among the lowest income countries, and efforts to close the digital divide are stalling, in part due to declining affordability in a number of low-income countries,” the report states.

source: Inclusive Internet Index

On the other hand, mobile data affordability improved globally, thanks largely to improvements in lower-middle-income countries. However, the cost of prepaid data plans increased in 39 out of the 84 countries that were studied.

Also, networks and coverage are better. 4G coverage is better, and the connection quality of fixed broadband and mobile connections, such as download and upload speeds, has improved globally.

For example, the world’s average mobile download speed improved by 36 percent to 21.9 Mbps from 16.1 Mbps, with the biggest gains in South Asia. Lower middle-income countries have had a significant improvement of 66 percent in 4G coverage. However, low-income countries saw more-modest progress with a 22 percent improvement.

Gender gaps in Internet access are narrowing globally, led by low-income and lower-middle-income countries. In some countries, women’s Internet access actually exceeds that of men, with the Philippines, Ireland, China and Argentina having the largest majorities.

Mobile broadband subscriptions per 100 inhabitants grew just 0.3 percent so far in 2019, and in low-income countries subscriptions actually declined, the report says. \

Perhaps ironically, as 4G gets faster in developed countries, and 5G launches, the gap with the bottom of the pyramid will grow.

Internet Phobia?

BT wants to find out why some people, even living in homes with broadband connections, resist using the Internet. About 39 percent of U.K. households do not have Web access. Fear of technology might be one reason, BT theorizes.

To acquaint them with online life, four subjects have been given a broadband link, a laptop, webcam and a digital camera. A two-month training plan has also been developed that will introduce them to what they can do on the Internet.

Writ large, that's one way to deal with any lingering short term "digital divide." Long term, I don't think there's a problem. There used to be a joke several decades ago in the U.S. cable TV industry about "resisters." Basically, the punch line is that the "resisters" are dying. There was a clear shift in the character of demand for television that now has fully established itself, as tough as it might have been to get the new behavior established in the first place.

The same thing is going to happen with broadband. Demand simply is shifting. All of which suggests BT ultimately will move beyond its fiber-to-cabinet; copper drop strategy and move ahead with a full fiber-to-customer upgrade. Like any other tier one service provider it is going to hold out for the most favorable deal it can get from regulators. But there's not much doubt about the long term outcome.

Bandwidth consumption is going to outstrip anything all the wireless networks together can provide, which makes the fiber connections an essential part of the future bandwidth story.

U.S. cable operators used to "diss" switched digital video" as well. Now they're starting to embrace it. They still say in public that fiber-to-home networks are way too expensive, and are unnecessary, from a cable standpoint. That's not necessarily what executives think privately, though.

Nor is it the case that resisters stay that way forever. Those of you with grandparents, who are grandparents or who have pre-baby boomer relatives know that mobile phones, PCs, cable and Internet connections frequently are used daily by people who might be prime "resisters." And the people who move them into the "connected" camp are friends, children and grandchildren. So BT might consider a "friends and family" program that enlists other family members in providing training and support for resisters. That's the way it works anyway.

Where are All the Unserved U.S. Households?

Since the “digital divide” is closing everywhere in the world, it simply stands to reason that the divide ought to be narrowing in the United States as well. That is not to say the divide closes completely, only that clear and steady progress is being made to supply better internet access to citizens who wish to buy it. 

The Federal Communications Commission says “the number of Americans lacking access to fixed terrestrial broadband service at 25/3 Mbps continues to decline, going down by more than 14 percent in 2018 and more than 30 percent between 2016 and 2018.” 

The FCC also notes that the number of Americans without access to 4G Long Term Evolution (LTE) mobile broadband with a median speed of 10/3 Mbps fell approximately 54 percent between 2017 and 2018.

Also, more than 85 percent of U.S. residents now have access (can buy) fixed terrestrial broadband service at 250/25 Mbps, a 47 percent increase since 2017. Over the same period, the number of Americans living in rural areas with access to such service increased by 85 percent, the FCC says. 

 Inevitably, some will lament the existence of differences; decrying a lack of perfection or simply arguing that the numbers are incorrect, arguing that the number of people without broadband access is 42 million or even as high as 162 million. 

It is not clear where those higher figures come from. Looking at connected households is revealing, however. 

The Federal Reserve estimates there are about 140 million housing units., defined as “a house, an apartment, a group of rooms, or a single room occupied or intended for occupancy as separate living quarters.” 

To be more precise, we also would have to account for households that either choose not to buy, or cannot easily buy. Some of those latter cases might be boats that serve as a residence, trailers or rooms rented inside homes where the resident does not buy internet access because the owner or manager of the property supplies the access. 

More than 16 million units are vacant at any particular time, leaving a total of perhaps 124 million units, which accords well with the estimate of 121.6 million households we get if we assume the U.S. population is 304 million persons, with an average household size of 2.5. Then there are 121.6 million households. 

That is the base of total locations fixed networks must reach. But a significant number of households choose not to buy fixed network access. 

Somewhere between 15 percent and 20 percent of U.S. homes are “mobile-only” for internet access, which might represent as much between 18 million and 24 million households. Those customers choose not to buy fixed network internet access, for whatever reason they choose. 

If so, then the number of locations who might buy fixed network internet access is on the order of 97.6 million to 103.6 million sites. 

If take rates for all homes (including the vacant units) are about 80 percent, then we would expect total fixed network accounts to number about 97.3 million locations.

Leichtman Research Group estimates that the largest U.S. telcos and cable companies have about 101.2 million accounts, but that includes business accounts. That matches fairly well the estimate that total fixed network accounts should be about 97.3 million in number. 

The point is that there are very few U.S. locations that do not already buy some form of internet access--mobile or fixed or both. That is difficult to square with claims that huge numbers of peop;le literally cannot buy service at 25 Mbps. 

Consider also that internet access routinely is available from satellite and other wireless and mobile platforms. 

Satellite broadband and fixed wireless operators traditionally have targeted rural homes and small businesses as their primary market, in the past said to include as many as 35 million locations. But estimates vary widely. Some say 80 million people live in rural areas, others say 46 million do, using the U.S. Census Bureau methodology. 

 Satellite broadband providers seem to have three million subscriptions, though some estimates (wrong, in my opinion) suggest that  6.76 percent of U.S. internet subscriptions are provided by satellite. 

Assume there are 139 million U.S. housing units, the high estimate, without adjusting for vacant units or other locations that cannot be wired. That implies nine million U.S. satellite broadband subscribers. No estimate I have seen--ever--suggests there really are nine million U.S. satellite broadband accounts. 

HughesNet believes 18 million homes are its market opportunity. Rental units alone might represent 6.6 million units, although not locations, as some of those units are in multi-family complexes. 

According to Urban.org, 13 million homes are owned by rural residents. Those figures roughly accord with HughesNet estimates of market opportunity. 

A more conservative estimate is that perhaps two percent to three percent of U.S. homes are the primary target for satellite broadband. That would include the most-isolated areas, where there are no terrestrial fixed networks using cabling. In many rural areas that are slightly more dense, wireless ISPs already operate. And, of course, there are many parts of rural areas served by cable operators or telcos. 

The point is that many homes already can buy 25 Mbps service, albeit from a satellite provider. 

A big issue is the presence of fixed wireless ISPs. According to Broadband Now, some 148.4 million U.S. residents are covered by fixed wireless ISPs. Assume an average household size of 2.5. That implies some 59 million rural locations already are reached by fixed wireless ISPs. 

Add all that up and some of us cannot fathom how 42 million to 162 million people actually are not able to buy 25 Mbps internet access.

Some Problems Do Not Go Away, Even if They Become Less Important

To get funding, any advocacy group must first demonstrate that a problem exists. To keep getting funds, an entity has to insist no progress is being made, necessitating continued funding. And if the original problem actually is solved, the entity has to find some new problem that needs to be solved. 

All that applies to “broadband access,” no less than any other undertaking. Despite much data indicating that internet access (mobile and fixed). One analysis by Fastly suggests that even the most-challenged digital subscriber line networks in the United States held up under the new at-home load. Cable TV networks also have held up well.

According to Ookla, U.S. internet access speeds  on fixed networks dipped about four percent during the pandemic. Mobile speeds actually improved by one percent. 

)has held up very well as nationwide stay-at-home policies were put into place because of the Covid pandemic, not every community was so fortunate. Oxnard, Calif., for example, was one such place, seeing a dip in downstream speeds of about 20 percent from mid-March to mid-April, although performance now is moving back up post-mid-April, according to BroadbandNow, using test data from M-Lab. 

Most of you are familiar with speed tests. Most of you also know you test your connections primarily when they seem “slow.” Almost nobody bothers to test when the networks are humming along. And M-Lab tests have increased significantly during the stay-at-home policies, suggesting customers are aware of greater congestion or slower experienced speeds. That would hardly be surprising, as all studies show at-home internet access data volume has grown 40 percent or so as people have been forced to work and learn at home. 

A study by Fastly indicates speed and income are related. That should not be surprising. Lots of consumer behaviors and spending patterns are correlated with income, education, wealth and geography. Up to 20 percent of U.S. consumers also say they rely on mobile internet access, and do not buy fixed network access. Rural speeds tend to be slower than urban speeds. Rural use of the internet, PC ownership and income also seem to be lower than in urban areas. 

The point is that there always will be room to argue that a digital divide continues to exist, even if it is narrowing and has been narrowing for a couple of decades. And statistics often too-casually dismiss the many nuances as speeds are improving fast. 

But differences might always exist.  Since networks are expensive, the last two percent of locations will always be an economic issue.

U.S. Broadband Availability Remains a "Last 2%" Problem

The last two percent of U.S. housing locations, as shown by the U.S. Federal Communications Commission National Broadband Plan and Broadband Availability Gap analysis, are the areas where the geographically-produced digital divide is most acute.

source: FCC

That seems to be true for military veterans, no less than other citizens. According to the Federal Communications Commission, 92.5 percent of veterans have access to 25 Mbps downstream, 3 Mbps upstream, using terrestrial networks. Some 87 percent of veterans have access at speeds of 100 Mbps or higher.

Also, 99.8 percent of veterans have coverage of 5 Mbps/1 Mbps mobile LTE, based on required FCC reporting from service providers, about which there always is some dispute as to accuracy.

But those figures also are minimums, not typical or average, the FCC says. “We recognize, however, that actual speeds tend to be much faster than the minimum advertised speed reported on Form 477.”

source: FCC

Ookla speed test data suggests that 78.4 percent of veterans have 10 Mbps/3 Mbps mobile LTE broadband coverage.

The report concludes that 78 percent of veterans have coverage of both mobile LTE with a median speed of 10 Mbps/3 Mbps and any fixed broadband of at least 25 Mbps/3 Mbps.

Also, 76 percent of veterans have coverage for both mobile LTE with a median speed of 10 Mbps/3 Mbps and any fixed broadband technology of at least 100 Mbps/10 Mbps service.

About three percent of veterans lack coverage for both 10 Mbps/3 Mbps mobile broadband and 100 Mbps/10 Mbps fixed broadband service.

The bottom line is that “FCC Form 477 deployment data suggest availability of broadband is not substantially different for veterans than for the population overall,” the FCC says. “For most veterans, broadband access is not the barrier to connectivity.”

That speaks to availability, not usage, of course. We sometimes confuse the ability to buy and use quality broadband with the actual consumer willingness to buy the product. We also sometimes conflate supply and demand: what is important is that quality broadband be available at affordable prices, not that consumers choose to buy one product over another.

There is a public policy that citizens and consumers are able to buy quality broadband. There is no similar public policy demand that they buy specific packages, from specific providers.

In other words, as it is not a failure of public policy that consumers choose to buy iPhones rather than some other phone brands, neither is it a failure of public policy that consumers choose to buy specific access plans, from some providers rather than others, or not to use some services at all.

In other areas of public life, that distinction can be described as “opportunity,” rather than “guaranteed results;” the right to exercise a choice, not the right to specific products. In other words, some consumers choose to use mobile for internet access, not a fixed network product.

That can represent the exercise of choice (it is what the customer wants). It might also represent a market failure (supply is not available). It sometimes is argued that consumers make the mobile substitution choice because fixed network access is too expensive. Public policy advocates may differ on what “expensive” means.

Some would note that internet access in the developed world does not cost too much. In developed country markets, internet access costs about 0.7 percent of gross national income, per person, and is far below world averages.

As of 2017, approximately 85 percent of households with veterans reported that they had paid connections to the Internet in their homes. That is higher than the rate of internet access use nationwide, by some accounts.

Price arguably is not an issue, as that is in line with household fixed network internet access overall. Some 1.5 million veterans use the E-rate program providing low-cost internet access.

And there is growing evidence that prices really are not that big a problem (in terms of supply), based on income.

In Seattle, for example, rates of usage (actual buying behavior) between the highest-income and lowest-income neighborhoods varies by just four percentage points (97 percent the high; 95 percent the median; 94 percent the low).

For those veterans who do not buy broadband (even when it is available), barriers may include actual lack of facilities (if one excludes satellite access), willingness to pay, digital illiteracy or perceived irrelevance, the FCC notes. In a growing number of cases, though, mobile broadband is the preferred product, as consumers prefer mobile over fixed facilities for voice.

Estimates of mobile-only internet access households range from 10 percent to 20 percent of homes, and many believe 5G will lead to more substitution, as fixed and mobile access offers, combined with public Wi-Fi hotspot access, will keep gaining appeal as 5G speeds are able to satisfy a wider range of substitution use cases, and pricing plans make fixed and mobile access more directly competitive.

Oddly Enough, Rural-Urban Digital Divide is About to Get Worse

In just about any country, of any size, there typically is a gap between the typical speeds a city dweller can buy, compared to what a rural resident can buy, based almost entirely on the fact that rural infrastructure is much more expensive than urban infrastructure, for any number of reasons.

But the rural-urban broadband access "divide," ironically, is going to get worse as fixed-line providers and wireless providers roll out their faster-speed networks. The reason is logical enough: the places those faster cable, telco and wireless 4G and HSPA+ networks are being introduced are largely metro markets.

As Verizon, Comcast, Time Warner, Cox Communications and other cable opertors keep adding areas where it is possible to buy 50 Mbps access as a standard consumer service, and as wireless operators light faster 4G and HSPA+ networks, rural networks will find it virtually impossible to keep up.

So get ready for another round of complaints about the gap between rural and urban broadband networks. In fact, get ready for complaints that matters have gotten worse over the last year. That will be the unavoidable consequence of faster networks being activated in urban areas, both fixed line and wireless.

U.S. Internet Access Speeds are Improving Fast

Without any question, the latest Federal Communications Commission report on U.S. broadband is going to be criticized. The data overstates deployment, it will be argued. Some might argue 25 Mbps is not broadband. The thrust of the complaints will be that the U.S. digital divide is either not closing or not closing fast enough. Some conceivably will argue the divide is getting worse.

But coverage and speeds are growing. Sure, there is a gap between rural and urban. There likely always will be some gap. But the gaps are closing.

source: FCC

All methodological shortcomings noted, it is hard to argue that the U.S. speeds are too low, or getting worse. There really is not any evidence for that view. In 2018 alone, U.S. average internet access speed  on fixed networks grew 36 percent, according to Ookla Speedtest.

In 2019, U.S. fixed internet service provider were 96 Mbps downstream, according to Speedtest. Even mobile average speeds were in the 33 Mbps range in 2018.

source: Speedtest

source: Akamai

Mobile Access: People are Rational

One of the issues when looking at broadband access is the role of demand. People sometimes assume that more people would use broadband if more were available, which ignores the fact that most people do have access, and choose not to buy fixed broadband service, for example, much as most people choose not to buy the fastest-possible speed service.

The point is that consumers are rational: they buy services and products that have value.

Consider use of mobile Internet services. According to researchers at Pew Internet & American Life Project, minority Americans lead the way when it comes to mobile access, especially mobile access using handheld devices. Does that mean there is a "mobile broadband digital divide?" Hardly. The same percentage of European-descended Americans have mobile phones.

Sometimes, different segments of the consumer population will use some services, features or applications more than others. That does not necessarily mean there is a "divide" of any sort that is driven by disparate access to assets. It does mean some people find some services and applications more useful than others do.

Nearly two-thirds of African-descendedAmericans (64 percent) and Latinos (63 percent) are wireless Internet users, for example, a higher percentage than European-descended Americans. More Latinos and African Americans own mobile phones than European-descended Americans.

"Minority" Americans are significantly more likely to own a cell phone than their white counterparts (87 percent of blacks and Hispanics own a cell phone, compared with 80 percent of whites). Additionally, black and Latino cell phone owners take advantage of a much wider array of their phones’ data functions compared to white cell phone owners.

Statistical variances, in other words, are just that--variances--and not necessarily evidence of disparity of access.

Mobile Access 2010 | Pew Internet & American Life Project