How Much Does "Typical" U.S. Home Broadband Actually Cost?

One subtlety when assessing the state of U.S. broadband access is evaluating the real prices people actually pay, compared to posted retail prices. In the U.S. market, for example, perhaps 60  percent of fixed network customers buy internet access as part of a bundle.

That, in turn, means it is not possible to know precisely how much the broadband component costs, as two or more services are offered for a single monthly price.

It might be easier to track actual prices for internet access if more customers buy stand-alone internet access. In the first quarter of 2021, the percentage of U.S. broadband households with stand-alone broadband service increased to 41 percent.

These consumers pay $64 per month on average for stand-alone broadband service, up from $39 per broadband household in 2011, a 64 percent growth rate over a decade. In part, that is because customers are buying service operating at faster rates. 

In the fourth quarter of 2011, the average U.S. fixed network speed was less than 5 Mbps, as hard as that might be to believe. 

source: Statista 

About 9.6 percent of U.S. home broadband accounts now buy service at 1 Gbps, says Openvault. That is important because, historically, successful consumer products hit an adoption inflection point at about 10 percent adoption rates. In the colloquial, what happens is that “you buy because your neighbor has it.”

source: Openvault 

More significantly, about half of customers buy service operating at rates from 100 Mbps to 200 Mbps. Roughly a third of U.S. home broadband accounts offer speeds above 200 Mbps. We can safely predict that average speeds will continue to increase. Since average speed increased by two orders of magnitude from 2011 to 2021, we can assume roughly the same increase by 2031.

That suggests the typical home broadband service will operate somewhere between 1 Gbps and 10 Gbps in a decade.

Ahead, Apace or Behind: Methodology Matters

Though few pay much attention, study methodology matters when trying to determine current status of high speed Internet access or income inequality. That likely is one reason recent studies come to such vastly-different conclusions about the state of high speed access in the United States, compared to Europe, for example.

A study by the World Economic Forum ranked the United States 34th in terms of Internet bandwidth available per user. A study by Ookla ranks the United States 26th in terms of typical access speed.

But a study led by Christopher Yoo of the University of Pennsylvania Center for Technology, Innovation and Competition found a far greater percentage of US households had access to next generation networks (25 Mbps) than in Europe.

This was true whether one considered coverage for the entire nation (82 percent in the United States and 54 percent) in Europe, or for rural areas (48 percent in the United States compared to 12 percent in Europe).

The United States had better coverage for fiber-to-the-premises (FTTP) (23 percent compared to 12 percent in Europe).

The U.S. broadband industry invested more than two times more capital per household than the European broadband industry every year from 2007 to 2012.

In 2012, for example, the US industry invested US$ 562 per household, while EU providers invested only US$ 244 per household.

U.S. download speeds during peak times (weekday evenings) averaged 15 Mbps in 2012, which was below the European average of 19 Mbps. But 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.

The United States also fared better in terms of advertised compared to  actual upload speeds, latency, and packet loss.

Pricing comparisons always are difficult. U.S. high speed access was cheaper than European broadband for all speed tiers below 12 Mbps, though U.S. prices were higher for higher speed tiers/

Still, the picture is complicated. U.S. Internet users on average consumed 50 percent more bandwidth than their European counterparts. To the extent there is a broad but direct connection between consumption and price, that matters.

The point is that assumptions matter.

The choice of specific retail service plans, and the percentage of people in any nation that purchase those plans, make a difference when trying to compare “typical prices” for any good or service, across national boundaries.

In other words, if most people buy high speed access as a feature of a triple-play bundle, then the posted prices for “stand-alone” high speed access are misleading.

That is why one can come to very different conclusions on the state of U.S. high speed access--how fast and how costly--compared to other nations.

Recent research on U.S. levels and trends in income inequality also vary quite substantially based on how these studies measure income. To be sure, there are important social mobility and income inequality issues to be faced in the United States, as elsewhere.

But a fact-based approach remains important, and methodology affects the “facts.” Economists Philip Armour and Richard V. Burkhauser of Cornell University and Jeff Larrimore of Congress’s Joint Committee on Taxation recently studied “income” including all public and private in-kind benefits, taxes, Social Security payments and accounting for household size.

The bottom quintile of U.S. residents saw a 31 percent increase in income from 1979 to 2007 instead of a 33 percent decline as measured by the Piketty-Saez market-income measure alone.

The income of the second quintile, often referred to as the working class, rose by 32 percent, not 0.7 percent. The income of the middle quintile, America’s middle class, increased by 37 percent, not 2.2 percent.

Those significant differences occur because one study omits Social Security, Medicare and Medicaid payments, for example, as well as employer-provided health insurance and capital gains on homes.

Also, some of the apparent income inequality is the result of a definitional change.  In 1992 the U.S. Census Bureau began to collect more in-depth data on high-income individuals. This change in survey technique alone, causing a one-time upward shift in the measured income of high-income individuals, is the source of almost 30 percent of the total growth of inequality in the United States since 1979.

Again, the point is not the importance of any developing or existing changes in opportunity for social mobility, or gaps in income or wealth. The point is that methodology matters.

That is as much true for how we measure progress on high speed access or social mobility.

Are There Really Any U.S. Households That Can’t Buy 12 Mbps Internet Access?

Some 19 million people in seven million U.S. households live where fixed broadband networks do not reach people with a minimum speed of 4 Mbps downstream, and 1 Mbps upstream , according to the U.S. Federal Communications Commission.

So it might seem silly to ask a serious question about whether there are any U.S. households that really “cannot” buy Internet access service operating at 12 Mbps, from at least two providers. The reason is that looking at fixed network access, while useful, does not actually exhaust the options already to potential buyers.

Exede, the satellite broadband service already offers 12 Mbps service. HughesNet, which has successfully launched a new satellite identical to the bird used by Exede, has not yet announced its retail packages, but will be able to offer similar speeds. Subject to business logic and some engineering constraints, HughesNet could offer faster services.

But most U.S. consumers also can buy mobile broadband services. The FCC report also notes that just 6.2 percent of people do not have access to mobile broadband services offering downstream speeds of at least 3 Mbps.

In other words, the percentage of people without access to speeds of 4 Mbps on a fixed network (about six percent, using the FCC calculation) is matched by six percent of people also unable to purchase a mobile broadband service operating at at least 3 Mbps.

Put in a positive way, some 94 percent of U.S. consumers have access to fixed or mobile broadband services of 3 Mbps to 4 Mbps, and in many cases, both, from multiple providers.

The FCC study also says that the percentage of people unable to buy either a fixed or mobile broadband access services of at least 3 Mbps is 1.7 percent. That represents about 5.5 million people, or about 2.2 million locations, using the 2.5 persons per household metric.

So in addition to the two U.S. broadband providers offering 12 Mbps services, one has to take into account mobile broadband, and some amount of fixed wireless, as well.

The FCC analysis implies some 5.9 percent of U.S. households are not reached by a fixed network, using 116 million U.S. households as the universe of places. Some might use a household base of 130 million, which would suggest five percent of U.S. housing is not reached by a fixed broadband network.

The point is that the same report also suggests that mght not be as big a problem as might seem to be the case. Keep in mind that the percentage of people or households not able to buy a 4 Mbps service does not mean they cannot presently buy a service that runs at lower speeds.

The report also suggests that in June 2011, some 9.6 Americans did not have service of at least 768 kbps downstream. Assuming a typical figure of 2.5 people per household, that would imply about four million U.S. households not able to get Internet access at speeds of at least 768 kbps, from a fixed network provider.

The FCC report also notes that 79 percent of telco-served locations nationally have access to service running at least as fast as 4 Mbps in the downstream direction, while 85 percent of cable-served high speed access locations have access running at a minimum speed of 4 Mbps in the downstream.

The point is that it is perhaps useful to note how well various contestants are doing, but less useful to argue that any one type of network is the benchmark for measuring the extent and quality of access.

Not Enough Competition in U.S. Broadband Market?

Many people believe there is not enough competition in U.S. broadband access markets, which will come as news to the firms that actually compete in the market. But it's always easier to criticize somebody else's business than your own, one might observe. read more here

Sometimes the argument is that the alleged "lack of competition" means slower access speeds in the U.S. market, compared to some others. And the U.S. does feature typical speeds than some other nations do. With no exceptions, those nations are territorially small, have high population density and also tend to have had heavy financial sponsorship. The first observation means any advanced network can be built faster; the second and third observations mean any advanced network can be built more affordably.

The simple fact is that no large country, especially not any country with continental size, ranks in the very-top of broadband speeds. And there are simple reasons for that situation: Very-large networks, covering very large areas, with highly-varied population density, cost much more to build, and simply take longer.

Despite those background factors, the United States ranks about where you would expect, in line with the United Kingdom, France and Germany, for example, in most measures of broadband speed or coverage. The United States is not at the top, and likely never will be. The United States never ranked much more than 14th globally for fixed-line voice, either, and nobody seems to think voice service has been an impediment to economic growth, social equity or anything else.

The other issue is consumer demand. Broadband penetration in the United States in right in line with PC ownership. About a quarter of U.S. homes do not seem to own PCs, making broadband a rather useless product. Now that broadband adoption is up around the 70 percent level, most people who own PCs buy broadband.

The other angle is consumer demand for various speed tiers. There just isn't much demand for the fastest tiers of service, with most buyers purchasing services virtually all surveys indicate they are happy with. In other words, U.S. consumers choose services offering moderate speeds, and moderate prices, not the fastest speeds sold at the highest prices. Unless you think people are irrational, that sort of makes sense: people buy services that meet their needs, not "just because" faster speeds are available.

The FCC also notes that 66 percent of U.S. consumers already are buying access services running at bandwidths between 3 Mbps and 10 Mbps. Most service providers will tell you that this represents the bulk of current buying behavior. Will people buy services of higher capacity in the future? Most people think so. Are they likely to pay much more than they do now? Perhaps, but only if some other part of their current budgets can be shifted. There is little, if any, evidence that the percentage of household spending devoted to communications changes very much from year to year, running about 2.3 percent or so of budgets, and growing very slowly over time.

Broadband access is a means to an end. People might want the Apple iPad because it, in itself, is seen as having high value. Price has not been an impediment to robust adoption. But broadband access isn't that sort of product. There isn't the same "need" to buy the fastest service, as there might be to buy a Lexus.

One might argue that 3 Mbps is good enough for most people who pay with their own money. The Federal Communications Commission's latest report on the state of U.S. broadband access services took a look at locations by zip code, and estimated that 48 percent of U.S. households had, at the end of 2009, the ability to buy downstream service of at least 3 Mbps and upstream service of more than 200 kbps from at least three fixed-network providers. You might not say that is fast enough, or that three providers are not enough. Fair enough, but that's a value judgment.

read more here

Some 44 percent had the ability to buy such service from at least two fixed-network providers.

About 22 percent of househoulds could buy service of at least 6 Mbps/1.5 Mbps from at least two providers, while 57 percent could buy from at least one provider. Some 20 percent of U.S. households could buy service of at least 10 Mbps from at least two providers, while 58 percent could buy service from at least one provider. Some work needs to be done there, but upgrades are on-going, and those gaps will be closed.

If one adds in wireless providers, the FCC found that 58 percent of U.S. homes could buy wireless service of at least 3 Mbps/200 kbps from at least three providers, while 35 percent could buy from at least two providers and six percent had at least one provider.

But what makes a market workably competitive? That might not be a tough question in the abstract. Most people would probably agree that multiple competitors in any market are good for competition, and therefore good for consumer welfare. read more here

Matters are tougher when looking at capital-intensive industries. But how much facilities-based competition is actually possible in the wireline or mobile broadband industries?

Some would argue from experience and study that much more than two or three facilities-based competitors in a fixed-neetwork business, in a large market, is about as good as it gets. read more here

Irresistible Storylines That Always are Wrong

Some storylines are irresistible. Slow U.S. 5G speeds provide an example. A classic storyline about U.S. telecommunications is “U.S. is behind.”

Author Steven Pressfield, in his book Nobody Wants to Read Your Sh*t, points out the elements of any story. These universal principles of storytelling include:

1) Every story must have a concept. It must put a unique and original spin, twist or framing device upon the material.

2) Every story must be about something. It must have a theme.

3) Every story must have a beginning, a middle, and an end. Act One, Act Two, Act Three.

4) Every story must have a hero.

5) Every story must have a villain.

6) Every story must start with an Inciting Incident, embedded within which is the story’s climax.

7) Every story must escalate through Act Two in terms of energy, stakes, complication and significance/meaning as it progresses.

8) Every story must build to a climax centered around a clash between the hero and the villain that pays off everything that came before and that pays it off on-theme.

That is a framework often used when writers talk about the state of U.S. telecommunications. U.S. 5G speeds are slow, compared to most other markets. There are reasons. U.S. service providers are relying on low-band spectrum for coverage, and that necessarily limits speeds. Most of the leading U.S. mobile operators, with the exception of T-Mobile, have little mid-band spectrum, which is the preferred band globally.

So U.S. mobile speeds are slow, and have been relatively slow, even for 4G services. 

That is a necessary evil at the moment, as there is little unencumbered mid-band spectrum available at the moment, in the U.S. market, though that will change as more mid-band spectrum is reallocated for mobile use. 

But the “U.S. is behind” storyline has been used often over the last several decades. Indeed, where it comes to plain old voice service, the U.S. is falling behind meme never went away.

In the past, it has been argued that the United States was behind, or falling behind, for use of mobile phones, smartphones, text messaging, broadband coverage, fiber to home, broadband speed or broadband price. 

In the case of mobile phone usage, smartphone usage, text message usage, broadband coverage or speed, as well as broadband prices, the “behind” storyline has proven incorrect, over time. 

Some even have argued the United States was falling behind in spectrum auctions. That clearly also has proven wrong. What such observations often miss is a highly dynamic environment, where apparently lagging U.S. metrics quickly are closed.

To be sure, adoption rates have sometimes lagged other regions. Some storylines are repeated so often they seem true, and lagging statistics often are “true,” early on. The story which never seems to be written is that there is a pattern here: early slowness is overcome; performance metrics eventually climb; availability, price and performance gaps are closed over time. 

The early storylines often are correct, as far as they go. That U.S. internet access is slow and expensive, or that internet service providers have not managed to make gigabit speeds available on a widespread basis, can be correct for a time. Those storylines rarely--if ever--hold up long term. U.S. gigabit coverage now is about 80 percent, for example. 

Other statements, such as the claim that U.S. internet access prices or mobile prices are high, are not made in context, or qualified and adjusted for currency, local prices and incomes or other relevant inputs, including the comparison methodology itself. 

Both U.S. fixed network internet prices and U.S. mobile costs have dropped since 2000, for example. 

The point is that the “U.S. is behind” storyline seems irresistible. That storyline has always proven incorrect, though, over time. The historically-accurate storyline is that “slow start” is what we see. Over some time, U.S. metrics tend to rise to about 12th to 15th globally, but no higher, ever. 

The bottom line is that it is quite typical for U.S. performance for almost any important new infrastructure-related technology to lag other nations. It never matters, in the end. 

Eventually, the U.S. ranks somewhere between 10th and 20th on any given measure of technology adoption. That has been the pattern since the time of analog voice. 

We often forget that six percent of the U.S. landmass is where most people live. About 94 percent of the land mass is unpopulated or lightly populated. And rural areas present the greatest challenge for deployment of communications facilities, or use of apps that require such facilities.

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.

How Big is the "Value" Segment of U.S. Home Broadband Market?

Home broadband for $25 a month is the value proposition Verizon fixed wireless now offers for top-end customers of its mobility service. For T-Mobile fixed wireless customers on premium multi-user plans,  the recurring cost is $30 a month. 

Say what you will about the expected speeds of such services, or the cost of higher-speed services from either cable or fiber-to-home service providers. 

For a possibly-substantial portion of the market, such price points are going to be attractive, even if the trade off is lower top-end speeds. 

It might be the case that “good enough” service is worth a “reasonable price” for that service. 

That is important for home broadband market competitors. Even if such offers do not appeal to the entire market, the “good enough service for a reasonable price” segment of the market could be substantial, especially for Verizon and T-Mobile mobility service customers. 

That is similar to the “same service, lower price” positioning often used by attackers in established markets. If the top possible speed for fixed wireless sold by Verizon is about 300 Mbps (millimeter wave assets help), then Verizon theoretically could reach between a third and 45 percent of U.S.home broadband buyers, based on data from Openvault. 

T-Mobile speeds for home broadband are said to range up to about 182 Mbps, suggesting a third or so of U.S. home broadband accounts could be addressable. 

  

It is too early to say whether fixed wireless platforms will be long-lasting drivers of market share in internet access markets, or only relatively temporary. Some believe speed limitations will ultimately reduce fixed wireless attractiveness. Others think fixed wireless capacity can keep growing. 

But at least for the moment, it is hard to ignore U.S. cable operator lost market share and the availability of fixed wireless from Verizon and T-Mobile. In the near term, fixed wireless market share gains seem a certainty. 

Comcast continues to claim that fixed wireless is not damaging its home broadband business, and that might well be correct. For any ISP, a customer move is an opportunity to gain or add an account, so lower rates of dwelling change should logically reduce the chances of adding new accounts. 

In the second quarter of 2022, Comcast reported a net loss of customer relationships and “flat” home broadband accounts. 

That might suggest to some observers that stepped-up telco fiber-to-home and fixed wireless account gains might be starting to change market share dynamics. Those trends possibly were not obvious in the first quarter of 2022. 

All that said, there are possible signs of change. Fixed wireless already is driving net home broadband additions for T-Mobile. On its second quarter earnings report, T-Mobile added more than half a million net new home broadband accounts, which might put it on track to be the biggest net gainer for the third quarter in a row. 

In the fourth quarter of 2021, fixed wireless represented 74 percent of Verizon net home broadband additions.  

Comcast did not gain net accounts for the first time, ever, according to market watchers. Verizon added significant numbers of new home broadband accounts in the same quarter.  

The longer term  issue is demand as typical data consumption keeps growing, and “typical speeds” likewise keep climbing. 

Perhaps use of millimeter wave assets and better radio technologies will solve much of that problem for fixed wireless operators. Perhaps new wholesale arrangements will develop. 

What might also be happening is that consumer appetite for “more affordable” internet access is substantial. Many households might be willing to trade “speed” for “lower price.” In other words, as with any product, value is a combination of features and price. Fixed wireless might show the existence of a market segment that cares about “reasonable speed for a reasonable price” more than “fast” levels of service. 

That is not the whole market, but it is potentially a big enough segment to shift billions of dollars of home broadband revenue and significant market share.