Is the comparison of broadband prices offered in the United States to those offered in the United Kingdom, Asia, and Europe the basis for determining the best policy for broadband adoption? A recent report released by The New America Foundation leads me to conclude that any policy efforts should focus on spectrum allocation and continuing the transition to all-IP networks. In addition, universal service efforts to promote broadband network deployment should be allowed to run their full course.
The New America Foundation concluded that residents in U.S. cities are paying higher prices for less broadband services than residents in cities like London, Hong Kong, and Seoul. According to the Foundation, the best price deal for a 150 Mbps connection in the United States is offered by Verizon FiOS at approximately $130 per month. Compare that, according to the Foundation, with prices offered by international cities on average for less than $80 per month for the same speed.
Prices for mobile broadband services in the United States fare no better than wired service, according to the Foundation. Their analysis concluded that T-Mobile’s price of $30 per month for two gigabit service was twice as much as two gigabit service offered by international cities. For example, T-Mobile customers in London receive two gigabit service at $15 per month. It’s ironic that T-Mobile is owned by Deutsche Telekom, a major European provider of telecommunications services in Europe.
So why the difference in prices? Unfortunately the Foundation’s report did not specify why prices vary between U.S. and international cities. Reasons may have to do simply with the market a U.S. provider is looking at versus a European or British provider of broadband. A provider selling services in New York City is not basing pricing decisions on a London consumer’s ability and willingness to pay for broadband. Using unemployment as a proxy for the labor market and the economy overall, a broadband provider in New York City may forecast increasing demand for her services based on New York City’s 7.9% unemployment rate. A broadband provider in London facing that city’s unemployment rate of 8.5% may set prices lower in order to attract more consumers.
Another reason may have to do with regulatory and framework differences between the U.S. and its European and British counterparts. The Foundation appears to allude to this when it recommended that the U.S. implement policies that would help close the gap between speed and prices. I would argue that current efforts to modernize the U.S. universal service program in order to facilitate broadband deployment constitutes policy initiatives that move the nation in that direction. Unfortunately, most current efforts to subsidize broadband deployment, such as the Connect America Fund and the Mobility Fund, are focusing on non-urban areas. Establishing an urban mobility fund would provide some balance to the FCC’s efforts.
The FCC should resolve the Internet protocol transition issue as part of an effort to increase broadband deployment and reduce prices. While more consumers are opting for voice-over-Internet-protocol services from cable companies, or cutting the cord altogether by primarily using cell phones at home, the FCC has been hesitant to give its full blessing to all IP networks — networks with the capacity to provide faster broadband speeds and data bandwidth.
The FCC has rules in place that require certain telecommunications providers like AT&T and Verizon to maintain old telephone voice networks while incurring the expense of building new networks for consumers that increasingly demand high-speed broadband services. Maintaining both networks is expansive and the costs are ultimately recovered by consumers.
If Americans want to enjoy anything close to the lower rates described in the New Foundation’s report, and if part of the answer lies in public policy, moving toward an all IP network and increasing the availability of spectrum is where policy should start.