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Mon, Dec 14th 2020 12:00pm — Joshua Stager
How much do consumers pay for internet service in the United States? The question might seem relatively simple, but the answer has stymied the federal government for years—because no agency collects this data. Throughout 2020, my organization, New America’s Open Technology Institute, published the Cost of Connectivity series to crack open the black box of internet pricing. The collective takeaway of these studies is clear: the cost of internet service is alarmingly high, and there is substantial evidence of an affordability crisis in the United States.
Our research found that U.S. consumers pay some of the highest broadband prices in the world, at an average $68.38 per month. Most of these plans advertise a temporary promotional rate, after which the monthly cost jumps an additional $22.25, on average. Of the 760 plans we surveyed across Europe, Asia, and North America, U.S. plans are the most expensive. Prices are particularly high in rural and Tribal communities. Unfortunately, these higher prices don’t appear to give U.S. consumers faster speeds than consumers abroad.
Moreover, we found that internet pricing typically includes a byzantine maze of ancillary fees and hidden costs. The fees for equipment rentals, data overages, and contract terminations can be substantial. For example, modem rental fees can add an additional 75 percent to the total cost of monthly internet service in the United States, compared to just 30 percent abroad. Consumers struggle to navigate this maze and determine their total cost of service.
But it’s not all bad news: we found evidence of cheaper, faster service in a handful of U.S. cities that offer municipal networks. The most affordable U.S. city in our survey is Ammon, Idaho, a city with a locally-owned open access network. Ammon offers dozens of inexpensive, high-speed plans, including several for less than $10 per month. What’s more, if consumers find a better deal, they can switch providers within seconds using the city’s website—no equipment changes or lengthy customer service appointments required.
Unfortunately, this kind of affordable, customer-friendly internet service is rare in the United States. The reasons for this dynamic are multifaceted, including a lack of competition, a lack of transparency, and years of policy failures at all levels of government. Today, U.S. internet service is dominated by just four companies—Comcast, AT&T, Verizon, and Charter—and they’ve carved up the market so that most Americans have, at best, one or two providers serving their home. This lack of choice negatively affects the quality and cost of internet service.
Broadband has become even more unaffordable during the COVID-19 pandemic, as millions of people struggle to pay for basic necessities amid widespread job and income losses. It’s clear that the federal government needs to take action to make internet service more affordable, both during the pandemic and beyond. There are many steps that Congress and the Federal Communications Commission should take, including, but not limited to:
- Expand Lifeline. The FCC’s Lifeline program provides a $9.25 monthly subsidy for qualifying low-income households to pay for phone or internet service. It’s not enough. Lifeline is the only federal program that directly addresses broadband affordability, and it needs to expand. Earlier this year, the House of Representatives passed two bills that would create a $50 monthly internet subsidy for low-income households, students, and the newly unemployed. The Senate should pass these bills.
- Legalize municipal broadband. Locally-owned networks save consumers money, yet many states prohibit or restrict their development. AT&T and other large telcos lobbied for these restrictions because they fear competition. Congress should repeal these state laws so every community can invest in affordable internet infrastructure.
- Ban landlord exclusivity deals. Internet providers often broker sweetheart deals with landlords to ensure that tenants are locked into their service, producing hyperlocal monopolies that deprive tenants of choice and cheaper alternatives. The FCC tried to outlaw these exclusivity deals a decade ago, but the companies found loopholes. The FCC should close these loopholes and ban exclusivity deals once and for all.
- Step up antitrust enforcement. Competition leads to lower prices, but the U.S. broadband market is an oligopoly. The FCC, the Federal Trade Commission, and the Department of Justice should use their legal authorities to investigate the broadband market, block anticompetitive conduct, and break up any providers that have become too big. And Congress should allocate more resources to these agencies for this task.
- Make internet pricing transparent. The federal government needs to finally start collecting data on the cost of internet service. There is no reason for this information to be in a black box, hidden from consumers and policymakers. The FCC should require internet providers to disclose pricing data in a simplified “broadband nutrition label” that helps consumers comparison-shop, avoid hidden fees, and know what they are paying for.
Ultimately, many of these actions could be accomplished if the Senate simply passed H.R. 2 or if the FCC used its existing authority. The high cost of internet service should be an urgent priority for all policymakers, particularly during a pandemic that has made the internet an essential part of daily life. The broadband affordability crisis will not solve itself.
Joshua Stager is the senior counsel for New America’s Open Technology Institute.
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