In Promoting Universal Broadband, Less Truly is More

The right national policy isn’t always hard to figure out. Take broadband. As broadband becomes increasingly important for most Americans seeking access to economic opportunities and public information, it’s obvious that universal broadband service is an appropriate goal for public policy. Not only are most job openings today posted only online, so is most information about health care, government services, education, and most personal services. Perhaps more important, the ability to do most jobs depends increasingly on a person’s knowledge and capacity to perform well in workplaces dense with broadband and information technologies, which in turn people can greatly facilitate when using broadband is part of their daily lives.

So, it matters that last year, for example, only 46 percent of African-American and 48 percent of Hispanic households had broadband service, compared to two-thirds of white households.  

It’s also not hard to figure out how to close those gaps and achieve universal broadband service by the end of the decade, the stated goal of President Obama and nearly everyone else. Start with what we know about how personal computers and dial-up Internet became ubiquitous. The key lay in two singular forces: Scientific advances increased the usefulness of these technologies, and those advances and market competition helped drive down their prices. These same forces already have driven the spread of broadband, in less than a decade, from essentially zero to nearly two-thirds of all American households.   

There’s often a hitch, of course, and this time it comes from recent technological advances which could sharply drive up broadband prices, especially the wild popularity of video applications which gobble up bandwidth at 100 to 1,000 times the rate of text applications such as email. Facing a quantum jump in demand for bandwidth, the nation’s Internet Service Providers (ISPs) find themselves with two choices: Increase their long-term investments in broadband infrastructure by huge amounts, which someone will have to pay for – $300 billion to $350 billion over 20 years, by the FCC’s reckoning – or let Internet congestion slow down everything in their customers’ online lives. Since the second option isn’t acceptable to almost anyone, the new public policy question at the heart of the drive to achieve universal broadband has become, how can the ISPs pay for the additional investments without hiking broadband prices so much that digital divides become permanent?

This problem is further complicated by outside efforts to convince the FCC and the Congress to set new rules directing how the ISPs should charge for broadband. Such rules could effectively require that the additional costs be added to the flat monthly fees everyone now pays for broadband service. But a new study out this week shows that the outcome of the fight over these rules will likely determine whether we achieve universal broadband anytime soon or, in the alternative, find ourselves stuck for a long time with digital divides that leave millions of lower-income Americans offline. The study, issued Monday by the Georgetown University Center for Public Policy and Business – and written by Kevin Hassett and myself – simulates a number of ways to pay for the additional investments and measures the impact of each on the path to universal broadband.

First, we asked what happens if the additional costs are passed through in the monthly flat fees that everyone currently pays.  Since broadband is already a nearly “mature market,” with new users joining at a slower pace than before, this approach would translate into monthly fees in the range of $70 per-month. While a number of factors affect whether people adopt broadband service, cost is the largest – and especially for lower-income people who unsurprisingly are most sensitive to cost increases. So, we can expect that a pricing system which forces ISPs to pass along their additional investment costs in higher fees for everyone would push universal broadband far into the future – and that’s just what our simulations found. By 2020, nearly one-fifth of African–American and Hispanic households would still be without broadband service. In fact, broadband fees would likely be so high that 15 percent of white households also would be offline at the end of the decade.

The alternative approach comes from another striking phenomenon seen here and around the world: A relatively small share of all broadband users – 10 to 20 percent, tops – account for the vast majority of the new pressures on bandwidth.  These are people who watch scores of videos online every day, spend hours in multi-player online game worlds, or use broadband to watch HD television shows and movies. This fact can shape a new pricing strategy: Pass along most of the additional costs to those who consume vast amounts of bandwidth or the content providers transmitting extremely high bandwidth offerings. There is no reason why broadband should remain an “all-you-can-eat for one price” facility, especially if it means raising prices so much that millions of people have to give it up.

We simulated what would happen if broadband providers passed along 80 percent of their additional investment costs in higher prices to the 20 percent high-bandwidth users and their content providers, with the remaining 20 percent of those costs borne by the rest of us. This approach puts the United States back on a rapid path to universal broadband: By 2019, all racial, ethnic and income groups should find themselves within one or two percentage points of universal adoption.

A word to the wise at the FCC:  Do not consider any rules which, however inadvertently, might force the nation’s broadband providers to stick to their current, “one-price (or two) fits-all” pricing approach. When it comes to promoting universal broadband and regulation, it turns out that less truly is more.