Why is broadband more expensive in the US?
- 28 October 2013
- From the section Magazine
Home broadband in the US costs far more than elsewhere. At high speeds, it costs nearly three times as much as in the UK and France, and more than five times as much as in South Korea. Why?
Men's haircuts, loaves of bread... it is surprising how much more expensive some things are in the US than the UK. Now home broadband can be added to that list.
The price of basic broadband, TV and phone packages - or bundles as they are known - is much higher in American cities than elsewhere, suggests the New America Foundation think tank, which compared hundreds of available packages worldwide.
Looking at some of the cheaper ones available in certain cities, at lower to mid download speeds, San Francisco ($99/£61), New York ($70) and Washington DC ($68) dwarf London ($38), Paris ($35) and Seoul ($15).
This research echoes the findings of another report earlier in the summer by the OECD, which compared countries in terms of their broadband-only prices. Across all 10 download speeds and capacities, it consistently ranked the US near the bottom.
For instance, at high speeds of 45 Mbps and over, the OECD report has the US ranked 30th out of 33 countries, with an average price of $90 a month. With phone and TV thrown in, plus some premium channels, these packages often cost $200.
"Americans pay so much because they don't have a choice," says Susan Crawford, a former special assistant to President Barack Obama on science, technology and innovation policy.
Although there are several national companies, local markets tend to be dominated by just one or two main providers.
"We deregulated high-speed internet access 10 years ago and since then we've seen enormous consolidation and monopolies, so left to their own devices, companies that supply internet access will charge high prices, because they face neither competition nor oversight."
Two-thirds get their broadband via their television cables, she says, because the DSL (digital subscriber line) service provided by phone companies over copper lines can't compete with cable speeds, while wireless and satellite services are subject to low usage caps.
San Francisco seems to be particularly expensive.
Mitch Evans pays $200 a month for internet, TV and unlimited voice phone calls. "I guess I've just become used to it after 23 years here in the Bay Area. I know the cost of living here is very high, but for me it's a small price to pay for such a beautiful and wonderful place to call home."
Buck Wallander, a recent arrival in the city, pays $120 a month for a television and broadband package provided by Xfinity/Comcast, plus $7 a month to "rent" the modem.
He says he had little choice in selecting a provider because the only other cable television company was directv, which didn't offer any internet service. His internet speed is "entry-level" with a cap on usage. He says he's pretty satisfied with the service but resents leasing the modem.
"That's like a rental car company charging customers an extra $7 fee per month to include the steering wheel."
Elsewhere in the US, there is a patchwork of other options.
In Kansas City, Kansas, residents are enjoying a high-speed fibre network, supplied by Google, at a price of $70 a month for a gigabit (1,000 Mbps) internet-only service. And there's a slower 5 Mbps download speed for free for seven years to those who pay $300 up front. Google now has Austin, Texas, and Provo, Utah, in its sights, too. Verizon also has a super fast fibre network, Fios, available to 10% of US households.
About 150 cities across the US have internet access supplied by public utility companies. In Chattanooga, Tennessee, electricity company EPB became an internet service provider four years ago. After expanding its existing fibre network which it used to control the grid, it now offers a one gigabit service for $70 a month.
These new services have had a positive impact on prices, says Chris Mitchell, director of telecommunications at the Institute for Local Self-Reliance.
"When a community builds its own network it enters the market with a lower price than the incumbents had been offering. Often the incumbent then lowers their price - often even further than the municipal network is offering - so when a community starts offering a service the prices typically drop."
In Lafayette, Louisiana, $35 can get you 15Mbps from the municipal internet service. But only one in 10 US cities have public electricity utilities and 19 states have discouraged or banned communities from building these networks, says Mitchell.
For Susan Crawford, author of Captive Audience, higher prices have created a digital divide which excludes poor Americans from quality internet access. And there are economic implications too.
"The 2008 banking crisis demonstrated what happens when we allow banks to act out of pure self interest. The communications crisis in America is less visible but also destructive of America's ability to function on the global stage."
Like electricity, she says, internet access should be available equally to all at reasonable prices so that every other sector of US industry and society can flourish.
Rick Karr, who made a PBS documentary in which he travelled to the UK to find out why prices were lower, says that the critical moment came when the British regulator Ofcom forced British Telecom to allow other companies to use its copper telephone wires going to and from homes.
But US regulators took a different approach. Rather than encouraging competition between operators using the same network, the US encouraged competition between different infrastructure owners - big companies that could afford to build their own networks.
Some believe that UK-style regulation is bad for competition and innovation, however, and suggest that the US is already one of the world leaders in broadband.
Several studies show the US with broadband speeds as good as anyone, says Brian Dietz of the NCTA, the trade association for the US cable companies. High performing states like Vermont, New Hampshire and Delaware have faster average speeds than Japan, he says. And 96.3% of US households have access to wired broadband.
It's also very difficult to fairly make international comparisons on price, he says.
"Building broadband networks in a country with the sheer size and diverse geography of the US is definitely a factor when comparing but despite these challenges, the US is a leader in global broadband by any objective measure."
The critics should take a broader view, says Scott Cleland, chairman of NetCompetition, a pro-competition e-forum supported by broadband interests.
In Europe, people are selling different capacities at different prices, but the US encourages different technologies and a diversity of choice - people can choose phone, cable, wireless or satellite, he says. And suppliers can get a return from their investment which can be ploughed back into improving the infrastructure - $1.2tn has been reinvested since the mid 1990s.
But in Europe the funds aren't there, so it's Europe that is lagging behind on 4G and fibre, Cleland argues. "We may be paying more in your eyes today but we are building for tomorrow and the long-term."
The US is the only country in the world that provides a fast streaming cable service to everyone, he says.
Moaning about it, he thinks, is like complaining you only have access to a Rolls-Royce when you also have Fords, Chevys and Cadillacs to choose from.
Readers got in touch to tell us whether they live in broadband heaven and hell.