Biden Blueprint Misses the Mark on Broadband Prices

This week, President Biden released his Economic Blueprint, which claims that a lack of competition has caused Americans to face exorbitant prices for home broadband. But this is wrong in two ways. First, the U.S. broadband market is already quite competitive; ISP profits are in line with those in other nations that have mandated network unbundling. Second, given the current competitive environment, long-term declines in consumer broadband prices are more likely to come from technological advances that lower the fixed costs of providing broadband service rather than from shoehorning in new providers.

To begin with, the Blueprint cites a study that purports to find 60 million Americans have only one choice of broadband provider. That number is based on 2018 data and excludes satellite broadband. But the market has changed considerably in the last four years, and newer data is available. Most Americans now have access to at least two fixed broadband providers. And that does not include nascent low-earth orbit (LEO) satellite services, which will soon provide nationwide service. Fixed wireless service, including in-home 5G, is also growing as a substitute for traditional wired broadband. These two technologies alone dramatically expand the availability and choice consumers have for broadband. Indeed, broadband providers have had to work hard to keep their networks attractive to consumers, spending $86 billion on capital expenditures in 2021 alone, an increase of $10 billion over the Blueprint’s benchmark year of 2018. This is not the behavior of comfortable monopolists resting on their laurels.

This competitive environment is further evidenced by the profit margins of ISPs. Recent estimates put ISP profits at around 8.5 percent, a rate comparable with the European Union once adjusted for differing cost structures and significantly below the U.S. corporate profit average. This implies that even if prices fell to the point that ISPs were breaking even, we would still see only a small reduction in prices. Some prices might fall further temporarily as new entrants compete for the market with low upfront promotional rates, but no company can stay in business long without making a profit. If already slim profits are completely eroded by new competitors, providers will start to drop out of the market until something closer to the original equilibrium is restored. The market price would prevail again, with the only difference being the costs of wasted capital left behind.

But this reality is not cause for despair about broadband prices. On the contrary, prices for high-speed broadband have been on the decline by far more than the temporary declines we could expect from new competition alone. Despite high inflation, the inflation-adjusted price of the most popular broadband tiers declined in the last year, and it is down 44.6 percent since 2015. Over the same period, speeds have increased such that the price per megabit-per-second is down 74.4 percent.

These lower prices accompanied by higher quality have been the result of investment in broadband networks, not of government working to cram dozens of ISPs into the same market. Technological advances often start out expensive, but prices eventually come down even as the quality improvements remain. Dial-up Internet and the first smartphones were quite expensive, but today high-speed networks are far cheaper and even budget phones put the whole Internet in our pockets. Likewise, developments like DOCSIS 4.0 are poised to push the frontier of Internet speed, while LEO satellites will connect every inch of the country, and 5G networks will continue to deploy—spurred on in rural areas by recent infrastructure funding. The filtering of these innovations through an already competitive market will continue the trend of higher quality at lower prices for U.S. broadband.

The Biden administration’s promise of substantially lower prices through more competition is, therefore, off the mark for most areas. It takes a shortsighted and localized view of broadband competition that is more calculated to score political points against unpopular corporations than to improve everyday Americans’ broadband service.