The U.S. Broadband Revolution: Faster Service at Lower Prices (as Expected)

By at 2 November, 2020, 1:57 pm

by Raymond J. Keating-

Across the economy, technological innovation driven by entrepreneurship and private investment has opened up enormous opportunities for U.S. small businesses, for American workers, and for consumers. In recent times, these economic realities have come through loud and clear in terms of broadband telecommunications services, with benefits being amplified during the COVID-19 pandemic as people have been working, being educated, and staying in contact via high-speed networks.

Amidst this revolution, along with unpredictable political threats and attacks on technology companies, it pays to take a moment and consider some of the specific benefits being accrued from the investments that have been and continue to be made on the broadband front.

Two recent studies, for example, delve into broadband pricing.

First, in its “2020 Broadband Pricing Index,” USTelecom notes that “broadband companies invest between $70 billion and $80 billion each year in faster and more reliable U.S. broadband infrastructure.”

What has been the result? The following key findings are highlighted:

“The most popular tier of broadband service in 2015 (BPI-Consumer Choice) is now priced 20.2% lower and offers 15.7% faster speeds in 2020 on an average-subscriber-weighted basis.”

“The highest speed offerings in 2015 (BPI-Speed) are now priced 37.7% lower and offer 27.7% faster speeds in 2020 on an averaged subscriber-weighted basis.”

“Further, these price reductions run counter to inflation, which has increased consumer costs for overall goods and services by 9.3% over the same five-year period analyzed in this report. When inflation is considered, the real price of the most popular tier of broadband service has dropped by 28.1% since 2015; and the real price of the highest speed broadband service has dropped by 43.9%.”

“This combination of declining prices and rising speeds delivers even greater value to consumers—as shown by a declining cost per megabit of connection speed (Mbps) of 37.9% for the most popular service and 56.1% for the highest speed service.”

The Phoenix Center for Advanced Legal & Economic Public Policy Studies followed with its own analysis, just released on October 26. While using slightly different methodology and creating a broadband price index, the conclusion was effectively the same:

“In all, the FCC’s price survey data reveal large, statistically-significant price declines over time for broadband services, holding quality constant.”

Later, the author, George S. Ford, sums up: “Between 2015 and 2020, for example, I find that the average decline in prices is about 36% when using a Fisher-ideal price index. Broadband prices across a wide range of speeds have fallen over time, and the price reductions are, in most cases, sizable.”

This obviously has been good news for individual consumers, and for businesses of all types and sizes.

By the way, it also should be kept in mind that the telecommunications industry in general is not all about large businesses, but instead, is widely populated by smaller firms. For example, according to Census Bureau data, in the overall telecommunications sector, 73.9 percent of employer firms have fewer than 10 employees, 83.8 percent fewer than 20 employees, and 95 percent fewer than 100 workers. So, small businesses are not just consumers of services like broadband, but also are involved in supplying telecommunications products.

When we look at economic history, the development of products largely follows a pattern of new goods and services being offered in the market; more investment, innovation and competition developing; prices declining and quality improving; and competition coming from current and future competitors, as well as from the emergence of completely new goods and services.

We have seen, and continue to see, this process go on in the telecommunications arena. From a public policy standpoint, the key is to not get in the way, such as with tax increases, enhanced regulation, or outright attempts by government to control networks or tech companies.

Again, falling prices and improving quality is exactly what we should expect whenever entrepreneurship, investment and innovation are unhampered by government overreach.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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