In the middle of a US network neutrality debate, and its legal counter-attack (see elsewhere in this issue) it seems reasonable to look in detail at the state of broadband in the US, and that was the intention this week of a pair of Harvard academics, fellow David Talbot and Law School coordinator Kira Hessekiel, with the help of some of their students. The paper can be viewed here.
All they did was a project on broadband pricing, focusing on US community broadband suppliers of fiber to the home, in 40 regions in the US, and the pricing pressure they were under from traditional cable providers.
But because of incidental findings, that Comcast in particular, and cable generally, charge different prices depending upon what they are up against, the report became headline news this week.
It is fairly widely known that broadband is priced that way in the US, and we think with good reason. If you were running Comcast or Charter or AT&T, you’d do the same. What happens is that local websites show local pricing and it differs if, for instance, there is more (or less) competition. The academics immediately found that it was impossible to get to the bottom of “bundled” prices, and instead, given that cord cutting is now a major feature of US broadband and pay TV networks, they focused on data-only contracts that would work well with OTT video.
You might argue that we are on our way to data-only broadband across the US, with OTT video packages likely to make up the TV portion of a triple play, and with phone connectivity increasingly headed for cellular. The study cites the Pew Research Center in September of 2017, finding that 60% of people aged 18–29 mainly watch TV using OTT services such as Netflix.
So imagine you are the local “price setter” within Comcast. You would surely say that if AT&T or Verizon had no broadband in the region and there was no overbuilding cable firm, and just one local fiber provider with limited financial resources, that you have every right to price broadband quite high, at perhaps $1,000 a year or more, so $83.30 a month. You could also make the tiers offer lower performance, and provide slower speeds, as long as you reached the FCC definition of broadband being 25 Mbps up and 3 Mbps down.
This may be justified based on the cost of buildout to homes which are a long way apart, where more resource has to be set aside for each home, and the payback of a particular broadband build out was stretched out into the future. But this is not spelled out by any website – it is just assumed by the lack of competition.
This is one of the most potent weapons that US cable has against the incumbent telcos now that cable is dominant in broadband – it can make the price of entry into a market look unappealing, because it can lower this price for new customers at the drop of a hat. This means that Comcast might be being paid $1,000 a year by existing customers, but AT&T, after it comes into the market, may have to take just $600 in order to attract customers.
All the Harvard academics have done is demonstrate this accurately. It is a practice that has always been apparent to anyone buying broadband. The question is, should anything be done about it? We would argue that even a Democrat controlled FCC would not be drawn into this discussion. US courts have made it clear time and time again that price regulation will get overturned in the US, especially where an operator provides figures (accurate or not) that suggest that imposed prices are too low for a business to make a profit.
The other area that came out of the brief study, is that nearly all the cable firms offer “teaser” pricing, one year at a low rate, which is then followed by an automatic price hike of between 20% and 43%, after that year. The community broadband providers largely did not do this kind of thing, which makes their pricing clearer. But once again, could or should anyone, and specifically the FCC, do anything about this? We would suggest that no FCC would do anything about this, as it’s just simply good marketing practice. A Republican FCC would never even debate the idea.
So, all in all, this report, listed in a numerous news services this week, serves only to put the focus on the lack of competition in the US within broadband, particularly among key rural regions where the cost of providing broadband is prohibitive and where there are community efforts to create local broadband. It is this lack of competition across large swathes of the US that makes the Net Neutrality debate being held right now so vital. A broadband provider with no rivals or only one underfunded local fiber player, can run fast and loose over the pricing of two tier speeds to deliver web hits.
The whole point of not enforcing most of the conditions of Title II was so that no-one suggested that broadband suppliers needed to adhere to Universal Service provisions. If they did, then each region would have at least one player loaded with cost, and duty bound to offer broadband to anyone at roughly the same, universal pricing. Not even the most ardent of Democrats would endorse going down that route. It might be okay in a country where 95% of the population is in cities, but in the US, it would be commercial suicide.
Comcast was also censured by the academics for offering $10 a month higher rate for a broadband service which is not attached to a long term contract, making broadband roughly $120 a year more expensive, but allowing you to cancel at any point. Again, we cannot see what is wrong with this given the cost of customer acquisition in broadband.
And all of this is purely on data-only broadband pricing, which is around $5 to $10 a month more expensive than a bundled triple play package, which the great bulk of cable customers are using in the US.
About the only truly interesting thing is that the FCC, under the Title II provisions, had requested a certain amount of clarity in web statements about what service level broadband providers are offering, for what price. Specifically, they were asked to say what they were doing about blocking or slowing any traffic. Given that the FCC does not even have a US wide price list for broadband, and cannot even establish one (not even this one is accurate), it does mean that any marketing offers cable suppliers make continue to be shrouded in mystery. If Title II was ever to make a comeback, a future Democrat FCC might at least look at that.
The report examined pricing from Comcast, Charter, Mediacom, Cox
Communications, KTC Pace, Interstate Telecommunications
Cooperative, Zito Media, Bernard Telephone & Communications, Emily Cooperative Telephone Company, Centurylink, Wave and TDS Telecommunications. But it also said that because of restrictive website terms of service, the Harvard academics could not collect data from AT&T, Verizon or Time Warner Cable and it advised that it was significantly cheaper to spend money with a community broadband fiber provider, than any of the above.