As the price of most consumer goods continues to rise nationally, one bright spot for the American consumer is the decreasing price of high-speed internet. However, government intervention threatens to undo that.
A new study released in February by the independent research organization BroadbandNow, finds that the average cost of broadband service has declined significantly over the last 5 years. Starting in 2016, costs fell across all major internet speed categories ranging from 25 to 500 megabits per second (Mbps). For instance, for consumers using 500 Mbps internet speeds, prices fell 42%, or almost $60 a month on average. Users of slower speeds also saw a price drop of between 33% to 35% on average. Even users of the slowest internet speeds, which range from 25 to 99 Mbps, saw their prices fall by 14%, or $8.80 a month, on average.
Overall, the study’s findings suggest a national environment where the price of high-speed internet has continued to become more affordable for the average American over a fairly short period of time. This should be a relief to the millions of Americans increasingly concerned about inflation and how higher prices might impact their pocketbooks. The findings are also consistent with other recent studies that have found a precipitous decline in the price of high-speed internet. In general, huge strides have been made towards increasing internet speeds, and subscribership, and investing in 5G infrastructure. In addition, research suggests that local prices are reflective of robust competition. In general, the more competition, the better the quality of service and the lower the price.
Unfortunately, there remains a real danger that these gains may be erased by the growth of municipal broadband and a misplaced demand for more government intervention. Municipal broadband is a collection of government-owned networks (GONs) that often use taxpayer dollars to provide internet service and compete against private operators.
The model of municipal broadband varies by region with some local governments opting to provide full or partial coverage to their residents. However, what they each have in common is that their creation is usually justified on the grounds that existing providers underserve consumers and that a better alternative is needed.
Supporters of GONs argue that publicly owned broadband is necessary to bridge the digital divide and lower prices for low income Americans and those in hard to reach places. They further allege that GONs make the process of navigating service providers easier for consumers while still providing high-quality options.
However, the opposite is true and has been well documented in numerous studies. GONs often improperly use taxpayer dollars to compete on the open market with private businesses who do not have the luxury of receiving public funding. In practice, this means many service providers are not able to compete with GONs and may choose to exist the market entirely. The net result is fewer high-quality options to choose from and reduced competition needed for holding down prices. In addition, while proponents of GONs insist that municipal broadband provides consumers free or low-cost internet service, the reality is that these costs are frequently just combined with other municipal services fees such as electric and water surcharges, and community bonds. The result is the consumers pay much higher prices and lower quality for their services – a government bait-and-switch.
A secondary effect of GONs is that they have a tendency to stifle innovation and discourage investment in building out network infrastructure. Network infrastructure can be extremely expensive, and the taxpayer should not be left on the hook for such large expenditures.
To provide just one example, in 2008 the city of Provo Utah began constructing a fiberoptic network after taxpayers approved a $39 million bond. However, by 2013 it was clear the project was experiencing considerable financial losses, so the city decided to sell its network to Google for just $1. Unfortunately for Provo taxpayers, they were left on the hook with bond payments plus interest totaling $3.3 million annually for the next 12 years. Of course, none of this is to suggest that building out network infrastructure isn’t important, but private enterprise is much better suited to absorb any associated losses.
So, what is the solution to providing the American consumer such a critical service as high-speed internet at costs they can afford? The solution is that the government should not try to fix something that is not broken. Federal, state, and local governments need not take an active role in encouraging the creation of GONs. They only need to preserve a space for the competitive market to flourish that will allow private enterprise to offer low cost, high quality options. The free market has shown time and time again that it is perfectly capable of meeting consumer needs. BroadbandNow’s recent findings of consumer savings on high-speed internet show this to be true.
This was published in The Economic Standard