New America Foundation Reining in the Cost of Connectivity Policies for Better Broadband in 2014 By Nick Russo, Patrick Lucey, Danielle Kehl, and Hibah Hussain January 2014 Americans in major cities such as New York, Los Angeles, and Washington DC, continue to pay higher prices for slower Internet service when compared to similar cities in other parts of the world. Clearly, the United States’ collective broadband experience does not measure up to that of other countries. In this paper, we examine America’s broadband challenges, analyzing a number of factors that impact speeds and prices. Our analysis is based on the data we collected for The Cost of Connectivity 2013, a survey of consumer broadband pricing data from 24 cities around the world. This paper identifies ways to promote more robust competition and provide consumers with better service at a more affordable price. Acknowledging that no single solution or “magic bullet” can solve all of America’s broadband challenges, we offer recommendations aimed at improving the status quo. We argue that it is crucial to create better conditions for providers to enter the market, to compete more effectively, and to innovate on existing and new services. In particular, policymakers should improve data collection practices around pricing information, work to remove barriers to the development of local networks, encourage cooperation in broadband build outs, support pro-consumer and pro-competitive policies, and enforce competitive protections in upcoming spectrum auctions. Nick Russo and Patrick Lucey are policy program associates at the New America Foundation’s Open Technology Institute (OTI). Danielle Kehl and Hibah Hussain are policy analysts at OTI. The authors would like to thank Sarah Morris, Senior Policy Counsel at OTI, for substantial editing assistance. TABLE OF CONTENTS REINING IN THE COST OF CONNECTIVITY..........................................................................................3 Introduction............................................................................................................................................3 Research Observations and Findings.......................................................................................................3 Key Challenges........................................................................................................................................7 Policy Implications................................................................................................................................12 Conclusion.............................................................................................................................................16 APPENDIX A: RESEARCH METHODOLOGY........................................................................................21 APPENDIX B: 2013 RANKINGS................................................................................................................25 APPENDIX C: CITY INFORMATION.......................................................................................................32 APPENDIX D: FULL DATA SET (HOME).................................................................................................33 APPENDIX E: FULL DATA SET (MOBILE)...............................................................................................86 APPENDIX F: SOURCES FOR PRICING DATA....................................................................................103 2 new america foundation INTRODUCTION unlikely to see better prices or faster speeds in most major cities in the near future—let alone in rural or 2013 was a year of gigabit rhetoric: awareness of and historically underserved areas. demand for ultra high-speed Internet connectivity grew significantly.1 A number of cities across the Fortunately, there are policy solutions to many of United States joined the ranks of speed leaders these problems. It is important to remember that the with new offerings, and more high-speed initiatives Federal Communications Commission (FCC) has are underway in 2014. At the same time, most U.S. a multifaceted role: it aims to promote meaningful consumers still lag behind their global peers, paying competition, but it also has a responsibility to more money for worse service. Steps must be taken protect consumers, especially in the areas where 3 to improve the American broadband market. the competitive market falls short. A new FCC Chairman at the helm in 2014 creates a critical Last fall, the Open Technology Institute (OTI) window to advocate for positive change on a number released The Cost of Connectivity 2013, a best-effort of core broadband policy issues. At the same time, survey of consumer broadband pricing data from not all progress must be initiated at the federal level. 24 cities around the world. The central takeaway Creating space for alternative broadband models— from that research is that customers in U.S. cities like municipal networks—and implementing local generally continue to pay higher prices for slower policies that facilitate new entrants in the broadband speeds when compared to customers in international market are also important. The American cities that cities.2 In this report, we examine some of the factors stood apart from the larger trends in our report tended that impact speeds and prices. We also identify areas to be those where innovative competitors participate for potential regulatory intervention to promote in the market, such as Chattanooga’s municipal fiber more robust competition and provide consumers network or Kansas City’s Google Fiber deployment. with better service at a more affordable price. Following the release of The Cost of Connectivity Many of the problems with consumer broadband 2013 data, this paper delves more deeply into the options in the United States today can be traced factors that may contribute to the United States’ back to underlying policy challenges that have overall poor performance in our rankings. In the first become more pronounced in the past decade. Key section, we discuss the findings from that data set, contributing factors include the lack of open access including qualitative observations from our research. policies for broadband infrastructure, the difficulties In the next section, we examine key challenges in of interconnection, and the ongoing consolidation American broadband policy. Finally, we discuss the of spectrum holdings between a few mobile implications for both federal and local policymakers. competitors. The public, meanwhile, is often left The report methodology, city information, 2013 with limited and difficult-to-find information from rankings, and the full data set are available in the Internet service providers (ISPs) about broadband appendices. options. Nor is comprehensive data available that would help both consumers and researchers better RESEARCH OBSERVATIONS understand the forces at play in the broadband AND FINDINGS ecosystem, particularly when it comes to price. Without better data and stronger policies to promote As we noted in The Cost of Connectivity 2013, competition and protect consumers, Americans are U.S. wireline broadband customers largely pay The Open Technology Institute 3 higher prices for slower speeds compared to their found that Sprint and T-Mobile packages are similar international peers.4 Some providers debuted to European wireless providers who tend to throttle expensive new top speed tiers in 2013 and made rather than charging for data overages. other upgrades in certain markets, but these were limited and often accompanied by the introduction of When comparing the top wired speeds available in new fees.5 However, several more dramatic changes each city, we found that Chattanooga, TN, and Hong occurred in cities where there are alternative and Kong continue to offer the same world-leading gigabit innovative models. A particularly noteworthy finding speeds they offered last year, while Seoul, Lafayette, is that EPB, the municipal provider in Chattanooga, LA, Kansas City, KS, and Kansas City, MO, also lowered the cost of its gigabit service by over 75 joined the top ranks. In our October data release, we percent.6 also ranked providers’ broadband-only plans priced near $35 and wireless USB-dongle plans priced Additionally, on the wireless side, we found that near $40. Those comparisons show that wireless U.S. customers pay higher prices for data-only broadband is not presently an adequate substitute for plans and are more likely to face overage fees, while wireline broadband, because mobile service is more international customers tend to see lower prices and expensive, comes with more restrictive data caps, are more likely to see their speeds reduced when they and is less reliable than wireline services. Finally, exceed their data limits rather than the imposition of our comparison of wireless USB-dongle plans near monetary fees. A study by the Consumer Federation the 2GB data cap level found T-Mobile to be the most of America (CFA), which incorporates part of our affordable provider, but its plans are still near the data set, found that the two dominant U.S. wireless bottom of the pack when ranked against providers providers (AT&T and Verizon) offer services that are worldwide. (These charts, originally published in The much less consumer-friendly than those offered by Cost of Connectivity 2013 data release, can be found in the other two major wireless providers (T-Mobile and Appendix B.) Sprint) who have lower market shares.7 The