Pricing Models Key to Broadband Expansion June 24th, 2010
On the same day USTelecom President and CEO Walter B. McCormick Jr. gave the keynote address at a conference on broadband adoption, Georgetown University’s Center for Business and Public Policy released a study that looked at how various approaches to pricing broadband service could affect access to high-speed Internet across minority groups. The Georgetown study is important because even though only five percent of Americans cite price as a reason they don’t use broadband, race and income are linked to broadband adoption.
The analysis by Robert Shapiro and Kevin Hassett shows that pricing models for broadband service that recover costs on a uniform per household basis, will considerably slow progress toward universal access to high-speed internet in America. The study estimated that if such practices were in place, broadband adoption by African-Americans would be at 83 percent and adoption by white Americans would be 85 percent by 2019. However, Shapiro and Hasset’s study found that if broadband providers were able to implement a flexible pricing model for access to high-speed Internet that would allow them to recover their investments costs by charging consumers and content providers by the amount of bandwidth they used, subscription fees for most broadband users would be low enough that nearly universal broadband adoption could be achieved by all racial and ethnic groups by 2018 or 2019.
The Shapiro and Hassett analysis doesn’t say what form a flexible pricing model would take on, but their research found that 5-to-20 percent of broadband users account for most of the increases in bandwidth demand. Therefore, Shapiro and Hassett present a hypothetical pricing scenario in which 80 percent of the investment costs to maintain and upgrade existing networks and build new networks to handle increased bandwidth demand were passed on to the top 20 percent of bandwidth users, who they note are less price sensitive than lower-bandwidth users and current non-adopters. Under this scenario, minorities’ access to high-speed Internet would be improved. Specifically, the analysis found the share of African-American households would be 74.9 percent in 2014 and 98.6 percent in 2020, compared to 66.2 percent in 2014 and 82 percent in 2020 under uniform pricing.
Patrick Brogan, USTelecom’s Vice President for Industry Analysis, said the paper provides an important contribution to the broadband policy debate by highlighting not only the links between regulation, pricing, and investment, but also the impact on universal adoption.
“If this paper is correct, some of the FCC’s proposed regulations for broadband could limit adoption in this county, Brogan said.