ISPs claim broadband prices aren’t too high—Biden admin isn’t buying it

Biden administration officials are not convinced by the broadband industry's claims that Internet prices aren't too high, according to a report today by Axios.

The White House announced on March 31 that President Biden "is committed to working with Congress to find a solution to reduce Internet prices for all Americans." Though Biden hasn't revealed exactly how he intends to reduce prices, the announcement set off a flurry of lobbying by trade groups representing ISPs to convince Biden and the public that Americans are not paying too much for Internet access. ISPs even claim that prices have dropped, despite government data showing that the price Americans pay has risen much faster than inflation.

A Biden official told Axios that the ISPs have not made a convincing case. "A senior administration official told Axios the bulk of the evidence shows prices have gone up recently and prices are higher than they are for comparable plans in Europe," Axios wrote. "Biden noted the high cost of Internet service in March, and the official told Axios, 'I don't think we've seen anything since he made those comments to make us feel like we were wrong about that. We're still committed to taking some bold action to make sure that we bring those prices down for folks.'"

The pressure coming from broadband lobby groups suggests that industry officials believe rate regulation is a real possibility. "They're absolutely on edge," one aide told Axios. "They are concerned at the highest levels over the prospect of rate regulation."

Instead of believing the ISPs' claims about prices, the White House is apparently paying close attention to research that shows prices are rising—in part due to a lack of competition. The White House "highlighted a working paper from Berkeley Law professor Tejas Narechania," which "finds that broadband providers offer slower service for the same price in areas where they lack competition, and proposes a model statute for rate regulation of a basic tier broadband service in areas without competition," Axios wrote. The administration also "pointed to a recent working paper from New York University finance professor Thomas Philippon that found Americans pay more for Internet service than consumers in other countries."

Cable lobby cites lower “price per megabit”

The cable industry's top lobby group, NCTA–The Internet & Television Association, this week accused advocacy groups of using "cherry-picked data." But the cable group's claims that prices are going down is contradicted by US government data showing that Americans are paying more every year.

The cable lobby's argument that prices are going down relies on the price per megabit rather than the average price that consumers pay each month. The NCTA wrote:

When looking at the cost of American broadband, if factors such as speed are included, US prices have been falling dramatically. Based on NCTA's analysis of the most widely purchased tiers of service, the quality-adjusted Price per Megabit per second (Price/Mbps) of cable broadband service has declined by 98 percent over the last 15 years, declining from $28.13/Mbps to $0.64/Mbps.

By that logic, Americans should feel lucky that they're not paying $2,800 a month for 100Mbps service. But obviously, the bandwidth needs of Americans and the bandwidth capabilities of broadband networks have steadily increased over time, even as ISPs' costs have dropped, just as the capabilities of smartphones, processors, and other technology products inexorably increase over time.

Big ISPs’ costs are dropping

ISPs' costs have continually declined on a per-megabit basis and often decline on an absolute basis. Comcast's cable capital expenditures dropped 4.4 percent in 2020, while AT&T's capital expenditures dropped 20.2 percent.

Comcast and AT&T also cut capital spending between 2018 and 2019. Charter slashed about $1.7 billion off its capital spending in 2019 before a small increase in 2020.

In short, there is no financial or technical emergency that would require scaling prices up with each additional megabit provided, and the per-megabit price over 15 years is irrelevant to the important question of whether the amount that consumers have to pay for modern Internet access is going up or down.

Real prices rose 19% from 2016-2019

The USTelecom lobby group claims that prices are getting lower by tracking the advertised price of the "most popular [speed] tier" over time. The group also claims that the US broadband market is "ultra-competitive, defined by increasing speeds, declining prices, new entrants and next generation technologies," a statement that ignores the reality of tens of millions of unserved and underserved Americans.

The actual prices consumers pay—which ISPs inflate with hidden fees, equipment rental charges, and data-cap charges—rose faster than inflation between 2016 and 2019, as we reported last week. Specifically, Bureau of Labor Statistics survey data cited by advocacy group Free Press found that "the average Internet subscriber's expenditures increased 14 percent between 2016 and 2019 (from $55.82 to $63.66), 2.2 times the rate of general inflation."

Prices also increased by similar amounts during the last three years of the Obama administration. Trump's Federal Communications Commission Chairman, Ajit Pai, claimed his deregulation of the broadband industry would reverse that trend and bring "cheaper Internet access to all Americans." Instead, prices continued rising at about the same rates seen between 2013 and 2016.

ISPs fear rate regulation

Just what the Biden administration will do to lower prices still isn't clear. The NCTA slammed Biden for what it called "the unfounded assertion that the government should be managing prices," even though Biden didn't say that he wants the government to directly manage prices.

Yet price regulation is a possibility, and it's one that wouldn't necessarily require congressional approval. The FCC is likely to bring back the Title II common-carrier regulation in order to reimplement the net neutrality rules that Pai discarded. The FCC could use that Title II authority to impose price controls, although it chose not to during the Obama administration.

According to Axios, the senior Biden administration official "said the White House hasn't taken a position on rate regulation, but noted, 'It's pretty clear that it's something that the FCC could do under the existing statutes that it has in its jurisdiction.'"

The FCC can't do anything controversial yet because it's still deadlocked at two Democrats and two Republicans. Biden still hasn't nominated a third Democrat, and the Senate confirmation process could take months after he does so. Biden also must decide whether acting FCC Chairwoman Jessica Rosenworcel will keep the top spot after a third Democrat comes on board; Biden's choice of chair would have a major impact on whether the FCC pursues any kind of rate regulation.

Fight over speeds and public networks

In addition to pledging lower prices, Biden in March proposed spending $100 billion to build and expand broadband networks. Biden's plan calls for prioritizing "support for broadband networks owned, operated by, or affiliated with local governments, non-profits, and co-operatives—providers with less pressure to turn profits and with a commitment to serving entire communities."

He also proposed "lifting barriers that prevent municipally owned or affiliated providers and rural electric co-ops from competing on an even playing field with private providers," which could mean overturning state laws that restrict municipal broadband. Biden's other major broadband proposal was to "requir[e] Internet providers to clearly disclose the prices they charge," potentially ending the rampant practice of ISPs advertising a low rate and then charging customers much more by imposing a slew of hidden fees.

"When I say 'affordable,' I mean it," Biden said in a speech on March 31. "Americans pay too much for Internet service. We're going to drive down the price for families who have service now and make it easier for families who don't have affordable service to be able to get it now."

The Biden administration disappointed some community broadband advocates by deciding that American Rescue Plan Act funds can be used for broadband only in areas lacking wired networks with speeds of at least 25Mbps downstream and 3Mbps upstream. That would leave out any area that's already served by at least one cable provider, even if there's no competition and no fiber-to-the-home availability.

The $100 billion plan is separate and could use a different standard that targets both unserved areas and places dominated by a single cable provider. Biden's proposal said he wants "100 percent coverage" and "future proof" networks, which could suggest widespread fiber deployment. But details have not been released, and ISPs will lobby Congress to send the money to private ISPs and to avoid ambitious speed requirements. AT&T recently opposed nationwide fiber deployment, arguing that rural people don't need fiber-to-the-home and should be satisfied with Internet service that provides only 10Mbps upload speeds.

Disclosure: The Advance/Newhouse Partnership, which owns 13 percent of Charter, is part of Advance Publications. Advance Publications owns Condé Nast, which owns Ars Technica.