The Consumer Federation of America (CFA) recently released a research brief authored by long-time consumer advocate Mark Cooper. The paper, titled “Comparing Apples to Apples: How Competitive Provider Services Outpace the Baby Bell Duopoly,” examines issues in mobile and home broadband markets and offers analysis on internet services in the United States.
The brief analyzes data from the Open Technology Institute’s 2013 Cost of Connectivity data release. Using statistical regression analysis, Cooper reinforces the conclusion reached by OTI that U.S. broadband providers charge higher prices for slower speeds and tend to impose overage fees on data caps more often than their international peers. Cooper’s brief also examines the services offered by local municipal broadband networks and finds that their products differ significantly from those offered by incumbent U.S. service providers. Cooper finds that municipal networks offer faster speeds overall, better upload speeds, and are less likely to impose data caps or charge individuals for exceeding a data cap. He concludes that “over 95 percent of the comparisons [in the regression] show that municipal operators have the more consumer-friendly service.” These findings reinforce many of the points in OTI’s Cost of Connectivity 2013 data release related to municipal broadband networks.
The brief also reports that for the analyzed dataset, competition is not statistically significant in the regression analysis. While it is clear that direct competition can spur improvements in price and service, this finding highlights that the number of broadband providers in a city does not always translate directly to a strong competitive choice for consumers as some broadband providers may not provide service to all neighborhoods.
However, Cooper’s brief does acknowledge the importance of the type of competitor -- not simply competition between similar entities, but whether there is a choice between organizations with different histories and missions. Municipal broadband networks are community-driven investments in fiber optic infrastructure designed to meet the needs of their local users. Incumbent broadband providers operate networks designed to increase profits and provide a return to shareholders. This distinction reinforces the conclusion reached by Cooper - that even if the number of competitors advertising services in an area does not always matter, the type of competitor (and the model through which those competitors offer service) often does. Cooper notes that municipal providers “fill the gap left by non-muni service providers.”
Indeed, municipal networks fill the gap of investment in fiber optic infrastructure in their communities. Often, communities or their local governments want to build a local network that is capable of meeting current and future communication needs, and fiber optic infrastructure is a more reliable, resilient, and secure communication infrastructure than many of the existing communication networks employed by traditional cable or telecom providers. Fiber networks are also more easily able to increase the bandwidth capacity than other technologies, a fact that has led many to describe fiber as “future-proof.”
The ability for broadband service to scale to future needs is important. Broadband users increasingly expect to share more and more of their own content online. Employees need fast and reliable service to work from home. Doctors are exploring ways to monitor patients at home. More individuals are using their home broadband access to watch educational and how-to videos. And households increasingly have multiple users with multiple devices who may be engaging in these and other online activities simultaneously.
Moreover, municipal networks have proven willing to take advantage of the scalable nature of fiber infrastructure. For example, by utilizing the capabilities of their fiber network, the municipal provider EPB in Chattanooga has raised broadband speeds for customers three times in their four years of operation, while maintaining or decreasing monthly subscription costs. (In this time, the lowest broadband speed has increased from 15 Mbps to 100 Mbps.) Residents see the value in this local network, as illustrated by the fact that EPB continues to add more customers and has exceeded initial planning estimates for how quickly residents would sign up for services.
The inherent value of municipal broadband networks can be seen in regard to service -- fast speeds and a lack of data caps -- as well as in the scalability of the fiber infrastructure itself. And this value provides important context to the concerns expressed by some critics of OTI’s initial data release. For example, while some municipal providers’ offerings can sometimes be more expensive for broadband-only plans when compared to their competitors’, the quality and value of their plans are often significantly higher.
To illustrate, the lowest price for a broadband-only plan offered by EPB, the municipal provider in Chattanooga, TN, is $57.99 per month for 100 Mbps download and 100 Mbps upload speed, which works out to a price of 58¢ per megabit per second. A broadband-only plan in Chattanooga from AT&T costs $40.48 per month for 6 Mbps download, charging $6.67 per megabit per second. (AT&T’s upload speed is not clearly disclosed on their website.) Clearly, AT&T offers a plan that costs less money but the plan from EPB is a better product with a significantly higher value, and the ability to upgrade to meet the needs of subscribers in the future with greater agility.
This ability to willingly improve the products offered to its community proves that municipal networks like EPB are important and often better suited to invest in scalable fiber infrastructure where incumbents are not, and often are willing to invest in geographic areas where incumbents are not.
The CFA brief provides an important, additional quantitative lens through which to view consumer broadband pricing information -- and reiterates the value that local investment in infrastructure provides.
