The fact that the prices for the highest speeds are declining the most demonstrate that not only are prices becoming more affordable, but the quality of the services are improving too. This dynamic of growing affordability and rising product quality is the expected result from efficient competitive markets
The price increase trends for broadband services stand in stark contrast to the trends in inflation during the same period. Based on the Consumer Price Index (CPI-U) measure of inflation, overall prices increased 17.1% between the first quarter of 2016 and the fourth quarter of 2021. Prices for internet services and electronic information (a broader category than just broadband services) grew a much smaller 3.1% during this same period.
Importantly, the widespread inflation pressures sweeping the economy have had a much more muted impact on the costs of internet services compared to the general price level. The year over year increase in overall inflation was at a multi-decade high of 7.5% in January 2022 while the growth in internet services prices was a significantly smaller 2.6%. Therefore, unlike the general price level, broadband prices are remaining relatively affordable.
As for the first purpose of the spending, “to help ensure every American has access”, it is important to recognize the large annual private sector investments that already occur. According to the Broadband Association’s annual “capex survey” (e.g. the total amount of infrastructure investments made by private sector broadband companies),
America’s communications providers’ capex was $79.4 billion, bringing the cumulative total to $1.9 trillion in communications capex since the Telecommunications Act was passed in 1996.
Put differently, the $79.4 billion that the private sector companies invested in building out the broadband infrastructure in just one year (2020) is more than the federal government will spend on these investments over ten years ($65 billion). Further, as documented by FCC analyses, the private sector infrastructure investments have helped approximately five million homes gain access to fiber broadband services.
These trends provide important lessons for the federal government as it turns on another government spending spigot.
First and foremost, the private sector is the most important broadband investor, as it should be. Consequently, the primary goal of the government should be to adhere to the Hippocratic Oath and abstain from doing harm.
Doing no harm requires the government to ensure that its spending does not disincentivize the much more important private sector investment. Government projects that distort capital allocation or create investment uncertainty will freeze up private investors and could even cause net investment to decline. Such impacts work against the goals of promoting lower prices and broader access.
The doing no harm mantra should be applied to the broader regulatory policies as well. For example, ill-conceived net neutrality regulations are “poised for a comeback” under the Biden FCC. Net neutrality regulations impose more restrictions on internet service providers in the name of treating everyone equal. In practice, the regulations would diminish the efficiency of internet services and decrease the amount of private sector infrastructure investments.
The development and deployment of broadband is a classic private sector success story that has benefited hundreds of millions of consumers across the country. It is imperative to recognize this reality as the federal government implements billions of dollars of broadband infrastructure spending. Otherwise, the taxpayer may end up spending billions of dollars turning a good situation into a bad one.
The Expanding Broadband Infrastructure Is A Private Sector Success Story
Wayne Winegarden
Recent data on prices provides important perspective regarding the $65 billion that Congress and President Biden will now spend on broadband infrastructure over the next ten years. According to the White House, the purpose of these expenditures is
to help ensure that every American has access to reliable high-speed internet through a historic investment in broadband infrastructure deployment. The legislation will also help lower prices for internet service and help close the digital divide, so that more Americans can afford internet access.
The second purpose of the spending, “help lower prices for internet services” could be counterproductive because it fails to recognize that broadband prices are already becoming more affordable over time.
A recent study by Broadband Now calculated the average price of different broadband speeds across 50 companies between the first quarter of 2016 and the fourth quarter of 2021. Their results found that prices have fallen, with prices for the highest speeds falling the most. Specifically, their results found,
The fact that the prices for the highest speeds are declining the most demonstrate that not only are prices becoming more affordable, but the quality of the services are improving too. This dynamic of growing affordability and rising product quality is the expected result from efficient competitive markets
The price increase trends for broadband services stand in stark contrast to the trends in inflation during the same period. Based on the Consumer Price Index (CPI-U) measure of inflation, overall prices increased 17.1% between the first quarter of 2016 and the fourth quarter of 2021. Prices for internet services and electronic information (a broader category than just broadband services) grew a much smaller 3.1% during this same period.
Importantly, the widespread inflation pressures sweeping the economy have had a much more muted impact on the costs of internet services compared to the general price level. The year over year increase in overall inflation was at a multi-decade high of 7.5% in January 2022 while the growth in internet services prices was a significantly smaller 2.6%. Therefore, unlike the general price level, broadband prices are remaining relatively affordable.
As for the first purpose of the spending, “to help ensure every American has access”, it is important to recognize the large annual private sector investments that already occur. According to the Broadband Association’s annual “capex survey” (e.g. the total amount of infrastructure investments made by private sector broadband companies),
America’s communications providers’ capex was $79.4 billion, bringing the cumulative total to $1.9 trillion in communications capex since the Telecommunications Act was passed in 1996.
Put differently, the $79.4 billion that the private sector companies invested in building out the broadband infrastructure in just one year (2020) is more than the federal government will spend on these investments over ten years ($65 billion). Further, as documented by FCC analyses, the private sector infrastructure investments have helped approximately five million homes gain access to fiber broadband services.
These trends provide important lessons for the federal government as it turns on another government spending spigot.
First and foremost, the private sector is the most important broadband investor, as it should be. Consequently, the primary goal of the government should be to adhere to the Hippocratic Oath and abstain from doing harm.
Doing no harm requires the government to ensure that its spending does not disincentivize the much more important private sector investment. Government projects that distort capital allocation or create investment uncertainty will freeze up private investors and could even cause net investment to decline. Such impacts work against the goals of promoting lower prices and broader access.
The doing no harm mantra should be applied to the broader regulatory policies as well. For example, ill-conceived net neutrality regulations are “poised for a comeback” under the Biden FCC. Net neutrality regulations impose more restrictions on internet service providers in the name of treating everyone equal. In practice, the regulations would diminish the efficiency of internet services and decrease the amount of private sector infrastructure investments.
The development and deployment of broadband is a classic private sector success story that has benefited hundreds of millions of consumers across the country. It is imperative to recognize this reality as the federal government implements billions of dollars of broadband infrastructure spending. Otherwise, the taxpayer may end up spending billions of dollars turning a good situation into a bad one.
Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.