On Friday, TPI released Part 1 of an ongoing study of broadband prices in OECD countries. This part of our study uses extensive data and econometric tools to test the effects of different pricing tactics. Perhaps even more important than our results are our methods, which mark a significant step toward more mature understandings of “what we pay” for broadband in the United States and elsewhere.
Our study acknowledges that “broadband” refers to service that varies widely across multiple dimensions: Internet access is offered at different download and upload speeds, may be available with contracts of varying length, and may be bundled with complementary services such as voice, television, or both (the well-known “triple play”). In addition, “price” is more complicated than a simple monthly payment for such a service: many ISPs offer temporary promotional prices or other discounts, and impose other necessary charges such as start-up and equipment fees. All of these must be considered in order to reach a complete understanding of costs to consumers.
The FCC’s National Broadband Plan, in light of these complications, decries “a dearth of consistent, comprehensive, and detailed price data.” With this project we work towards filling that void. We assemble a dataset of about 25,000 residential and business broadband offerings from providers within the OECD from 2007-2009, keeping in mind the crucial nuances noted above.
With this improved data in hand, in Part 1 we econometrically examine several classes of broadband to decompose observed prices into their “determinants,” namely quality measures (e.g. download speed and limits on data), contract commitments, and fixed effects based on when and where the plan was offered.
Our findings (available in full here) are in some ways to be expected: bit caps—also referred to as data caps or metered billing—are associated with lower prices for all classes of users (on average), and our model finds that prices increase as bit cap size (i.e. the number of gigabytes allowed in a month) increases. Contract commitments are also associated with lower prices, though generally without statistical certainty. We do find an unexpected result regarding business consumers, who appear to pay more for longer contracts, other things being equal. In addition, we see that the price of triple play plans is significantly influenced by the number of television channels included.
This analysis is relevant to current debates, in which Internet Service Providers who have attempted to introduce bitcaps or metered billing have been met with fierce resistance. Our research shows that low- and mid-use consumers (and, in fact, the median U.S. user according to the FCC), could see savings from limited data use, at least if such plans were instituted in line with the average experience in other developed markets.
