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Data Cap Broadband Plans Cheaper for Most Consumers

Data Cap Broadband Plans Cheaper for Most Consumers

Wallsten, Riso Conduct Study on Broadband Pricing

Contact: Amy Smorodin
(202) 828-4405

November 19, 2010 – Broadband plans with data caps are 15 – 25 percent cheaper than unlimited plans for most consumers, show Scott Wallsten and James Riso in “Residential and Business Broadband Prices, Part 1: An Empirical Analysis of Metering and Other Price Determinants,” released today by the Technology Policy Institute. The authors’ analysis also shows that broadband plans with contracts are cheaper than those without but find the cost of business plans increase with the length of the contract. The paper is part of a comprehensive broadband pricing study performed by Wallsten and Riso exploring residential and business broadband prices in the U.S. and internationally.

Wallsten and Riso constructed a unique data set of 25,000 broadband plans offered by almost 170 firms in 30 OECD countries. The data includes breakdown by customer (business or residential), plan type, and other defining characteristics such as speed and associated bit caps, in order to isolate the separate components’ effect on price. While the net price to a user will depend on the size of a data cap and how much data the individual user consumes, analysis of the data shows:

  • Plans with data caps are cheaper than unlimited data plans. Residential standalone plans with bit caps are, on average, $164 less per year than similar but unlimited plans. Residential “triple play” plans with bit caps are about $152 less per year than unlimited but otherwise similar plans. Prices increase by $1.67 and $1.85 per year for standalone and triple play plans, respectively, for each gigabyte added to the cap. Business broadband plans with data caps are about $1,063 less per year than plans without, and prices increase by nearly $4.00 per gigabyte increase in the cap.
  • Residential plans with contracts are cheaper than plans without. Plans with contracts are on average $22 less over the course of a year for standalone broadband plans and $11 less for triple play plans. For residential standalone plans, each additional month of the contract is associated with a $5.64 decrease in the one-year price.
  • Business plans with contracts are less than those without, but the cost increases with the length of the contract. Business plans with contracts are approximately $863 less over a year than those without but the price increases $24 with each month of the contract. This may be because business plans could place more obligations on the ISP, including certain quality levels or a guaranteed response time fix service issues.

The authors conclude that despite limitations on data available, “The policy implications, however, are clear. Policymakers should not immediately conclude that data caps and other pricing schemes that differ from traditional unlimited plans are necessarily bad.” Instead, the authors suggest pricing trends should be evaluated over time to identify the effects on prices, investment and usage.

Residential and Business Broadband Prices, Part 1: An Empirical Analysis of Metering and Other Price Determinants” is available on the TPI website. Part 2 of the study, which will address international price comparisons, will be released in upcoming weeks.

The Technology Policy InstituteThe Technology Policy Institute is a research and educational organization that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. More information is available at https://techpolicyinstitute.org/

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