Broadband prices dropping around the world, but not US

by Matthew Lasar, Ars Technica

A new study suggests that the United States could do better when it comes to home ISP prices. The Technology Policy Institute's latest survey of the global high speed Internet market finds that US residential broadband subscription rates have "remained fairly stable" over the last three years, rising by just two percent.

That's good, of course, since they didn't go way up. But residential broadband prices have fallen in most other countries, the paper notes—in some instances by as much as 40 percent.

The survey also found that prices in the United States for "triple play" plans are some of the most expensive among Organization for Economic Cooperation and Development (OECD) member nations.

Why the price gap? The paper emphasizes that "it does not evaluate the policies and other influences that impact those prices," but does note that many other nations require their big ISPs to "unbundle" or open their networks to small broadband providers at wholesale rates.

"Few countries actively regulate retail broadband prices, but every country that mandates network unbundling necessarily regulates wholesale prices," the TPI survey observes. "Wholesale prices are part of an ISP's costs, meaning that wholesale price regulation can affect retail prices. Thus it may not be surprising that the biggest price decreases have occurred in the EU [European Union], where wholesale prices for full unbundled loop access fell by about 10 percent between 2007 and 2009."

Looks like we're right back in the line sharing debate again. Late last year a Federal Communications Commission study concluded that unbundling works—consumers around the world enjoy better service because of it. Scientific American agrees, while the author of the FCC's National Broadband Plan is a skeptic. These new observations on pricing come from a think tank supported by AT&T and Verizon, and both of them oppose extending the concept here in the US.

Leaders and laggards

The TPI paper taps into a dataset of around 25,000 wireline broadband services offered in OECD member countries and tracks prices and price changes from 2007 through 2009. Some of the US data is positive. For example, the survey finds that business broadband prices here have dropped by 15 to 25 percent over that time period, with the biggest price decreases associated with faster speeds.

And overall, US prices for "standalone" broadband are ensconced in the middle range of OECD countries, "though closer to the leaders than to the laggards." While France and Belgium saw a 40 percent fall in their residential broadband prices; Norway's went up by 20 percent.

But when it comes to residential broadband, the report would seem to suggest that the US is not keeping up with a host of nations, price-wise. The paper doesn't try to come up with an idealized monthly subscription rate or something similar. "It is difficult to determine if prices are 'too high' or 'too low'," the TPI survey warns, but notes that "in the short run, consumers are better off when prices are low and falling."

Investment tradeoff

An earlier TPI paper was more skeptical about line sharing, but in a very different context. TPI researchers Scott J. Wallsten and Stephanie Hausladen took a look at broadband regulation in Germany, Japan, and elsewhere. They concluded that countries that rely on unbundling tend to see less incumbent investment in fiber broadband lines.

We sent an e-mail to Wallsten, who worked on both reports, asking for his thoughts about line sharing in light of this new study.

"I think one reason residential prices have declined in other countries and not here is probably because of wholesale unbundling rates," he told us. "I think for the triple plays, programming costs play a big role, too—here cablecos pay more to license programming than they do on infrastructure, and it's hard to believe that's true of providers in the rest of the world."

Now Wallsten thinks he needs to revisit the earlier study to evaluate the "tradeoff" between the potentially lower prices unbundling delivers and lower investment incentives when it comes to fiber. Do these sort of tradeoffs reduce the latter incentive "to the point that they actually have an effect on investment," he wonders.

"The next step is to use this data to investigate that exact question and, hopefully, begin to estimate the consumer welfare effects," Wallsten's response concluded. "Thus, while the new paper does not contradict the old one, it is certainly possible that a new study based on this better data will yield results that contradict the previous study."

article originally published at Ars Technica.

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