By Randolph May and Joseph Kennedy
In a recent blog posting on the Benton Institute’s Digital Beat, Christopher Ali, the Pioneers Chair in Telecommunications at Penn State University, called for consideration of rate regulation for broadband providers. His main argument is that some households still have difficulty paying their Internet bill. That may be true for some in the short-term. However, the best way to ensure lower prices and greater innovation for the most consumers over the long-term remains continued promotion of increased competition with market-determined prices.
There is considerable evidence showing a steady pattern of increasingly faster speeds and lower prices per megabyte per second over the last few years. In other words, on average, consumers are paying less for more broadband capacity. Rate regulation almost certainly would reverse this.
Long periods of telecommunication history in the past were characterized by stagnant prices and low innovation because regulators treated the underlying transmission facilities as fixed assets that could only handle a limited amount of traffic. During this earlier monopolistic era, regulators aimed to guarantee providers a fixed rate of return on their investments and discouraged competition from new technologies.
As Ted Hearn points out in Policyband, Professor Ali does not acknowledge the large number of current market promotions reducing prices. Comcast, for example, is offering 300 Mbps for $40 a month and guaranteeing the price for five years. Mediacom is selling a broadband-mobile bundle, guaranteed for two years. Both are significantly lower than the $78 median monthly bill that Ali cites. It may be that the average user prefers to pay more for more capacity rather than lower fees for less bandwidth. However, federal programs and state universal service subsidies specifically target low-income consumers that may have difficulty paying their bills, along with offerings by individual providers targeting low-income consumers.
Professor Ali also does not mention the growing broadband competition from satellite constellations such as Elon Musk’s Starlink. It and other companies are aggressively targeting new customers with their high-speed broadband offerings, especially those in remote areas where fiber installation is extremely expensive. Price competition from satellites recently helped the National Telecommunications and Information Administration lower the overall cost of its Broadband, Equity, and Access Program by $21 billion. Much of these savings will be poured back into the BEAD program’s efforts to extend broadband to the remaining unserved locations in the country.
As Professor Ali points out, the public debate on price regulation has been more or less settled, at least for now. Over the last several decades, a number of markets thought to be natural monopolies, including those involving freight trains, airlines, electricity transmission, and Ma Bell-era communications facilities have faced fewer regulations and greater competition. Instead of low-risk regulators limiting new sources of competition and innovation, consumers now benefit from new market entrants offering new products and lower prices.
This is certainly not the time to renew efforts at rate regulation as the broadband marketplace becomes ever more competitive.
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