Christopher Mims

A View from Christopher Mims

Why Isn't the Price of Broadband Obeying Moore's Law?

The quality and cost of broadband Internet access haven’t budged in years.

  • September 13, 2010

The U.S. government doesn’t keep an index of broadband internet prices by which to evaluate the success of its broadband promotion policies - the statistics they do have are mushed together with prices for dial-up access - so a couple of researchers at Northwestern University decided to build their own.

What they discovered is that broadband internet prices have remained nearly stagnant since 2004, despite the explosive pace of adoption since then - from approximately 20 percent of U.S. households in 2004 to more than 65 percent today.

In that time, the only thing that has really changed is the quality - just looking at upload speeds, they’ve more than doubled in that time. But that’s nowhere near what you would expect if the price / megabit/s of broadband were obeying Moore’s Law.

The reasons for the stagnation of U.S. broadband are multifactorial, but one of the authors, Shane Greenstein, argues that the 2003 decision allowing the broadband industry to regulate itself has caused much of the stagnation.

(For perspective, check out how much faster most of Europe and Asia is than the U.S., when it comes to broadband.)

Greenstein says that by now, broadband companies should have paid off almost all the costs associated with building out their infrastructure.

“We are approaching the end of the first buildout, so competitive pressures should have led to price drops by now, if there are any. Like many observers, I expected to see prices drop by now, and I am surprised they have not,”Greenstein told Kelogg Insight, a house organ for the university.

This means that broadband companies are now operating their broadband as almost “pure profit,” devoting only a small fraction of subscriber revenues to maintenance.

Without new entries on the market – most urban areas have at most two different broadband suppliers to choose from, the phone company and the cable company – Greenstein argues there is no incentive to lower prices.

Accusing America’s cable companies of propping up broadband prices via a monopoly is nothing new, but for the first time ever, regulators and consumer watchdogs inclined to make that argument have data that at least suggests it’s true.

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