- 24.7 million Americans don’t have access to broadband internet, deepening the digital divide
- Anti-competitive maneuvering and functional monopolies from the big ISPs play a significant role, as do ineffective federal regulations
- Data is either opaque or unavailable at best, or blatantly manipulated at worst
- The digital divide will remain problematic until we have a fair internet market
Broadband may be the future, but the digital divide — a catchall term distinguishing between those who have access not only to baseline communication technologies such as the internet, but also to the associated informational resources — is quickly getting worse. The FCC has stated that 24.7 million Americans “don’t have access” to internet running at broadband speeds (2018), which is about 7.6% of the population. This number, while occasionally cited to show the the digital divide isn’t such a big deal after all, is slightly misleading in that it captures only those citizens who live outside of areas where broadband is available. In many cases, other hurdles to access are just as real as a lack of service. For example, even in places where broadband is offered, low-income residents may not be able to afford the expense. In 2017, under 50% of households making less than $20,000 annually have a broadband connection (regardless of whether or not it was available), and, while available in many rural areas, the cost can be prohibitively astronomical going as high as $250/mo for service, and can cost up to $40,000/mile to get service where there is none. Saying that only 7.6% of Americans “don’t have access” to broadband ignores the critical point that money is often key for actual access, and is akin to claiming that very, very few Americans lack “access” to a fleet of Ferraris, simply because these cars are available for purchase. Microsoft recently conducted an independent study, finding that 162.8 million Americans don’t use internet at broadband speeds. This is almost exactly 50% of the population (49.98%, to be precise), and offers a much clearer picture of the domestic landscape. This discrepancy between Microsoft’s data, most likely collected from actual users’ computers, and the FCC reports highlights the political nature of this metric. Incumbent carriers have every reason to inflate broadband penetration to reduce the amount of federal subsidies to new players who could become competitors tomorrow. Furthermore, a cable or ADSL connection from an incumbent in a low income urban neighborhood may count as broadband, but in reality it may be a 100mbps line shared across 30 households, leading to poor performance, high prices (due to lack of competition) and purely nominal access.
So what can be done to mitigate the digital divide? While there is no one-size-fits-all solution, there are things we can do to understand and tackle many of the individual underlying problems — for instance, there are clear logistical and economic reasons why rural connectivity is difficult. But a more overarching question may concern the issues plaguing our internet as a whole. Why is it that so many urban Americans don’t use broadband (about 37.5%), and why is it that service tends to be unreliable and slow? Why does everyone shell out money each month to businesses like Comcast, AT&T, Verizon, Charter, CenturyLink, or Frontier — entities that are staples on any given list of “Most Hated Companies in America”, nestled right alongside the likes of Monsanto and the Weinstein Company? Business Insider believes that the biggest problem with the U.S. internet industry is a lack of competition, and there’s no denying that this plays a colossal role.
As of 2018, almost 20% of developed — developed! — census blocks only had one single internet provider to choose from.
To make matters worse, in the report providing this data, the FCC is careful to note that this number is per census block rather than per household. In practice, this simply means that 80% of census blocks (a fairly abstract unit of measurement that “ideally” covers about 4,000 people but can be much higher) have providers that offer broadband to at least one house in that census block. Unfortunately, provider boundaries do not at all line up cleanly with census block boundaries, leading to artificially inflated statistics. If provider A serves the west half of the block, and provider B serves the east half with zero overlap (a disturbingly common scenario), this census block is considered to have two providers, despite each household only having one option. Recognizing this, the FCC posts a disclaimer, stating that “Figure 4 [below] does not necessarily reflect the number of choices available to a particular household and does not purport to measure competition.” While the real breakdown is unknown, Hannah Trostle and Christopher Michell offer more concrete numbers in their “Profiles of Monopoly: Big Cable and Telecom” paper, stating that
“30 million people only have access to broadband through Comcast Xfinity… 38 million people only have access to broadband through Charter Spectrum… 745 thousand people only have access to broadband through AT&T… 185 thousand people only have access to broadband through Verizon… [and] 1 million people only have access to broadband through CenturyLink”.
Image source: FCC Internet Access Services: Status as of June 30, 2017 (released November 2018)
And the problem with competition is only growing. On August 17, 2018, a coalition comprised of New America’s Open Technology Institute, the Institute For Local Self-Reliance, the National Association of Telecommunications Officers and Advisors, the National League of Cities, and Next Century Cities filed a comment with the FCC outlining “the myriad ways in which competition is thwarted, both by industry practices and legal restrictions”.
This comment concluded that the fixed broadband market is “stagnant at best” and “marked by low competition, high costs, and opaque service quality.”
Among the issues highlighted are such problems as sparse data, anticompetitive regulations, and functional geographic monopolies.
While none of these are great, anticompetitive regulations and geographic monopolies are particularly problematic in how they work together to limit consumer options. Adequate, reliable internet access is, quite simply, no longer optional, especially not if we wish to make headway on fixing the digital divide.
Providers know this, and are able to charge exorbitant prices in markets where there is no competition — just because they can, and people will pay.
To maintain their monopolies, many fixed broadband providers just “decline to compete against each other in local markets across the country”, allowing prices to remain artificially high. While initially somewhat counterintuitive, this is a sound economic decision for a corporation. Competition would force prices down, deflating margins and slashing revenue. In an industry where people will pay astronomical prices for such a necessity, it makes way more sense to split the market with a competitor — half the customers who are willing (or forced) to pay three times as much are significantly more lucrative than double the customers in a competitive market where prices are a fourth of what the market could theoretically sustain. This effect is especially pronounced when one considers that two companies that share territory end up with roughly the same number of customers as if they had just split it down the middle, except they’re both bleeding money on extra infrastructure, office space, technicians, and, most importantly, marketing. In a competitive market, the consumer wins. In the ISP market, however, the big guys are coming out on top.
It’s fair to wonder how this happened, especially with the numerous antitrust laws blanketing much of the American industrial landscape. In this case, while there are many factors, much of the blame can be placed on ineffective federal regulation. For example, the FCC has done a lot to create a favorable environment for large business internet service providers. Of course, their official party line is pro-competition, and to that end, they’ve instituted (and trumpeted) price caps on business internet service being offered in “non-competitive” markets. Sounds pretty good, at least in theory — but if the criteria for a non-competitive market is so stringent that very few areas actually qualify, such designations are meaningless. Turns out, this is pretty close to reality. The FCC has defined a “competitive market” (which ultimately translates to “a market with no price cap”) to be any market that passes their proprietary “Competitive Market Test”. This test, in turn, defines a competitive location to be, “a business location… [where] a competitive provider’s facilities are within half a mile [or] if a cable provider’s facilities are within the same census block.
Quite simply, this is insane.
As it stands, it suffers from similar issues as counting any provider within the same census block an “option” for consumers. This test doesn’t actually measure the number of options that any given business customer has. A city with two ISPs whose service areas both cover the entire city (obviously, overlapping each other) is a competitive market under this test, as it should be. Because consumers have even one other option, the threat of switching is very real and forces both providers to maintain low prices, adequate customer service, and strong networks. Each provider will likely end up with about half the customers, and this accords with our intuitive understanding of how markets should operate. Unfortunately, a city in which two providers split the city into a checkerboard of 1-mile-by-one-mile squares (that is, no overlapping area) also results in a situation in which both providers have about the same number of customers, but have zero incentive to keep prices low, provide decent customer service, or even maintain their network — with no other choices, consumers are held hostage, as the internet is, after all, a functional necessity. This situation also results in a “competitive market” under FCC guidelines. Because having “any other provider within a half mile” equals a competitive market, protections such as price caps are removed even when the consumer only has one option. This is an exploitable loophole, and exists despite the fact that a much simpler test would be to simply determine whether or not a given location has competitors. To make matters worse, an astute reader may have noticed that these regulations only apply to business internet. Consumer internet doesn’t currently enjoy any price caps whatsoever.
The sooner these issues are remedied, the sooner we, as a country, can close the digital divide and retain our place at the forefront of technological innovation—but this may entail taking matters into our own hands. At VEVA, we believe that competition is the key to a fair internet marketplace. We exist to empower small WISPs to fight against the big guys to the benefit of consumers everywhere. Our system is broken — and we need more small providers, more consumer awareness, and more transparency to fix it.