Opinion

Claims That Wireless Service Is Too Expensive Don’t Hold Up

Adoption rate by minorities suggests prices are right and more regulation is not needed.

Roslyn Layton is an American and PhD Fellow at the Center for Communication, Media and Information Studies at Aalborg University in Denmark and a Visiting Fellow at the American Enterprise Institute's Center for Internet, Communications, and Technology Policy. 
National Journal
Roslyn Layton
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Roslyn Layton
June 11, 2014, 5:09 a.m.

The U.S. and Canada are two of the world’s most ro­bust and com­pet­it­ive wire­less mar­kets. Both coun­tries have a vari­ety of wire­less net­works, pro­viders, products, and ser­vices. The ex­tens­ive next-gen­er­a­tion wire­less net­works of the coun­tries have been the hot­bed for wire­less in­nov­a­tion, in­clud­ing the Black­berry, the iPhone, An­droid, and scores of mo­bile ap­plic­a­tions and in­nov­a­tions.

In fact, the United States and Canada are home to just 6 per­cent of the world’s mo­bile sub­scrip­tions, but they com­prise more than 50 per­cent of the world’s 4G/LTE con­nec­tions, the cur­rent state-of-the-art tech­no­logy for wire­less con­nectiv­ity. The U.S. has four 4G/LTE wire­less pro­viders de­liv­er­ing ac­cess to 97 per­cent of the pop­u­la­tion, and Canada has five such pro­viders of­fer­ing ser­vice to 75 per­cent of the pop­u­la­tion. Wire­less ser­vice can be pur­chased with or without a hand­set, both on con­tract or in a pay-as-you-go fash­ion. There­after con­sumers can per­son­al­ize their con­nec­tion with a vari­ety of ser­vices and con­tent. Com­pet­i­tion is lower­ing prices, ex­pand­ing choice, and in­creas­ing the value of what con­sumers get for their money.

Nev­er­the­less, crit­ics in both the United States and Canada main­tain that prices are too high. They say costs ad­versely af­fect people in rur­al areas, people of col­or, and the eld­erly — who are be­ing left on the wrong side of the di­git­al di­vide. Many as­sert an un­foun­ded no­tion that prices should just be cheap without any re­la­tion­ship to the un­der­ly­ing costs or qual­ity of net­works.

Re­cently crit­ics have pres­sured reg­u­lat­ors in the U.S. and Canada to in­ter­vene in wire­less mar­kets, even though reg­u­lat­ory re­ports at­test to sig­ni­fic­ant dy­nam­ism and com­pet­i­tion in the sec­tor. Spe­cific­ally in the U.S., there are calls for the Fed­er­al Com­mu­nic­a­tions Com­mis­sion to reg­u­late In­ter­net ser­vice like a util­ity, con­trolling price, out­put, and ac­cess. Con­gress, which over­sees the FCC, has his­tor­ic­ally sup­por­ted a light reg­u­lat­ory en­vir­on­ment un­der the reas­on­ing that broad­band and wire­less are emer­ging in­dus­tries that need free­dom to evolve and in­nov­ate.

The idea that wire­less prices are too high flies in the face of in­creas­ing In­ter­net ad­op­tion and con­sump­tion across all demo­graph­ic groups. Not only is there an ex­plo­sion of mo­bile-device use, but the price of a wire­less mega­byte of data has fallen by 99 per­cent since 2007. Amer­ic­ans and Ca­na­dians hold, re­spect­ively, the second and third slots in the world for In­ter­net con­sump­tion per cap­ita, par­tic­u­larly video. The Ca­na­dian In­ter­net Re­gis­tra­tion Au­thor­ity notes, “Ac­cess­ing video on­line is par­tic­u­larly in­tens­ive in Canada, thanks to the coun­try’s in­vest­ment in video-en­abling broad­band tech­no­logy…. The trend to­ward mo­bile con­tin­ues to strengthen.”

With its ad­vant­ages of re­l­at­ively low cap­it­al and main­ten­ance re­quire­ments, mo­bil­ity, shared ca­pa­city, and us­ab­il­ity with a mo­bile device, wire­less rep­res­ents the most cost ef­fect­ive way to close the di­git­al di­vide, in­clud­ing con­nect­ing rur­al areas, people of col­or, and the eld­erly. It’s not sur­pris­ing that wire­less broad­band has ex­ploded in Canada and the U.S. with some 330 mil­lion con­nec­tions.

His­tor­ic­ally, Afric­an-Amer­ic­ans have had a lower rate of wired In­ter­net sub­scrip­tions than whites. Moreover people with less in­come and edu­ca­tion, re­gard­less of ra­cial back­ground, have been slower to sub­scribe to the wired In­ter­net, not ne­ces­sar­ily be­cause of cost, but be­cause desktop com­puters were not part of their lives. Without a com­puter, there is little need for a wired In­ter­net con­nec­tion.

However, the dif­fer­ences in In­ter­net ad­op­tion dis­ap­pear when it comes to wire­less. Wire­less devices are ubi­quit­ous, in­creas­ingly in­ex­pens­ive, and more user friendly than desktop com­puters. The Pew Re­search In­ter­net Pro­ject re­ports that Afric­an-Amer­ic­ans and Lati­nos are at least as likely if not more likely than oth­er Amer­ic­ans to own and use smart­phones and use mo­bile con­nec­tions to ac­cess the In­ter­net. Young blacks are just as likely as whites to use the In­ter­net and to have broad­band ser­vice at home. In fact, blacks between the ages of 18 and 29 have the highest rate of Twit­ter use of any group in the U.S.

It’s re­mark­able to con­sider how wire­less tech­no­lo­gies have trans­formed our so­ci­ety in less than a gen­er­a­tion, a power­ful change driv­en largely by age. The Pew Re­search Cen­ter’s study for In­ter­net and Amer­ic­an Life re­ports that 95 per­cent of teens are on­line, with 93 per­cent say­ing they have a com­puter or have ac­cess to one. They are just as likely to have a cell phone, in­creas­ingly a smart­phone. In fact, three out of four adults un­der 50 con­nect to the Web with a mo­bile device.

Crit­ics try to as­sert that broad­band pro­viders ex­ploit the poor and old through high prices, but this is not found in the data. The In­ter­na­tion­al Tele­com­mu­nic­a­tions Uni­on main­tains the world’s largest data set about com­mu­nic­a­tions prices glob­ally. In its 2013 re­port Meas­ur­ing the In­form­a­tion So­ci­ety, the U.S. scores third in the world for entry-level af­ford­ab­il­ity for fixed line broad­band. Fur­ther­more, the U.S. scores in the top 10 for entry-level af­ford­ab­il­ity for both pre­paid and post­paid (tra­di­tion­al billed) mo­bile broad­band for use with a com­puter.

It is true that wire­less sub­scrip­tions, un­like a wire­line sub­scrip­tion, of­ten carry a data cap. This is ap­plied to ap­por­tion band­width. For ex­ample, a single ser­vice such as Net­flix can take up 30 per­cent of a net­work’s ca­pa­city with re­l­at­ively few users. When it comes to clos­ing the di­git­al di­vide, the first or­der of busi­ness is en­sur­ing ac­cess­ib­il­ity to es­sen­tial ap­plic­a­tions for health, em­ploy­ment, edu­ca­tion, and per­son­al fin­ance. All of these ser­vices are ac­cess­ible with a ba­sic wire­less broad­band sub­scrip­tion without hit­ting a data cap. In this way, wire­less is a sub­sti­tute for tra­di­tion­al wired con­nec­tions.

Those who want to stream video en­ter­tain­ment on their phones will typ­ic­ally pay more for a sub­scrip­tion. There are many op­tions for en­ter­tain­ment, and it only reas­on­able that those who want to use high volumes of band­width should pay for it. For­tu­nately, with a vari­ety of in­nov­a­tions and part­ner­ships, real-time wire­less en­ter­tain­ment is be­com­ing in­creas­ing af­ford­able and more ef­fi­cient.

The In­ter­na­tion­al Tele­com­mu­nic­a­tions Uni­on re­com­mends that con­nectiv­ity cost no more than 5 per­cent of av­er­age monthly in­come. Both the U.S. and Canada fall well be­low this threshold. Canada’s wired and wire­less broad­band prices amount to ap­prox­im­ately 1 per­cent of av­er­age monthly in­come, with the U.S. ran­ging between 0.4 per­cent and 2 per­cent. Con­sumers in both coun­tries spend far lar­ger por­tions of their in­come on hous­ing, en­ergy, trans­port­a­tion, cloth­ing, and even dis­cre­tion­ary va­ca­tions.

As for crit­ics’ as­ser­tions that prices are cheap­er in the European Uni­on, this is based upon a mis­un­der­stand­ing of the data. Amer­ic­ans and Ca­na­dians use 75 per­cent faster net­works and con­sume more than twice the voice and data ser­vices used by Europeans. Europeans may pay less, but they are us­ing older, slower net­works that de­liv­er less data. Only a quarter of people in the European Uni­on can even get 4G/LTE. Not only do these flawed stud­ies fail to com­pare the same types of net­works, avail­ab­il­ity, and con­tracts, they also fail to in­clude the com­puls­ory me­dia li­cense fees that Europeans pay to sup­port state broad­cast­ing com­pan­ies. In Den­mark that amounts to an ex­tra $36 per month per house­hold with any broad­band sub­scrip­tion. Plus there are tele­com taxes across the European Uni­on that add as much as 27 per­cent to the cost of con­nectiv­ity. When ac­count­ing for these real costs and the lower qual­ity of European net­works, Amer­ic­ans and Ca­na­dians get a far bet­ter deal.

Moreover, Amer­ic­an and Ca­na­dian op­er­at­ors in­vest in wire­less net­works at the twice the rate of Europe’s. Wire­less prices in the U.S. and Canada re­flect the value of world-class net­works, as well as real costs such as spec­trum li­censes and de­ploy­ing hun­dreds of thou­sands of towers and thou­sands of miles of back­haul fiber op­tics. In that way, it should not be ex­pec­ted that prices be cheap, but only that they re­flect the value of what they of­fer.

Ex­ist­ing com­pet­i­tion in Amer­ic­an and Ca­na­dian wire­less mar­kets is clos­ing the di­git­al di­vide faster and more eco­nom­ic­ally than any gov­ern­ment in­ter­ven­tion could.

Roslyn Layton is a Ph.D. fel­low at the Cen­ter for Com­mu­nic­a­tion, Me­dia, and In­form­a­tion Stud­ies at Aal­borg Uni­versity in Den­mark and is a vis­it­ing fel­low at the Amer­ic­an En­ter­prise In­sti­tute’s Cen­ter for In­ter­net, Com­mu­nic­a­tions, and Tech­no­logy Policy

HAVE AN OPIN­ION ON POLICY AND CHAN­GING DEMO­GRAPH­ICS? The Next Amer­ica wel­comes op-ed pieces that ex­plore the polit­ic­al, eco­nom­ic and so­cial ef­fects of the pro­found ra­cial and cul­tur­al changes fa­cing our na­tion, par­tic­u­larly rel­ev­ant to edu­ca­tion, eco­nomy, the work­force, and health.  Email Jan­ell Ross at jross@na­tion­al­journ­al.com. Please fol­low us on Twit­ter and Face­book.

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