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.

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

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