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Usage-Based Pricing of Internet Service

Document of the Day

U.S. Government Accountability Office. 2014. FCC Should Track the Application of Fixed Internet Usage-Based Pricing and Help Improve Consumer Education. Mark Goldstein, GAO–15–108: Published: Nov 24, 2014. Publicly Released: Dec 2, 2014.

GAO found that mobile providers employ usage-based pricing (UBP) more commonly than fixed. Under UBP, providers can charge varying prices, change connection speeds, or take other actions based on Internet data consumed.

According to the literature, providers facing limited competition could use UBP to increase profits, potentially resulting in negative effects, including increased prices, reductions in content accessed, and increased threats to network security. Several researchers and stakeholders GAO interviewed said that UBP could reduce innovation for applications and content if consumers ration their data.

Because prices can vary based on usage, it may be important that consumers be informed about data. GAO found that some tools offered by fixed providers to educate consumers regarding data can be confusing. For example, some provider estimates vary on data consumed for the same type of content

While FCC is collecting data regarding fixed UBP, it is not using this data to track UBP use…. As a result, … it may not know if UBP is being used in a way that is contrary to the public interest and, if so, take appropriate actions.

GAO recommends FCC: (1) work with fixed providers to develop a voluntary code of conduct to improve consumer communication and (2) make use of existing data to track fixed Internet UBP and its effects on consumers nationwide. FCC said it will monitor complaints and provider plans to determine if a more proactive approach is needed. GAO continues to believe that better communication is warranted. FCC agreed to use existing data to analyze UBP issues.

The Government Makes the Internet Better

Kevin Taglang of the Benton Foundation outlines the findings of a recent GAO report, Federal Broadband Deployment Programs and Small Business, and concludes that The Government Makes the Internet Better.

  • The Government Makes the Internet Better, by Kevin Taglang, Benton Foundation Blog (March 14, 2014)

    Although it did not garner much coverage, an independent, nonpartisan analysis of federal funding for broadband infrastructure and the existence of municipally operated networks finds that both have resulted in improvements in U.S. broadband service.

  • Federal Broadband Deployment Programs and Small Business, GAO-14-203: (Published: Feb 7, 2014. Publicly Released: Mar 10, 2014). full report [pdf].

    Improvements to broadband service have resulted from federal funding and the existence of municipally operated networks. Service providers have used federal funding for expansions and upgrades, such as building out to previously unserved areas and replacing old copper lines with fiber optic cable, resulting in faster and more reliable broadband connections. GAO examined broadband services for 14 federally funded and municipal networks and found they tended to have higher speeds than other networks.

New Government Report Looks at Broadband Adoption in U.S. and Shows Digital Divide Persists

From the NTIA Blog:

The Economics and Statistics Administration (ESA) and the National Telecommunications and Information Administration (NTIA) released a report today entitled Exploring the Digital Nation: Computer and Internet Use at Home (PDF). This report investigates broadband Internet use in the United States and finds that disparities continue to exist in broadband Internet adoption among demographic and geographic groups. The report also delves into the reasons why households have not adopted broadband Internet.

Broadband internet adoption has increased substantially in only a few years, rising to 68% of households in 2010 from only 51% of households three years earlier and from 64% in 2009, the last time ESA and NTIA looked at these issues.

While this points to progress, a digital divide still exists between different racial and ethnic groups and between urban and rural areas in the United States. Broadband adoption rates varied substantially between different racial and ethnic groups, with 81% of Asian and 72% of White households having broadband Internet access, compared to only 55% and 57% of Black and Hispanic households. The urban-rural divide is also wide, with 70% of urban households having broadband Internet access compared to only 57% of rural households. Socio-economic differences, such as income and education, explain much – but not all – of this divide.

Here is what we know: Households that do not subscribe to any Internet service—dial-up or broadband —cited as the main reasons a lack of need or interest (47%); lack of affordability (24%); and an inadequate computer (15%). However, 27% of dial-up users — a rapidly declining group of users — indicated that they did not have broadband internet access service in their area.

Access the Full Text Report (72 Pages; PDF)

From an NTIA News Release:

Overall

  • Sixty-eight percent of American households used broadband Internet in 2010, up from 64 percent in 2009. Only three percent of households relied on dial-up access to the Internet in 2010, down from five percent in 2009. Another nine percent of households had people who accessed the Internet only outside of the home.
  • All told, approximately 80 percent of American households had at least one Internet user, whether inside or outside the home and regardless of technology type used to access the Internet.
  • Cable modems and DSL were the leading broadband technologies for home Internet adoption, with 32 percent and 23 percent of households, respectively, using these services.

Differences in Household Broadband Adoption

  • Households with lower incomes and less education, as well as Blacks, Hispanics, people with disabilities, and rural residents, were less likely to have Internet service at home.
  • Eighty-one percent of Asian households and 72 percent of White households had broadband at home, compared to 57 percent of Hispanic households and 55 percent of Black households.
  • Seventy percent of urban households had broadband at home, compared to 57 percent of rural households.
  • Households with school-age children were more likely to have broadband at home (78 percent) than the national rate. Older householders, particularly those ages 65 and older (45 percent), were less likely to have broadband at home.
  • Less than half (43 percent) of households with annual incomes below $25,000 had broadband access at home, while 93 percent of households with incomes exceeding $100,000 had broadband.
  • Average broadband adoption in 2010 varied by state from about half (52 percent) of all households to 80 percent.

Role of Socio-Economic Factors

  • Socio-economic differences do not explain the entire broadband adoption gap. For example, after accounting for socio-economic and geographic factors, Black and Hispanic households still lag White households in broadband adoption by 11 percentage points, though the gap between Asian and White households disappears.
  • After accounting for socio-economic and demographic factors, rural households still lag urban households in broadband adoption by five percentage points.
  • In contrast, differences in socio-economic characteristics do explain a substantial portion but not all of the broadband adoption lag among people with disabilities.

Reasons for Not Subscribing to Broadband at Home

  • The main reasons cited for not having Internet access at home were a lack of interest or need (47 percent), the expense (24 percent), and the lack of an adequate computer (15 percent).
  • Not surprisingly, individuals without broadband service at home relied on locations such as public libraries (20 percent) or other people’s houses (12 percent) to go online.

Long-term Trends in Internet and Computer Use

  • Between 2001 and 2010, broadband Internet use at home, regardless of technology type, rose from 9 percent to 68 percent of households.
  • Between 1997 and 2010, Internet use among households, regardless of technology type, rose from 19 percent to 71 percent.
  • More than three quarters (77 percent) of American households had a computer at home in 2010, up from 62 percent in 2003.

Access the Full Text Report (72 Pages; PDF)

New FCC Report and Data on U.S. Broadband Performance

Measuring Broadband America presents the results of the first nationwide performance study of residential wireline broadband service in the United States. The study examined service offerings from 13 of the largest wireline broadband providers using automated, direct measurements of broadband performance delivered to the homes of thousands of volunteers during March 2011.

This report highlights the major findings of the study, while the separate Technical Appendix provides a detailed description of the methodology and describes the specific tests that were performed.

The Commission is also making available the results of all tests run in March 2011, as well as the complete raw data set of results from all tests taken during the study period of February to June 2011.

More:

  • FiOS dominates as FCC measures actual Internet speeds, By Nate Anderson, ars technica (August 2, 2011).

    The data finally gives consumers a standardized way to compare Internet connection quality among ISPs, rather than limiting themselves to advertised speeds and prices. Want to compare lag between ISPs, or between service tiers? Now you can.

    …major ISPs generally offer 80-90 percent of their advertised speeds, even during the peak hours of 7pm-11pm, with cable and fiber services actually offering higher-than-advertised speeds for much of the day.

    But one ISP stood out, and not in a good way: Cablevision had absolutely atrocious download speeds, dropping to nearly 50 percent of advertised speeds during peak hours.

The FCC, Net Neutrality, and Broadband Speed

Scientific American has an excellent editorial that ties together the strands of FCC regulation, the lousy broadband speed we get in the U.S., and Network Neutrality.

  • Why Broadband Service in the U.S. Is So Awful And one step that could change it, The Editors, Scientific America (October 4, 2010)

    A decade ago the U.S. ranked at or near the top of most studies of broadband price and performance. But that was before the FCC made a terrible mistake. In 2002 it reclassified broadband Internet service as an “information service” rather than a “telecommunications service.” In theory, this step implied that broadband was equivalent to a content provider (such as AOL or Yahoo!) and was not a means to communicate, such as a telephone line.

Hat tip to Kevin Taglang!

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