Broadband Prices in Context

Price Trends

Internet connectivity has become an essential service for nearly every American. For those households that subscribe to a broadband service, it is also a recurring monthly expense. As BEAD funding begins to roll out and with the ACP subsidy program expired, the affordability of those connections continues to be a hot-button topic as parties debate whether broadband prices are too high and whether it is appropriate for government to intervene to address the issue.

Considering this discussion, the ACLP used the Consumer Price Index to investigate the growth of monthly internet costs in comparison to other essential household expenses over the last several years. The growth in prices of these various costs, compared to their 2018 levels, is summarized in the graphic below.

Between January 2018 and August 2024:

• “Communications services,” which includes telephone (wireless and residential) and internet services, increased in price by less than 1%.
• The cost of household utilities such as electricity and piped gas rose approximately 31 and 35 percent respectively during these years, levels drastically higher than communications services.
• Overall consumer prices increased by about 26 percent.

While the affordability of a broadband connection continues to be a barrier to adoption for some households, in the broader context of consumer price trends, the cost of internet access services has remained static in recent years. In real terms (i.e., when considering overall consumer inflation), a home internet connection has become cheaper and makes up a smaller proportion of total household expenditures than it did in the past.

Trends in Context

Several recent analyses have also observed that broadband prices have remained static or decreased. However, none of those analyses placed this significant trend within the broader context of household expenditures on other necessities, namely electricity and gas service. As depicted in the chart above, the prices for those utility services have increased significantly over the last few years, outpacing inflation and, in a growing number of cases, leaving consumers with ever-higher monthly bills for essential services.

Comparing broadband price trends with those in the electric and gas sectors is imperfect given their vastly different market dynamics and regulatory approaches, but it is instructive nonetheless for several reasons.

First, the broadband, gas, and electric markets are similar in that most customers in the U.S. purchase these services from a private entity, e.g., a private ISP like Comcast or an investor-owned utility like ConEd (this dynamic is flipped in the water sector, where most Americans receive service from a public entity; for this reason, water has been excluded from this analysis).

Second, these sectors are resource-intensive and require significant ongoing capex to maintain and modernize networks. For example, in 2022, broadband capex sector-wide exceeded $100 billion. That same year, electric IOU capex eclipsed $147 billion. Electric rates typically reflect capex (among other factors), which means that, in general, the more an electric utility invests in its network, the higher its rates will be because, as a regulated monopoly, it is guaranteed to recoup those investments, plus a set rate of return. Broadband ISPs, on the other hand, vie for customers in a robustly competitive market, where competition “regulates” prices.

Third, there are some who wish to subject broadband ISPs to the same regulatory framework as electric and gas utilities. Given the pricing trends depicted above, this makes little sense and could lead to broadband price increases and other consumer harms, like less innovation and fewer service options.

In sum, as policymakers and others contemplate the future of the broadband sector and the roles of programs like the ACP, USF, and BEAD in it, they should keep in mind that the prevailing regulatory approach to this sector has yielded significant and lasting consumer benefits.

Methodology

This graphic was generated using the Consumer Price Index from the United States Bureau of Labor Statistics (BLS). The BLS collects and analyzes data on employment, pricing and productivity in the US market. More specifically, the Consumer Price Index-Urban (CPI-U) tracks the price of goods and services included in a “market basket” for urban consumers over time and is the most common measure of inflation. Data is collected via quarterly surveys and weekly diaries from consumer households, and the ‘urban’ CPI data covers roughly 93 percent of the US population.

The datasets included in the graph are “Communications”, “Electricity”, and “Piped Gas.” Communications prices include internet servie and telephone (both wireless and residential). Cable, satellite, and live streaming television service, prices are measured separately, and thus are not included in the “communications” series. The quantities of energy/gas used to compute average consumer prices are based on consumption averages from by the Department of Energy.