Broadband adoption is lower in low income households compared to higher income households. Absolutely true.
So why don’t we just lower the monthly price and solve the income divide?
That was my thought process way back, when I first started looking at income data correlated with computer ownership and home internet subscriptions.
Unfortunately, after introducing Connected for Success, Internet for Good, Connecting Families and other targeted programs, we have learned that getting people online isn’t just a matter of price.
Well-meaning policymakers and advocates typically say that the biggest issue keeping low-income people from subscribing is the cost. Surveys consistently list that as one of the top two reasons. If that were so, the solution would be obvious: increase subsidies. And, to be sure, lower prices for low-income households would encourage additional adoption. As economists, far be it from us to argue that demand curves do not typically slope downwards.
But evidence from people’s behavior, as opposed to survey responses, has shown that the price of broadband service is not the primary factor that keeps many low-income households from subscribing.
The paper talks about the need to gather more evidence, such as experiments conducted by the FCC in the US that tested different price points. “Only about ten percent of the expected number of households signed up, even with the price of one plan set at $1.99 per month.”
Last week, Policy Options carried a piece by Doug Brake and Alexandra Bruer, asking “Is the link between internet adoption and broadband pricing overstated?” The subtitle summarizes the article saying, “Pricing is often identified as a barrier to internet adoption, but the data is unclear. Policy-makers should focus on subsidies for low-income users.” That article cited the 2020 Inclusive Internet Index by The Economist Intelligence Unit, that gave Canada a high ranking, based on internet availability, affordability, relevance (which measures the availability of content relevant to local users) and readiness. Earlier this week, the 2021 edition was released and Canada moved up (into 6th place of 120 countries) and first in Affordability, saying “The competitive Canadian broadband market is a key factor underpinning relatively affordable fixed broadband costs and Canada’s 6th place overall ranking.”
There are certainly many households that have trouble paying the generally available rates for broadband service, just as those households have difficulty paying generally available prices for food, shelter and other basic needs. The “broadband affordability” argument often gets extrapolated to say that prices need to be lowered across the board [see: Myth 2: Pricing equals Affordability].
We use a direct subsidy approach for other basic needs. Why are communications services treated differently? Across Canada, there are low priced plans for disadvantaged households that are provided on a voluntary basis by participating service providers, not government funding.
But we have learned, lower prices aren’t enough to get people to connect.
We have well-meaning advocates and academics in Canada pushing agendas for municipal broadband with no evidence, or in the case of ConnectTO, deeply flawed evidence, to support their assertions that gaps in adoption rates are all about price.
The mistake that emerges from a lack of good economic and social data analysis is that governments are tempted to apply the wrong solution to solve the wrong problem. We see that with Toronto’s misguided and ill-informed Connect TO project. The Policy Options article concludes by saying “We should look instead at improving existing subsidy systems to address broadband affordability head-on, rather than through wholesale changes to industry structure.”
Professor Mark Jamison warns that the US is embarking on a similar, but even more elaborate $100B broadband boondoggle.
President Joe Biden wants Americans to have broadband in the worst way. His $2.3 trillion American Jobs Plan — which isn’t a jobs plan, but that’s another topic — includes $100 billion for broadband using the worst plan imaginable: He wants broadband provided by the government institutions that bring us the U.S. Postal Service, Amtrak and our failing transportation, water and other infrastructures. What could go wrong?
Bridging the income divide will take more than just lower prices. We are going to need to do more to build increased digital literacy and trust among those who aren’t already comfortable online. As I have said so often, we need better quality data to inform our policies and implementation plans.
As Economists Rosston and Wallsten found, we need to look beyond price to find the secret to bridging the digital divide.