Broadband pricing plans that recover a greater share of costs from the heaviest users, including high-bandwidth-consuming content providers, would help the United States “achieve universal broadband adoption sooner and accelerate the end of the digital divide across income, racial and ethnic lines,” says a just-released study from the Georgetown Center for Business and Public Policy.

“A New Analysis of Broadband Adoption Rates By Minority Households” – written by economists Robert J. Shapiro, a former Under Secretary of Commerce for Economic Affairs during the Clinton administration and Senior Fellow at the Georgetown University Center for Business and Public Policy, and Kevin A. Hassett, director/Economic Studies at the American Enterprise Institute – notes the exploding demand for bandwidth, primarily from video applications, will require ISPs to invest “several hundred billion dollars” on new broadband infrastructure.

"Pricing models that recover costs equally, on a per-household basis to all subscribers, will substantially slow adoption," Shapiro and Hassett wrote. "However, a more flexible pricing model that recovers a greater share of these additional costs from high-bandwidth consumers or content providers would keep most subscribers’ fees low and facilitate broadband adoption by all groups of Americans.”

The two advocate a pricing approach that allocates 20 percent of the cost of the additional investment in higher monthly fees to the 80 percent of average bandwidth users, and the remaining 80 percent of the cost to the 20 percent of heavy bandwidth users.

They continued, “Under this model, effective universal adoption should be achieved by all racial and ethnic groups by 2018 or 2019."  

Shapiro and Hassett agreed pricing models are critical because price is the largest factor determining whether a minority household subscribes to broadband. And because of the costs involved in new broadband infrastructure buildout, current flat-fee “all you can eat” pricing plans will slow how fast lower-income Americans subscribe to broadband services.  

According to a survey conducted by the FCC earlier this year, non-subscribers who cite cost as the main barrier to adopting broadband said that they would be willing to pay, on average, $25 per month for the service.   

Pew research also bears this out, finding that, from 2005 to 2007, broadband adoption by African-American households nearly tripled, and the gap between whites and English-speaking Hispanics nearly closed. However, more recent data suggest that the economic downturn has widened the digital divide. While overall home broadband adoption rose 15 percent between 2008 and 2009, Pew added, adoption by African-Americans showed no significant growth and the gap between African-Americans and whites regarding broadband adoption widened in 2008 and 2009.

Another key finding of the paper is that, under the flat-fee pricing approach, fewer than 85 percent of Americans will have home broadband service by the end of this decade, short of the 100-percent goal set by the Obama administration and detailed in the FCC’s National Broadband Plan. For African Americans and Hispanics adoption rates would be 82 percent and 83 percent, respectively, if the cost of additional investment is borne equally by all broadband users.

"Small price increases for current broadband users, especially middle-income and high-income subscribers, are unlikely to drive them back to dial-up,” the study points out. “However, higher prices may have a much larger impact on the Internet subscription choices of households currently without service or using dial-up. Moreover, the evidence suggests that lower-income households are particularly sensitive to higher broadband prices.”

The paper makes the assumption that those heavy users of broadband bandwidth don’t care much about how much it costs. In light of that, the authors say, the lion’s share of new infrastructure development could be funded through higher fees levied on these users, which include video content providers.

"The same narrowing differences in broadband adoption would occur if the 80 percent share of the additional investment is passed along in higher charges to bandwidth-intensive content or applications providers, rather than their consumers,” Shapiro and Hassett contend. "Government policy should protect the ability of ISPs to employ flexible pricing strategies and ensure that government does not, even inadvertently, effectively compel pricing practices that would perpetuate differences in broadband adoption by income, race or ethnicity.”

To read “A New Analysis of Broadband Adoption Rates By Minority Households” in its entirety, go to http://tinyurl.com/2blzrv6.

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