The Internet-based economy is a United States success story, and regulators generally have had a hands-off policy regarding the Internet since the 1990s. To shore up support for regulation of the Internet in recent years, many scholars and professional advocacy groups therefore characterize the US as a “broadband backwater” that requires government intervention. Underlying this campaign is a belief that Internet service providers keep consumer prices high and broadband speeds low and invest in their networks only when absolutely necessary. As a Time technology reporter contends in a 2012 article, Internet service providers (ISPs) “have little incentive to improve service or lower prices.” But do the available data on consumer broadband speeds support that pessimistic appraisal?
For analytical simplicity, the chart uses pricing and broadband speed data from a single ISP, Comcast, in the two most reported-on markets—Washington, DC, and San Francisco. Comcast was chosen because its large size and long history made it possible to gather over 10 years of pricing and speed data. This data collection revealed that pricing for the most popular speed tier tended to cluster between $70 and $80 in 2015 dollars, so we focused on broadband speeds offered for under $85. As the chart reveals, for over a decade consumers’ broadband speeds increased rapidly. A 75 Mbps broadband package in 2015 could be purchased for the same price as a 1.5 Mbps package in 2002. That means consumers received a 50-fold increase in bandwidth with no price increase.
The existence of regular, substantial capacity upgrades is powerfully suggestive of a lack of market failure when it comes to consumer broadband speeds. In quality-adjusted terms, consumer broadband prices have plummeted since 2002. To put these speeds in context, a 1.5 Mbps connection (typical in 2002) would have been inadequate for a single standard-definition video stream (Netflix recommends 3.0 Mbps). Yet today, a 75 Mbps connection, available at the same price as the 1.5 Mbps connection thirteen years earlier, could allow over 20 simultaneous streams of standard-definition Netflix videos.
These capacity upgrades are only possible because consumer demands and new Internet applications have caused ISPs to invest hundreds of billions of dollars into network upgrades in recent years. Notably, these technology improvements have taken place without government speed mandates and price controls.