Roosevelt Institute | Cornell University

Why Bad Internet Is So Expensive and What Can Be Done About It

By Aaron BermanPublished October 27, 2016

Internet in the US is more expensive and slower than almost any developed country. Why? Because of the lack of competition.
By Aaron Berman, 10/27/16

The Internet is invaluable for human communication, education and recreation, as it allows access to a wide array of resources that used to be only available in person. Now people can interact across the globe with a push of a button, teach themselves calculus with the help of YouTube, and watch hours of blockbuster movies, and those are just individual uses. Companies across the United States make millions of online transactions a year, along with the tremendous number of emails used to communicate between and within organizations. As the Internet becomes increasingly essential in our lives, it will become important to make it increasingly quick and cheap so that individual needs are met and U.S companies remain competitive. However, relative to the rest of the developed world this has not occurred. The cost of Internet access in the United States remains higher than in most other developed countries and is slower on average. Even with the FCC trying to prod Internet providers to increase the quality of their product, Internet speeds remain sluggish and the costs exorbitant because the few Internet providers that provide broadband are either local monopolies or cushy "duopolies" which benefit themselves and not the consumer.

To understand this problem, one must first understand what broadband is and what it has to do with the Internet. Broadband is direct high-speed Internet access which allows users to access the Internet at higher-speeds than through "dial-up" services. In 2015, the Federal Communication Commission (FCC) updated the definition of broadband as a service that provides download speeds of at least 25 megabytes per second, and upload speeds of at least 3 megabytes per second. Following the updated benchmark, the FCC found that 17 percent of all Americans were without access to broadband Internet (about 55 million people) and 35 percent of schools lacked broadband.

Why aren't Internet providers expanding to cover these Americans? Because they are not being pushed to do so by. Why are schools struggling to purchase broadband? Because internet providers do not need to compete on price to win customers. Only nine percent of all Americans have three or more Internet providers to choose from for broadband service. That means that 91 percent of Americans deal with either a "duopoly," monopoly or no access at all to broadband. In the first two scenarios, Internet providers have no impetus to upgrade their speeds, or lower their costs, both at the expense of the consumer and the American economy as a whole. According to the New York Times, in 2014, 75 percent of all American homes had only one option to choose from for broadband Internet, the option was usually Comcast, Time Warner, AT&T or Verizon. The same report found that internet access at nearly every speed was more expensive in the United States than in Europe. One of the reasons why Internet speeds are so slow in the US, is because most Internet providers do not use fiber optic cables, which are more expensive but also much faster than cable networks. This is most likely due to the fact that these companies are not being pressured by competition to do so.

America's internet service is in desperate need of improvement.  possible solution to this is to subsidize Internet providers, as South Korea has done. By giving Internet providers government subsidies, on the condition that the money be used to upgrade Internet infrastructure and quality, the government can have a greater say in the quality of the Internet. This solution only works if companies start using their own money to upgrade their infrastructure. Perhaps the subsidies given to a company can be influenced by how much they are spending to upgrade their Internet services on their own. To solve the local monopoly and "duopoly" problem is a little trickier and I have yet to have an answer to it.

Though over the last year Internet upload and download speeds are up by about 50 percent, the United States has a long way to go to be competitive with their Internet speed relative to developed countries. Prices are still high and many are still skeptical of the commitment large Internet providers have to improving the Internet quality, but hopefully things are on the rise.