The Birth of a New Digital Divide

eyeballPew Research Center released some interesting data a few weeks ago that suggest that cord cutting might be starting to affect broadband connections and not just cable connections. According to a recent Pew poll, 67% of households now have a landline broadband connection, down from a high in 2013 of 70%.

When you consider both landline broadband and cellular data products together you get a slightly different story and the combination of the two services was 80% of households in 2015, up from 78% in 2013. Pew draws the conclusion that there is now a migration from households with a wireline connection to households that only use cellphone data. Pew reports that 13% of households now rely on cellphone data as their only connection to the Internet.

Luckily the latest Pew poll dug into this phenomenon in more detail and what they found was that 59% of all of the households using only cellular data do not buy a landline data product due to price. This matches very well with the report put out by the Brookings Institute last month that shows that landline broadband adoption rates are very related to income.

But Pew is the first one to suggest that there is an overall drop in landline broadband adoption. For example, when the major ISPs release customer counts every quarter there has been a steady and noticeable overall growth in broadband customers. Within those statistics there has been a steady and noticeable drop in DSL customers and an increase in cable modem customers, but overall the trend has always been upward.

But if the Pew numbers hold up to be right over time, then this might suggest that we are going to reach a market cap on broadband customers that is lower than what the industry has been expecting. And this cap will be driven by the price of the products, not the desire of homes to have broadband.

I was just reminiscing about the changes in prices in the industry the other day. I can remember back to a time in the mid-90s when I paid $19.95 a month to AOL, something a little less than $30 for my landline from Verizon, and around $50 for a cable package that included some movie channels. That was the whole triple play for $100 per month.

But today the cost of telecom products is much higher and has grown much faster than inflation. We now have households where most of the family pays at least $50 each for a cellular line (not including the cost of the phone). While there are still some inexpensive DSL plans available in some places, it costs at least $50 per month to get a decent data speed. And the big cable companies all report the average revenue from all of their cable plans is more than $70 per month. Only about half of households still have landlines and those can vary anywhere from $20 to $40 per month. And the costs don’t stop there. Most people are paying for settop boxes and cable modems, the prices on both have crept up to $7 – $8 each. And all ISPs now have a range of ‘fees’ that many people assume are taxes but which go straight into the ISP’s pockets.

And then there are the new services that weren’t around in 1995: a lot of houses now pay for Netflix and possibly for music services like Spotify, people must now buy cellphones that are generally obsolete every two years, and on top of those prices the carriers want to tack on handset insurance and other fees to cellular bills. Finally, there are data overages. Today that mostly affects cellphone users but, as seen by the rash of complaints against Comcast, is likely to start affecting landline data bills as well.

While it’s possible to work hard and find bundles to try to hold these costs down, without bundles these equate to telecom bills north of $300 per month. And even those that bundle would have a hard time buying these all of these things for under $200 per month.

So it’s not hard understand why households find they can’t afford all of these things. It’s hard to imagine any household that wants to partake in modern services like Netflix being satisfied with only cellular data and its tiny caps. But if you are on a budget something has to give and it’s pretty easy to understand that somebody is going to value a smartphone over a home Internet connection if you can only afford to buy one of them.

When you consider that the ISPs all intend to start increasing the cost of broadband annually like they have always done with cable then one can expect this situation to get worse over time. This means there will be a whole new digital divide defined strictly by income. People will want the products in the market but will be unable to afford them.

One thought on “The Birth of a New Digital Divide

  1. “When you consider that the ISPs all intend to start increasing the cost of broadband annually like they have always done with cable then one can expect this situation to get worse over time. This means there will be a whole new digital divide defined strictly by income. People will want the products in the market but will be unable to afford them.”

    It’s another form of market failure that is so widespread in Internet telecom. We have willing buyers but they cannot get together with sellers on mutually agreeable terms. There are also plenty willing buyers who can’t get landline Internet service at any price because none is available to them.

    Like

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