Broadband Pricing Disparities in L.A.

Now that digital equity has become a hot topic. I’m starting to see studies from around the country looking at the inequities in the way that large ISPs treat customers.

One of the latest studies comes from the California Community Foundation, which looked at rates being offered to new customers in different parts of Los Angeles. Los Angeles is an odd broadband market in that Charter is a monopoly in much of the market. Charter claims to provide service in almost 96% of Census blocks, while AT&T and Frontier each only serve about a fifth of the market. Fourth is Cox, with a tiny market share. This means that a majority of customers in Los Angeles can only buy broadband from Charter, with no other landline option.

The study concentrated on Charter since they are the ubiquitous ISP, but there are findings about the other two ISPs as well. The study was done by looking at broadband products and rates that are advertised to homes scattered across the 88 separate communities in the LA area. ISPs today make offers online to customers looking to connect to broadband, and the study looked at specific offers made in different communities.

The study instantly found that the products and prices offered to residents vary widely by neighborhood. You might think that the products available online from a big ISP like Charter would be the same for the whole market or even the whole country, but there is a dramatic difference in some cases with the products and prices that are offered online.

For example, the base broadband product offered by Charter online seems to be Internet Ultra, which provides a download speed of 500 Mbps. This is the only product that was offered at every address in the study. About three-quarters of addresses were offered the 300 Mbps download product. Only about one-fourth of homes were offered the 100 Mbps broadband product.

The biggest finding from the study is that Charter offers better pricing along with better terms and conditions to wealthier neighborhoods. That is counterintuitive, and basic economics 101 says that businesses should be expected to get the highest prices out of customers who can afford it.

The examples listed in the report are devastating. In one case, Charter offered an address in Willowbrook (where the poverty rate is 8%) a 2-year special rate of $30 per month for a new subscriber to the Internet Ultra product. A home just two miles away in Watts, where the poverty rate is 31%, was offered the same product for a 1-year deal at $70 per month. In both cases, the product reverts to the $95 list price at the end of the term. This is a gigantic difference. The home in Willowbrook was offered 500 Mbps for a two-year cost of $720, while the home in Watts was offered a package that would cost $1,980 over two years.

Charter called the report misleading and said that promotional rates change all of the time. But the study was done across the city at the same time, meaning there was no big timing difference where promos had changed. Charter’s defense is that everybody eventually pays the full price.

There is no easy way for Charter to defend this. It’s obvious that somebody at the company is uploading different specials into the online portal by address or neighborhood. This can’t be random, and that means that somebody in the Charter marketing department (or, more likely, some piece of software) is making these determinations based on what others are willing to pay in each neighborhood. This feels like broadband pricing set by a sophisticated pricing algorithm like what is used for airline seats.

Charter has broken no laws, but this is still a black eye for the big ISP. The big cable companies might wonder why a fiber overbuilder does so well in new neighborhoods – but they need to look no further than the findings from this study to know why customers don’t like or trust them.