President Biden has focused his efforts on making broadband internet access more affordable to Americans. It is a part of the American Jobs Plan he announced late March, a wide-ranging stimulus plan that forms a key component of the Administration’s post-Covid recovery efforts. The plan, however, incorrectly asserts that Americans pay higher prices for internet access than the average European and sets aside $100 billion to be spent on broadband infrastructure, mainly through establishing public competitors that promise lower rates.
The proposal prioritizes public broadband networks that would be owned and operated by municipal and state governments to directly compete with private providers. The plan is costly as it involves developing new infrastructure, an ultimately redundant investment since private companies already operate expansive networks very efficiently.
But the premise of the plan is flawed. When taking multiple factors into consideration, broadband in the US is found to be much cheaper than in most nations. The idea that public competitors could vastly improve broadband is unfounded, and the $100 billion price tag will be a waste of public finances.
Reports that claim that Americans pay unreasonably high broadband costs often fail to take into account relative prices of broadband to wages. Incomes in the United States are $20,000 higher on average than other countries that are members of the Organization for Economic Co-operation and Development (OECD). So while it is true that average broadband is $25 more expensive for Americans than their counterparts in Europe, the relative cost is significantly lower. The narrative that internet costs are unreasonably high does not hold up to scrutiny.
Proponents of the American Jobs Plan frequently compare the US’ costs to Europe’s. However, the US is much vaster than any European nation. It would be less profitable to establish broadband connections for small communities that live far apart since a smaller customer base needs to be served by a more expansive network. As a result, services provided in the US would be comparatively higher to offset the cost of establishing the rural infrastructure. European countries, such as the United Kingdom, where costs are $20 lower on average than the US on average, do not have this issue to nearly the same degree as the United States.
It would cost up to $150 billion to place broadband in all of America’s rural communities, and no part of the American Jobs Plan makes further progress towards this goal than private companies do.
A much better comparison would be with US neighbors, Canada and Mexico, since both of these countries are hindered by having large rural areas to cover. Compared to either of these countries, the United States has much lower broadband costs. Per capita, Americans spend about 0.75% of their income on broadband while Canadians spend over 1% and Mexicans spend almost 2.5%. The Canadian government has encountered the problem of reaching rural communities with affordable rates in its own battle to lower the prices of broadband. While all things considered, Americans are getting a pretty good deal, more must be done to close the digital divide between rural and urbans Americans, and internet service providers are the most well-equipped to handle this task.
Proponents of Biden’s plan claim that the profit motives of private providers discourage them from making their services affordable, but Americans are already offered competitive rates, and the private sector is already working towards the goal of making them progressively cheaper. Broadband prices have significantly dropped since 2015, and have expanded at a steady rate into rural areas over the past decade. The establishment of public competitors would simply crowd out private sector innovation.
That makes it even harder to justify the $100 billion price tag, a cost that will ultimately be another expense pushed onto future taxpayers in a year that has seen historic levels of government spending. The deficit for 2021 is already upwards of $2 trillion, so the federal government might want to take a more cautious approach to any more debt-financed stimulus.
Private initiatives offer the benefit of not adding to the federal deficit. In order to support these, the Biden administration should aim to remove barriers to broadband innovation. Tax incentives for companies that service rural areas or fund research and development into services that bypass broadband’s constraints such as 5G or low Earth orbit satellites could make much larger strides towards providing low-cost internet access to more Americans. It is more effective to encourage internet service providers that have existing networks and have already invested a lot more than the government has in closing the digital divide than to have the government reinvent the wheel.
This article was published in The Economic Standard.