Below you will find the text of Reining in the Cost of Connectivity: Policies for Better Broadband in 2014, a policy paper from the Open Technology Institute that examines America's broadband challenges. This paper builds on data from The Cost of Connectivity 2013, a survey of high-speed Internet prices in 24 cities worldwide. Download a PDF of the full Reining in the Cost of Connectivity, which includes the entire data set, or an abridged version of the paper (without the appendices). The complete data set is available as an Excel file. Please also view and download What's the Real Cost of Connectivity? which shows differences between prices and speeds in the U.S. and European markets.

Executive Summary

Americans in major cities such as New York, Los Angeles, and Washington DC, continue to pay higher prices for slower Internet service when compared to similar cities in other parts of the world. Clearly, the United States’ collective broadband experience does not measure up to that of other countries. In this paper, we examine America’s broadband challenges, analyzing a number of factors that impact speeds and prices. Our analysis is based on the data we collected for The Cost of Connectivity 2013, a survey of consumer broadband pricing data from 24 cities around the world. This paper identifies ways to promote more robust competition and provide consumers with better service at a more affordable price.
 
Acknowledging that no single solution or “magic bullet” can solve all of America’s broadband challenges, we offer recommendations aimed at improving the status quo. We argue that it is crucial to create better conditions for providers to enter the market, to compete more effectively, and to innovate on existing and new services. In particular, policymakers should improve data collection practices around pricing information, work to remove barriers to the development of local networks, encourage cooperation in broadband build outs, support pro-consumer and pro-competitive policies, and enforce competitive protections in upcoming spectrum auctions.

Introduction

2013 was a year of gigabit rhetoric: awareness of and demand for ultra high-speed Internet connectivity grew significantly.[1] A number of cities across the United States joined the ranks of speed leaders with new offerings, and more high-speed initiatives are underway in 2014. At the same time, most U.S. consumers still lag behind their global peers, paying more money for worse service. Steps must be taken to improve the American broadband market.
 
Last fall, the Open Technology Institute (OTI) released The Cost of Connectivity 2013, a best-effort survey of consumer broadband pricing data from 24 cities around the world. The central takeaway from that research is that customers in U.S. cities generally continue to pay higher prices for slower speeds when compared to customers in international cities.[2] In this report, we examine some of the factors that impact speeds and prices. We also identify areas for potential regulatory intervention to promote more robust competition and provide consumers with better service at a more affordable price.
 
Many of the problems with consumer broadband options in the United States today can be traced back to underlying policy challenges that have become more pronounced in the past decade. Key contributing factors include the lack of open access policies for broadband infrastructure, the difficulties of interconnection, and the ongoing consolidation of spectrum holdings between a few mobile competitors. The public, meanwhile, is often left with limited and difficult-to-find information from Internet service providers (ISPs) about broadband options. Nor is comprehensive data available that would help both consumers and researchers better understand the forces at play in the broadband ecosystem, particularly when it comes to price. Without better data and stronger policies to promote competition and protect consumers, Americans are unlikely to see better prices or faster speeds in most major cities in the near future—let alone in rural or historically underserved areas.
 
Fortunately, there are policy solutions to many of these problems. It is important to remember that the Federal Communications Commission (FCC) has a multifaceted role: it aims to promote meaningful competition, but it also has a responsibility to protect consumers, especially in the areas where the competitive market falls short.[3] A new FCC Chairman at the helm in 2014 creates a critical window to advocate for positive change on a number of core broadband policy issues. At the same time, not all progress must be initiated at the federal level. Creating space for alternative broadband models—like municipal networks—and implementing local policies that facilitate new entrants in the broadband market are also important. The American cities that stood apart from the larger trends in our report tended to be those where innovative competitors participate in the market, such as Chattanooga’s municipal fiber network or Kansas City’s Google Fiber deployment.
 
Following our release of The Cost of Connectivity 2013 data, this paper delves more deeply into the factors that may contribute to the United States’ overall poor performance in our rankings. In the first section, we discuss the findings from that data set, including qualitative observations from our research. In the next section, we examine key challenges in American broadband policy. Finally, we discuss the implications for both federal and local policymakers. The report methodology, city information, 2013 rankings, and the full data set are available in the appendices.

Research Observations and Findings

As we noted in The Cost of Connectivity 2013, U.S. wireline broadband customers largely pay higher prices for slower speeds compared to their international peers.[4] Some providers debuted expensive new top speed tiers in 2013 and made other upgrades in certain markets, but these were limited and often accompanied by the introduction of new fees.[5] However, several more dramatic changes occurred in cities where there are alternative and innovative models. A particularly noteworthy finding is that EPB, the municipal provider in Chattanooga, lowered the cost of its gigabit service by over 75 percent.[6]
 
Additionally, on the wireless side, we found that U.S. customers pay higher prices for data-only plans and are more likely to face overage fees, while international customers tend to see lower prices and are more likely to see their speeds reduced when they exceed their data limits rather than the imposition of monetary fees. A study by the Consumer Federation of America (CFA), which incorporates part of our data set, found that the two dominant U.S. wireless providers (AT&T and Verizon) offer services that are much less consumer-friendly than those offered by the other two major wireless providers (T-Mobile and Sprint) who have lower market shares.[7] The study found that Sprint and T-Mobile packages are similar to European wireless providers who tend to throttle rather than charging for data overages.
 
When comparing the top wired speeds available in each city, we found that Chattanooga, TN, and Hong Kong continue to offer the same world-leading gigabit speeds they offered last year, while Seoul, Lafayette, LA, Kansas City, KS, and Kansas City, MO, also joined the top ranks. In our October data release, we also ranked providers’ broadband-only plans priced near $35 and wireless USB-dongle plans priced near $40. Those comparisons show that wireless broadband is not presently an adequate substitute for wireline broadband, because mobile service is more expensive, comes with more restrictive data caps, and is less reliable than wireline services. Finally, our comparison of wireless USB-dongle plans near the 2GB data cap level found T-Mobile to be the most affordable provider, but its plans are still near the bottom of the pack when ranked against providers worldwide. (These charts, originally published in The Cost of Connectivity 2013 data release, can be found in Appendix B.)

Research Observations

To compile our data set, we visited the websites of Internet service providers in each city surveyed. These websites vary widely in terms of price transparency and information accessibility. In many markets, particularly in the United States, websites are opaque and difficult to navigate, with certain pricing information or plan details hidden in footnotes, on separate pages, or not fully disclosed. However, a few ISPs stand out for being user-friendly and displaying relevant speed and pricing information in a clear and easy-to-understand way. For example, in cities like Riga and Amsterdam, most ISPs offer granular price information in clearer terms and more prominent sections of their websites.
Customers in relatively transparent markets like Riga and Amsterdam can easily obtain information about which speed tiers are available and how prices vary based on contract length. This sort of user-friendly design and transparency allows consumers to make informed broadband decisions. Users can also easily view information on data limits, pricing after promotional periods end, and equipment fees.

Clear Options and Non-Promotional Pricing. Online.nl is an ISP in Amsterdam that offers 10, 30 and 50 Mbps broadband packages. The website clearly displays different options for speed and contract length. The provider also lists the 12-month promotional cost as well as the cost after the promotion ends.

In the absence of such clearly available pricing information, potential customers may find it harder to make an informed decision. To obtain necessary information and to avoid unexpected fees and price changes, consumers in less transparent markets often have to read copious amounts of fine print to find prices after limited-time promotional pricing periods, or wait for available customer service representatives to respond to inquiries. Users in these markets may also be subject to hidden fees for equipment. The best examples of transparency occur where ISPs include modem and installation fees as part of the advertised monthly fee, or where they otherwise disclose those fees up-front, rather than hiding them as an add-on to a customer's monthly bill. This enables consumers to calculate and compare the full cost of various services.

Digiweb, an ISP in Dublin, displays on its website the key components included in the services they offer. Potential users can see what is in each package and compare them to other plans.

Mobile Data Collection

Finding consistent information on speeds for USB-modem mobile data plans was particularly challenging. Residential wireline broadband packages are typically differentiated based on the maximum speeds offered, while mobile providers usually distinguish their plans by the size of their data caps. When speeds are mentioned, mobile providers tend to use terms such as “4G” or “LTE” that do not give consumers a clear indication of actual connection speeds.[8]
 
In the United States, the carriers also tend to distinguish their services from one another using relative terms. AT&T claims to have the “fastest” 4G LTE network in the country,[9] while Verizon boasts that it has the “largest and most reliable” network.[10] T-Mobile calls its most advanced service “blazing fast.”[11] While colorful, these descriptors do not actually give consumers any concrete information about service speeds.
 
Moreover, when download or upload speeds are displayed on websites, the figures typically reflect theoretical maximum speeds—the top speed possible under ideal conditions. These technical maximums, however, are not what most mobile consumers experience.[12] Actual speeds are often slower than advertised speeds for both wired and mobile broadband, but mobile speeds are also affected by numerous additional environmental factors like terrain, physical barriers, or the number of other subscribers in the area.
 
Promotional materials often do not explain these technical nuances. However, in our research we found a few examples of mobile providers willing to give more information to the public by disclosing estimates for “expected” download speeds. In the Netherlands, Vodafone displays a field for both “maximum” and “practical” speeds for mobile data plans. Additionally, Vodafone lists its speeds alongside the prices offered.

Mobile Speeds, Prices and Other Terms Listed on a Single Page. In the Netherlands, mobile provider Vodafone lists "maximum" speeds, expected or "practical" speeds, data caps, and promotional price changes. This data is all available on a single page for the consumer.

In the U.S., Sprint lists peak speeds as a separate field from expected speeds. Unlike the Dutch example above, however, prices and speeds are listed on separate pages.
The way that mobile data caps are implemented reflects another crucial difference across cities. In a majority of non-U.S. markets, providers throttle users who exceed their allocated amount of data, rather than charging for more data.[13] U.S. providers often charge steep overage fees, using data caps as an additional revenue source rather than a way to manage network traffic.[14] As a result, consumers in the U.S. often face steep overage fees if they use more than a few gigabytes each month.
 

Key Challenges

Some innovative providers have emerged in various parts of the country[15] and the incumbent providers have continued to modestly upgrade existing services,[16] but there was by no means a revolution in the provision of American Internet service in 2013. As high-speed Internet services become an increasingly critical part of daily life, however, the importance of affordable broadband service cannot be understated. For innovative services to flourish, we need better policies that ensure that outdated networks continue to be upgraded and that consumers have better choices in the broadband market.

Lack of Data

To collect the data for The Cost of Connectivity 2013, our researchers replicated the consumer experience, visiting the website of each provider and collecting as much data as possible.[17] This process yielded insights into the challenges that individual Americans face as broadband customers as well as the broader issue of what type of data is (and should be) collected and made publicly available by the FCC.

Consumer Broadband Labeling

As we note in our Research Observations, the websites of broadband providers can be difficult to interpret. In 2009, the Open Technology Institute called for the implementation of a “truth in broadband labeling” program to help customers better understand the products being offered.[18] Two recent reports confirm that the websites of U.S. broadband providers still need significant improvement.
 
In May 2013, the American Customer Satisfaction Index (ACSI) released a survey that included consumer opinions on broadband service. The results show that "[c]ustomer satisfaction with ISP websites is well below average" when compared to the ratings of other telecom industries (such as home phone service, mobile service, or cable television).[19] The FCC's Open Internet Advisory Committee (OIAC) also recognized that American broadband consumers would benefit greater clarity and uniformity from ISP websites. The OIAC recommended the following:

The Transparency Working Group recommends that the FCC work with the industry to develop a voluntary labeling program, in which ISPs would disclose in a simple and consistent manner, relevant information about their broadband Internet access services.[20]

In a voluntary labeling program, an icon would appear on an ISP's website next to each broadband plan it offers and serve as a sort of broadband “nutrition label.” The OIAC report recommends that the broadband label include the following details about the advertised broadband plan: download speed, upload speed, any limitations on data usage, and monthly price. The report goes on to state that the price displayed should not be a limited introductory offer. Instead, the price listed as part of the uniform broadband label should reflect the average monthly cost of the broadband service over a 36-month period, and would also include taxes and other fees associated with the plan averaged in.

FCC Data Collection

In addition to improving the quality of providers’ individual websites, the FCC should develop a central repository that aggregates granular information about the types of broadband packages available across the country. Consumers, researchers, and the public would benefit if the FCC collected broadband pricing data from providers and released it on a regular basis and in open formats that can be easily reviewed and analyzed. The Communications Act of 1934 specifically mentions the affordability of services as part of the FCC’s purpose.[21] Fulfilling that role requires the agency to have an in-depth understanding of what service costs across the country. In addition, more publicly available data about broadband pricing would help researchers and other policymakers make recommendations in the public’s interest.[22] Wide variation and higher prices for similar products in different areas, for example, could indicate a lack of adequate competition. In these cases, transparency can can make it easier to determine whether providers are justified in charging significantly varied rates for different areas.
 
The FCC already imposes a range of annual reporting requirements on ISPs through the agency’s Form 477, including information about network deployment, broadband availability, customer subscriptions, and speeds offered across the country.[23] Yet the Commission does not collect pricing data as part of this process, despite repeated requests from researchers and public interests groups.[24] As the Open Technology Institute has argued, the Form 477 “data are a unique and indispensable tool for identifying geographic areas for outreach efforts as well as understanding the factors that contribute to low adoption of broadband services.”[25] It could be even more useful to researchers and policymakers if pricing data were included.
 
In June 2013, the FCC issued an order on reforming Form 477 data collection, expanding the agency’s current data collection efforts and assuming responsibility for administering the National Broadband Map.[26] In the introduction to the Order, the Commission stressed the central importance of good data collection, stating: “Data about broadband and voice deployment and subscription are essential to the Commission's ability to fulfill its statutory obligations and play a vital public interest role for other state, local, and federal agencies, researchers, and consumers. To carry out our commitment, we need adequate and reliable data.”[27] Yet despite this acknowledgement—and the fact that both the National Broadband Plan and the Department of Justice recommended that the FCC collect broadband pricing information to inform its analysis of competition[28]—the Order did not add prices to the list of data providers are required to report, focus instead on “reducing burdens” for the carriers.[29] This proceeding was a missed opportunity for the FCC to broaden and improve its data collection practices. Pricing information would also make the National Broadband Map a more relevant, useful, and engaging resource for the public.

Infrastructure and Open Access

Infrastructure challenges are often used to explain the shortage of competitive broadband options in the United States.[30] One way to address this challenge is through open access requirements, which stipulate that telecommunications providers make various parts of their network or service available to competitors at “fair” or regulated rates—in essence meaning that incumbents cannot deny new entrants access to their infrastructure or charge prohibitively expensive rates.[31] Specific open access policies vary in the details of what they allow competitors to do and how they provide access to either network infrastructure or services. The most common type is unbundled local loop (or “unbundling”), where the new provider actually leases the right to use the incumbent’s copper loops and then provides its own electronics and switching.[32]
 
In the past two decades, studies have shown that unbundling played an important role in facilitating competitive entry in countries such as Japan, Denmark, the Netherlands, France, and the UK.[33] According to the Berkman Center for Internet and Society at Harvard University, there is “extensive evidence...that open access policies, where undertaken with serious regulatory engagement, contributed to broadband penetration, capacity, and affordability.”[34]The Economist also suggests unbundling policies could be a key driver of renewed competition in the United States, and that open access could help resolve a number of the current challenges in the broadband market.[35]
 
Paris offers a prime example of how open access policies can spur competition and encourage infrastructure investment. In 2001, France had a relatively weak broadband market and less than one quarter of the Internet penetration rates in the United States.[36] Against the resistance of France Telecom, the former state-owned monopoly, the French telecommunications regulator instituted an unbundling policy in 2003. Because the incumbent was forced to open up access to its infrastructure, international carriers as well as new entrants like Iliad (now operating as Free) and Neuf Telecom were able to begin offering service in Paris and the surrounding areas shortly thereafter.[37] By 2009, Iliad and Neuf Telecom had captured about 46% of the French market.[38] For nearly a decade, Free has charged the same monthly price (€29.00, or roughly $35 adjusted for PPP) while continuing to upgrade and add new features to its services. Free already offers competitive DSL in Paris—advertising maximum speeds that range from 28 Mbps to 100 Mbps in different areas—and is laying its own fiber in the city so that it can offer gigabit speeds to a growing number of homes.[39] Free’s package appears to set the standard for competitively priced broadband in the city, and similar deals are offered by Bouygues Telecom, SFR, and Orange (formerly France Telecom).
 
International comparisons highlight the impact of the French policy intervention as well. The Berkman Center examines the contrasting examples of France and Germany, two countries with similar GDP per capita and population concentration.[40] In the early 2000s, France instituted aggressive policies like unbundling in an effort to kickstart competition in the broadband market and promote adoption, while Germany delayed taking action to regulate Deutsche Telekom. The results speak for themselves. In 2002, France had roughly half of the Internet penetration levels of Germany; by 2009, it was slightly ahead, boasting substantial broadband offerings from a number of new competitors and at least three companies beginning to pull fiber through Paris.[41] Our Cost of Connectivity study found that Paris outranked Berlin in speed offerings as well as in analysis of the best “bang for your buck” packages.[42]
 
Open access was once a hallmark of telecommunications policy in the United States as well. The 1996 Telecommunications Act stated that incumbent local exchange carriers had the

“duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network elements on an unbundled basis at any technically feasible  point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory.”[43]

It forced companies like Verizon and SBC (now AT&T) to lease access to new entrants, leading to the proliferation of large and small ISPs across the country.[44]
 
Yet in the face of fierce opposition and litigation from incumbent providers, the FCC all but abandoned these policies about a decade ago when it decided not to apply the same unbundling requirements to cable companies offering broadband.[45] It also exempted any new broadband infrastructure built by incumbent telephone companies from the rule. Competitors could still access the existing local loop to the resident or business from the telephone company, but the telephone companies had no requirement to provide access to newer parts of the network that only supported broadband.

Interconnection

Open access policies determine whether or not competitive carriers have access to incumbent infrastructure. Interconnection rules, on the other hand, determine the scope of the contractual arrangements that companies enter into to share traffic across points where the networks interconnect. A number of the policies in the 1996 Telecommunications Act were intended to break open the local telephone company’s monopoly between a home business and the more competitive long-distance sector. And as the Internet was rapidly transforming into the general purpose communication platform in the mid 1990s, it appeared to work, opening the doors for new entrants. AOL and Compuserve were the household names of the dial-up Internet era, but they were joined by local mom and pop ISPs and later by a number of national and investor-backed competitive local exchange carriers (CLECs) that offered traditional telephone service and eventually DSL broadband over the telephone network.[46]
 
After the dot com crash in the early 2000s, however, the marketplace began to rapidly change. Aspiring competitors faced significant challenges in dealing with the incumbent telephone companies. For example, in New York City, Verizon undercut would-be competitors by selling wholesale access to providers at higher prices than it was charging for retail service to the public.[47] Coupled with the lack of unbundling requirements on cable companies, these developments created significant hurdles for new, independent ISPs.
 
Even when an ISP is able to access the incumbent’s network, it must have its work supervised and verified by the incumbent, a costly and time-consuming process. For example, Sonic.net, a local ISP based in Santa Rosa, CA, estimates that for every $80-$90 it spends on engineering and building, it spends around $200 to have the incumbent check and supervise its work.[48] The company notes that while it does not expect incumbents to subsidize its entry into the market, some oversight is needed to ensure that incumbents cannot demand unreasonable fees or take an inordinate amount of time to conduct checks.

Assessing Competition

There is consensus that competition can be a force for good, but the extent to which it is present and effective in the broadband marketplace is still unclear. A competitive market for broadband would be one in which consumers have a choice of comparable and appealing broadband products offered by different providers. In practice, however, the principle of competition is more nuanced. A number of factors in network markets affect competition, including high barriers to entry for new providers, switching costs for consumers, local availability, and whether alternative options are actually of comparable quality.
 
Measuring what constitutes meaningful competition for home broadband service is therefore complicated. The number of providers active in a given area is not always indicative of the competitive choices available to the individual consumer. Not all of the ISPs that we list for a city necessarily offer services to all neighborhoods, residences, or apartment complexes—a particularly relevant factor for U.S. consumers, since we generally found fewer overall options for wireline broadband providers in U.S. cities than in international ones.[49]
 
Surveys show the American public understands the current lack of competitive options for high-speed broadband service and is frustrated. ACSI included Internet service providers as a separate industry for the first time in the May 2013 survey, and Internet service providers ranked dead last in customer satisfaction—even below other maligned industries like airlines or health insurance providers.[50]
 
The survey report cites “high monthly costs” for home broadband services as a main reason for U.S. customer dissatisfaction with the industry. It notes: 
 

[the home broadband market] is even less competitive than subscription TV service (the satellite companies do not compete here) and there is little incentive to improve service. Dissatisfied customers have a difficult time leaving their provider for an alternative supplier.[51]

 
U.S. consumers clearly want better options.
 
Some industry observers point to investments in new high-speed, fiber-optic networks from Verizon or Google as indications of a strong competition for broadband services.[52] Yet these projects provide additional competition in limited geographic areas, not the national market as a whole. Verizon FiOS passes just over 18 million premises as of the end of the third quarter for 2013.[53] Although FiOS continues to expand its facilities in local areas with existing franchise agreements, Verizon leadership has indicated it has no plans to expand FiOS to new markets.[54] FiOS will continue to remain an option to only 16 percent of all U.S. households.[55]
 
The Google Fiber project provides anecdotal evidence of the power of viable local competition. After Google Fiber was announced, Time Warner Cable debuted residential broadband speed increases in the Kansas City market,[56] and even sent company representatives door-to-door in certain neighborhoods to gauge customer satisfaction with their broadband products.[57] However, as with FiOS, it is important to keep in mind the limited scope of the Google Fiber projects in terms of their impact on the national broadband market. Deployments have currently been announced in the Kansas City area and its suburbs, as well as Austin, TX and Provo, UT. Once fully constructed, Google Fiber will be a new competitive option for broadband service to just 0.65 percent of all U.S. households.[58] And even in the cities where Google Fiber is available, it will not necessarily be rolled out to all neighborhoods as Google experiments with different deployment strategies—a practice that could leave low-income or underserved communities behind.[59]
 
Consumer advocate Mark Cooper provides additional perspective on competition in a recent paper.[60] Analyzing the dataset from the 2013 Cost of Connectivity, Cooper observes that although three competitors may not be enough, the addition of a fourth or fifth broadband provider offering services in a U.S. city is associated with a decline in per-megabit cost of broadband service. As we previously noted, the overall number of broadband providers operating in a city is not a perfect representation of competition available at each individual household. However, as Cooper suggests, the presence of more competitors in the vicinity is, “a competitive threat that should discipline pricing” even if "they may not be serving all consumers."[61]

Density as Destiny

Historically, areas with low population density have struggled to attract adequate private sector infrastructure investment. In the early twentieth century, private electrical utilities focused on providing services to urban areas. Locations that were less appealing to investors were largely ignored or left to develop their own solutions.[62] A similar trend has emerged in the broadband market in recent years. In cities with significant population density, we expect to see similarly high penetration of broadband services. By contrast, in rural areas where it is more challenging to see a return on infrastructure investment on a short timetable, penetration levels are often considerably lower and high-speed options more limited.[63] As a result, density often is a determining factor in how developed an Internet service provider’s wireline network in a given area may be. However, our findings suggest that there are exceptions to the rule under the right conditions.
 
For example, some communities have invested in their own high-speed broadband infrastructure, building municipally-owned networks to meet local needs. Of the cities that we surveyed, Chattanooga, TN, Bristol, VA, and Lafayette, LA, offer some of the fastest high-speed residential products available in the country despite the fact that they have the lowest population densities. Clearly, these cities show that density challenges can be overcome through local projects and new models for deployment. As Cooper points out, this may occur “precisely because the incumbents had failed to upgrade their systems or to price attractive products of comparable quality.”[64]

Comparing Mobile and Wireline

The USB-dongle data we collected in 2013 continues to suggest that mobile broadband is not a sufficient substitute for wireline broadband services. In addition to slower speeds and less reliable service, mobile broadband is generally more expensive and often is subject to more restrictive data caps. With the steady rise of mobile data usage in the U.S.,[65] the major carriers’ focus has been almost exclusively on acquiring more spectrum. Many of those providers invested significantly in spectrum holdings over the past year through mergers and acquisitions,[66] stock infusions,[67] and outright purchases.[68] There are a number of upcoming opportunities for increased investment in the airwaves, including the FCC’s H-Block auction slated for January 2014 and the FCC’s planned TV-band incentive auction coming up in 2015.[69] Policymakers have also recommended that the FCC free up unused spectrum owned by various federal agencies.[70] However, without careful planning and regulatory intervention such as limits on the amount of spectrum any one firm can purchase in an auction, there is considerable potential for already dominant carriers to acquire significantly more spectrum, thereby distorting their market power to even larger proportions. Allowing one or two companies to acquire huge swaths of spectrum could prevent other mobile carriers from being able to compete as effectively. 
 
Recent developments in the mobile marketplace demonstrate the importance of protecting competition.[71] T-Mobile, whose attempted acquisition by AT&T was blocked by the Department of Justice and the FCC, has been introducing a series of new policies and promotions to compete more aggressively with other wireless providers.[72] T-Mobile has also indicated its support of spectrum caps in the upcoming auction in public filings.[73] None of these developments would have occurred had AT&T and T-Mobile successfully merged in 2011.
 
Continued investment in the mobile market is welcome, but increasing use of mobile internet devices does not mean that investments and upgrades to wireline services should halt or slow down. In fact, as more and more mobile providers are encouraging their users to offload to WiFi in order to relieve the strain on their congested networks, investments in wireline infrastructure must continue.[74] Maintaining and increasing access to unlicensed spectrum is particularly important as well, since WiFi and other wireless services rely on unlicensed spectrum bands. Unlicensed spectrum enables experimentation and innovation and generates economic value, with considerable consumer benefits as well significant cost-savings for wireless service providers.[75]

Policy Implications

There is no single solution or “magic bullet” that can address all of America’s broadband challenges. In this section we examine a series of strategies that would create better conditions for providers to enter the market, compete more effectively, and innovate on existing and new services. In order to do this we also need better data for consumers, researchers, and policymakers to understand both the broadband market as a whole and what packages are available at the local level.
 
FCC Chairman Tom Wheeler’s early statements indicate that he intends to focus on protecting consumers and enabling competition, and we look forward to seeing the details of these plans in 2014. Leaving the majority of the American public with a choice between the local telephone provider and local cable provider, however, is hardly the same as promoting the 'robust' competition that will ultimately benefit customers. There will be a number of opportunities under Chairman Wheeler’s leadership to implement policies that encourage more affordable prices and better service for American broadband consumers.
 
The FCC also has a duty to protect the public interest, which includes situations where competition alone does not adequately protect consumers. As Chairman Wheeler remarked in December 2013, "It is important to remember, however, that competition does not and will not produce adequate outcomes in the circumstance of significant, persisting market power or of significant negative externalities. Where those occur, the Communications Act and the interests of our society—the public interest—compel us to act and we will."[76]  The FCC therefore has a multifaceted role in ensuring the availability of affordable broadband across the country: to take steps to improve competition and to intervene where competition does not occur or is insufficient to achieve these aims.
 

Understanding the Broadband Market: Better Data Collection

Collect pricing information. Improving the FCC’s data collection practices is a critical first step to increase transparency and enable the public to be better informed about the options, speeds, and prices available from the ISPs. In 2014, the FCC will assume control of the National Broadband Map and continue to require annual reporting from providers through Form 477. Yet these sources can be improved in a number of ways, particularly by adding pricing data to the list of information collected and made available, and by increasing the granularity of the data already collected. Beyond the benefits to consumers, more data could help researchers better understand the competitive forces at play and identify areas for improvement if the market is not acting as a competitive market should.
 
This reform would be consistent with statements that Chairman Wheeler made during his Senate nomination hearings in June 2013.[77]  When asked by Senator Blumenthal about including pricing information in data collected by the FCC, he indicated his support. He has also emphasized that the FCC’s administrative process should be one that is “fact-based, data driven.”[78] The FCC has an important data-gathering tool at its disposal in the Form 477 process.
 
Encourage disclosure to consumers. The Commission should take steps to encourage providers to disclose pricing and other relevant information to consumers in a more unified way, along the lines of broadband “nutrition label” recommendations made by both OTI and the FCC’s OIAC.

Preserving Opportunities for New Entrants into the Market

Regulatory Considerations

The FCC should also promote and preserve opportunities for new market entrants. First and foremost, the agency should take steps to ensure that regional and local broadband networks are not blocked or banned. New and local providers should also be on equal footing with incumbents, which means being able to fully participate in and apply for funding under federal support programs like the Universal Service Fund (USF).
 
Remove barriers to local networks. In this report we include three cities that built their own high-speed networks in the past decade. 2013 saw a growing number of additional cities initiating discussions about local broadband. Los Angeles made headlines when the city council announced it would release a comprehensive Request for Proposals for an open-access fiber-to-the-home network. New York City has also discussed the possibility of building a municipal network to address inadequate broadband service in many parts of the city. The office of Manhattan Borough President Scott Stringer released a report in late 2012 calling on “New York [to] explore the creation of a municipal fiber network by using City-owned assets – including transportation and utility infrastructure – as conduits for sparking competition among ISPs and improving Internet connectivity.”[79]
 
The idea that communities should be able to determine what works best for them without predetermined restrictions on certain models is an important part of these discussions. The National Broadband Plan states that “Congress should make clear that Tribal, state, regional and local governments can build broadband networks.”[80] Yet, no progress has been made to implement this recommendation since 2010. In fact, 19 states currently have laws in place that ban or restrict the ability of local communities to implement municipal broadband projects.[81]
 
FCC Commissioner Mignon Clyburn and former FCC Chairman Julius Genachowski have both noted their support for municipal broadband networks and their opposition to persistent efforts at the state-level to restrict them.[82] FCC leadership should continue to speak out in favor of the right of communities to make their own decisions about investments in local broadband infrastructure. The FCC should also work with Congress and other stakeholders to implement the National Broadband Plan’s recommendation to remove existing state-level barriers to local self-determination for municipal networks.
 
Ensure that local and municipal networks receive equal treatment. The FCC and any state-level authority or support programs should make certain that community-owned infrastructure and municipal networks are not at a disadvantage when it comes to participating in existing infrastructure support programs.
 
Currently, the treatment of alternative network models is inconsistent under federal programs like the Universal Service Fund (USF). Service provided by community-owned networks, for example, is eligible for support under the E-rate program, which subsidizes connectivity to schools and libraries. E-rate does not limit eligibility for Internet services to local incumbent telecommunications providers (known as Eligible Telecommunications Carriers), and in 2010 the FCC specifically stated that municipal networks could receive funding through the program.[83] However, other USF programs such as Lifeline and the Connect America Fund are considerably more restricted in the types of networks and service providers that they can support.[84] To facilitate broadband buildout to underserved communities, policymakers should make sure that local networks are not at a disadvantage.[85]

Additional Practical Considerations

There are practical steps that communities can take to encourage competition and improve broadband infrastructure. Rather than making sweeping one-size-fits-all recommendations for local governments, we highlight practices that have been successful in certain regions.
 
Encourage “dig once” policies. Implementing local “dig once” policies, where additional telecommunication conduit infrastructure is installed in coordination with other construction projects, can help reduce the costs of future broadband construction projects. Broadband experts such as Susan Crawford have advocated “that every time New York opens up a street, workers should leave behind a channel for installing fiber and other broadband access.”[86] In June 2012, President Obama directed the Federal Highway Administration (FHWA) to review dig once policies, and the FHWA’s October 2013 report confirmed the effectiveness of these measures.[87] A publicly-owned conduit system, open and available to all competitors, would reduce the burden of building new broadband lines to both residences and businesses.
 
Encourage local and regional strategies. Local and regional governments can support broadband infrastructure by facilitating open and interconnected networks. The Santa Monica City Net, a city-owned 10 Gbps fiber optic network that is open to competitive third parties, exemplifies the benefits of such systems.[88] Aimed at spurring economic growth and business development, Santa Monica’s network serves local businesses exclusively.[89] In addition to connecting businesses to high speed Internet for much lower costs, the city’s network has benefitted residential consumers by allowing residential service providers to connect to its infrastructure.
 
An added bonus of these types of deployments is the potential for increased community engagement in the buildout process. As OTI has noted, “[a] community-driven process fosters collaboration and leverages community-wide investment. Moreover, participants in a community-driven network ultimately become engaged stakeholders who have an interest in the way the network is built and used.”[90] This engagement allows the network to be built in a way that responds to actual community needs, rather than in a way that is based solely on profit-oriented determinations. As more and more local, state, and regional entities begin to provision their own networks, they should endeavor to include as many community stakeholders as is feasible, including state and local governments, local businesses, residents, and community institutions.
 
Policymakers, including city leaders, can also intervene if incumbents are unfairly preventing new entrants from accessing underground conduit or pole real-estate holdings. In Connecticut, for example, incumbents cannot prevent competitors from attaching to the bottom of their poles.[91] With this policy in place, Connecticut makes it easier for new entrants to compete. Regardless of who owns existing infrastructure, steps should be taken to ensure that these interconnection processes are as clear, expedient, and fairly priced as possible.

Promoting Policies That Enhance Competition and Create a More Level Playing Field

Support pro-competitive and pro-consumer policies. Chairman Wheeler has emphasized that “[t]he role of the FCC is to both protect and stimulate competition in order to provide consumers access to world class networks on reasonable terms… Where markets fail or are threatened, the FCC has the responsibility to provide redress.”[92] Our research suggests that competition currently does not fully address the market challenges, so the FCC should consider how it can intervene in ways that would promote more competitive access. For wireline broadband, this could be achieved through pro-competitive policies like open access and interconnection, which lower the barriers for more competitive entrants. In Paris, as we highlighted earlier, unbundling policies made it possible for several new companies to enter the market in the past decade. Some of these ISPs are now building and operating their own infrastructure in the city.
 
The FCC can also implement solutions aimed more directly at the consumers themselves. The agency cannot fix the population density challenges associated with broadband infrastructure investment, but it can continue to promote policies that ensure that consumers are getting good service at an affordable price. A key component will be ensuring that the Universal Service Fund is updated and modernized at a pace that matches the development of new communications tools and technologies. Changes have been made to the Lifeline program, for example, to provide support for prepaid wireless plans as well as bundled telecommunications and broadband service.[93] In the future, the FCC may consider expanding on its broadband pilot program and transitioning the entire Lifeline program to fund standalone broadband service (as opposed to bundled telephone and Internet) as well.[94]
 
Enforce competitive protections in upcoming spectrum auctions. As it conducts future spectrum auctions, the FCC also has considerable power to ensure that the mobile marketplace remains as competitive as possible. Upcoming auctions include the H-Block auction, the AWS-3 auction, and the TV-band incentive auction. Each of these auctions would free up valuable spectrum for use by mobile carriers and other entities wishing to enter into the wireless marketplace. In each auction, the FCC must ensure that a diversity of bidders can participate and should implement appropriate pro-competitive restrictions on spectrum acquisition, such as caps or aggregation limits on firms like AT&T and Verizon—who already own a disproportionate amount of spectrum.[95]
 
The antitrust division of the Department of Justice has already made similar suggestions, citing concerns about potential anticompetitive conditions if AT&T and Verizon are allowed to obtain similarly large amounts of low-band spectrum as they did in 2008 during the 700 MHz auction.[96] It is additionally important for the FCC to maintain and increase access to unlicensed spectrum for use by innovative services such as WiFi and software-defined radio. One of the primary motivations for spectrum auctions is a desire to increase revenue for the federal government. However, as a protector of the public interest, it is the FCC’s responsibility to make sure that consumer interests are also protected in these auctions. The maintenance of a competitive wireless market is as essential a consideration for the FCC as maximizing revenue for the federal government.

Conclusion

It is abundantly clear that the United States’ collective broadband experience does not measure up to that of other countries. Americans often face higher prices, slower speeds, and a frequently frustrating consumer experience overall. A number of these problems persist because of failures to act by policymakers at all levels. Therefore, policymakers should improve data collection practices around pricing information, work to remove barriers to the development of local networks, encourage cooperation in broadband build outs, support pro-consumer and pro-competitive policies, and enforce competitive protections in upcoming spectrum auctions. The FCC, with the new Chairman Tom Wheeler at the helm, should ensure that Commission policies are implemented to reflect these goals.