A decision dating back to the Bush administration that freed broadband companies from the regulations that applied to dial-up providers has led to higher-than-expected prices, according to a new
report by Northwestern's Kellogg School of Management.
The report, which
summarizes research by professor Shane Greenstein, says that broadband prices fell only slightly -- between 3% and 10% -- between 2004 and 2009. That paltry dip is "nothing like the rates of price
decrease that characterize the rest of the electronic world," the report states.
The researchers say that a key reason why broadband prices haven't fallen is a lack of competition, adding
that most urban markets have just two wireline providers. "If you were in such a market as a supplier, why would you initiate a price war?" Greenstein says in the report.
He adds that
after pipes are installed, costs are lower than prices. Therefore -- assuming there was competition in the market -- subscription costs would be expected to fall. "Like many observers, I expected to
see prices drop by now and I am surprised they have not," he says.
In 2002, the Federal Communications Commission took steps to classify broadband access as an "information" service, which
isn't regulated to the same extent as a "telecommunications" service. Many advocates still criticize that decision, arguing that it resulted in higher prices and slower speeds for consumers.
The FCC now is considering a controversial plan to reclassify broadband access as a telecommunications service, but only to the extent necessary to impose neutrality regulations that would ban
ISPs from degrading or prioritizing traffic. In other words, even if the FCC goes ahead with its much-debated reclassification plan, doing so doesn't appear likely to increase competition among ISPs.