Blog Post

State of U.S. Broadband: Demand Hits Speed Bumps

A new report from Pew Internet shows that broadband growth in the U.S. has slowed down to a crawl, a sign that U.S. broadband carriers would have to work hard to find ways to grow their overall businesses. Pew points out that 55 percent of adult Americans have home broadband connections.

According to some estimates there are over 64 million broadband connections in the U.S. Some additional interesting bits from Pew’s report:

  • Broadband users report an average monthly bill of $34.50 for high-speed service, 4 percent lower than the $36 reported by broadband users in December 2005.
  • 38 percent of those living in rural American now have broadband at home, compared with 31 percent who said this in 2007.
  • The percentage of Americans with broadband at home has grown from 47 percent in early 2007 and 42 percent in early 2005.
  • Cable broadband users pay $37 a month, down from $41 a month in 2005. DSL subscribers pay $31.50 a month down from $32 in 2005. Apparently, cable guys responded by price cuts (more like lower tiers) with increased competition from DSL companies.
  • 2 percent of home subscribers have fiber optic connection. Verizon FiOS should be thanked for this development.
  • The research group finds out that low income groups — households with annual incomes of less than $20,000 — have started to cut back on broadband spending. Their broadband adoption rate had dropped to 25 percent in 2008 from 28 percent in 2007. It isn’t much of a surprise, because the economic downturn is forcing people to control and cut back their spending.

    Earlier this year, telecom operators like Qwest & AT&T, pointed out they were experiencing the impact of this penny pinching. Of course, what didn’t help was the fact that it was their geographic footprint that played host to the housing bubble. New home sales drove the demand for broadband connections and as foreclosures started, the broadband party also started to wind down. The net new additions for the second quarter 2008 will tell an interesting story.

    My feeling is that this is hurting the DSL providers more than cable companies and they are scrambling to respond by offering higher speeds. The smaller providers like Embarq & Windstream could be impacted the worst by the slowdown.

    There is some research that shows that speed bumps are not quite the panacea for these carriers, though they might provide some temporary relief.

    Bruce Leichtman recently conducted a survey and found out that nearly 72 percent of cable broadband subscribers, and 62 percent of telco broadband subscribers are happy with their broadband connection’s quality and speed. Only 24 percent are interested in getting faster connection and a mere 11 percent of broadband subscribers would pay an “additional $10 per month to double their Internet speed.”

    In comparison, Pew’s report shows that 35 percent of dial-up users want broadband prices to decline further — fat chance of that happening when most carriers are dreaming of tiered Internet plans. Overall 62 percent of dial-up users say they are happy to be Slowskys. (That should make AOL and United Online rather happy.)

    Download Pew’s Home Broadband Report (pdf.)

    21 Responses to “State of U.S. Broadband: Demand Hits Speed Bumps”

    1. John Thacker

      In comparison, Pew’s report shows that 35 percent of dial-up users want broadband prices to decline further — fat chance of that happening when most carriers are dreaming of tiered Internet plans.

      Again, let’s please try to keep the words “tiered” and “metered” separate.

      “Tiered” – “pay an additional $X per month to increase speed.” This is a common offering with almost all broadband providers.

      “Metered” – “instead of unlimited, pay per minute/hour/GB/whatever, perhaps after a certain point.” This is still very uncommon in broadband, outside of a few examples (such as Cornell’s on-campus network, which charges for transfers from outside Cornell past the first few GB per month.)

      Yes, in some cases there could be tiers for how much is “included” per month with metered broadband, like with wireless minutes. But the significant change is the metering, not the tiering.

      Anyway, these numbers are something that I’ve been pointing out for a long time whenever Om or others talk about the “state of US broadband.” The problem is that most people really don’t want to pay more for their Internet connection, and most people tend to be happy with what they have currently. Dial-up users are happy with dial-up. Broadband users don’t want to pay any more per month for a faster connection.

      What these numbers show is that the state of US broadband is not about availability. Most of those dial-up users could get broadband, even $10-$20/month 768kb broadband, but they don’t. Most of those broadband users could right now pay $10 more per month for double the speed, but they don’t. It just shows the disconnect between Om, me, and other people who post here– we don’t really consider 768kb/s to be broadband, but a huge slice of people are perfectly happy with it and don’t want to change if it costs any money.

      That’s not a recipe for increased broadband investment. It’s not necessarily a call to have the next administration invest in broadband either, unless you’re absolutely sure that a bunch of people don’t know that they’d really like faster broadband, and are wrong about their preferences. (Or, alternatively, you just know that you want faster broadband and you want those other people who don’t care to help pay for it.)

    2. I am guessing the rural providers serving farming communities (eg. in Iowa) are not feeling the pinch as much with the run up in commodity prices. There are always pockets of opportunities despite any macro trend / stat.

    3. This is a bad event for smaller broadband service providers. It’s a pity how these establishments got affected with the winding down of the US’ economy.

    4. Arup Roy Chowdhury

      Hi OPM,

      How have you been? This is your friend from your younger days in India. BB has to take a hit in recession, people under monetary pressure look at it as a frivolous luxury and its usually the first one to be downgraded in average homes. The worse news on BB front is throttling off the bandwidth, kind of makes advertised high speed a gimmick.


    5. Grand central hooks into gizmo5 for absolutely free calls spain 2 usa.
      gtalk hooks into talkster but theres a human habit prooblem. with grandcentral I initiate the call but on talkster my friend MUST CALL ME BACK..which kills the fun of calling.

    6. I am a lucky one. I am on the $10 a month Bellsouth 780 broadband until 2010. Reading this article makes me thing someone is a bit ambitious. I would be willing to bet that twice as many people out there would be willing to have a 25% increase for $5 a month. For the brains out there, that would be 75% less increase for 1/2 the price. That would be a better deal for the providers and more people would do it.

      Think about it, times are hard.