Digital Divide -- R.I.P. 2017

It is a safe consumption that 20% of the Internet users devour 80% of the bandwidth.

Infrastructure

It is also a given that in order for Internet Service Providers to continue to meet the exponentially growing demand for bandwidth (as in online-gaming, peer-to-peer transfers, online movies, massive music downloads, wireless Internet access, etc.) they must invest further, and rather heavily, in infrastructure.

The $7.2 billion that the economic stimulus plans appropriate to spreading broadband across America is but a drop in the digital bucket when compared to actual cost to meet demand and bridge the digital divide.

According to the recent Shapiro/Hassett report on Flexible Broadband Pricing and the Digital Divide, the long-term investment to keep up with bandwidth demand could cost $300 Billion over the next 20 years.

Deduct the Government $7.2 billion and the remaining $292.8 billion will have to come from private investment and/or increased revenue. Good money rests on the latter.

Pricing Options vs. Growth

The Shapiro/Hassett report considers four pricing scenarios:

• No Pricing Change (used as a baseline)
• Flat Rate Increase
• 20/80 Split Between Heavy Users/Rest of the World
• 50/50 Split Between Heavy Users/Rest of the World

No Pricing Change

Should the expansion and upgrade of infrastructure not be passed on to the users (highly unlikely scenario) the report projects that by the years 2017 virtually every household in America can or will have broadband access.

Flat Rate Increase

Should current laws, or choices made by ISP, result in flat rate increases across the entire customer base, the report projects that only the highest income bracket will approach uniform access (86.4%) by 2017, whereas under $30,000 will reach 79.4% and the $30,000-$74,999 bracket will reach 85.7% by 2017.

20/80 Split Between Heavy Users/Others

The report makes the interesting observation/assumption that the heavy user will not overly care if he has to assume 80% of the cost of infrastructure expansion. For one, he can most likely afford it; and for two, the habits that have driven him or her to high bandwidth usage in the first place, will stay in place and he or she will stick with current--or reach for higher--bandwidth, regardless of cost.

In this scenario, the price increases (20% of cost over 80% of users) will not be such that it will dramatically stifle growth. Therefore, by 2017 98.5% of the under $30,000 will have broadband access, and 98.7% of the $30,000+ bracket.

50/50 Split Between Heavy Users/Others

In a scenario where the infrastructure cost is split 50-50 between heavy users and others, the lower income brackets are unduly affected, which will slow growth.

In this scenario, by 2017 91.3% of the under $30,000 earners will have broadband access, 93.8% of those earning between $30,000-74,999, and 94.1% of those about %75,000.

Policy Implications

The report makes an excellent case for the need of policy makers--both Governmental and Industrial--to adopt a flexible pricing policy (the 20/80 model clearly showing the greatest promise).

Business as usual, i.e., flat pricing, just will not cut it.

ISPs must be given the freedom to set equitable pricing policies that fairly distribute the actual costs proportionately to actual usage. This way the digital divide will be more or less bridged eight years from now.

R.I.P.