The broadband marketplace is intensely competitive. Cable is taking wireless market share, wireless is taking cable market share, satellite is nipping at the heels of everyone, and consumers are the winners. Broadband pricing has stayed well below the inflationary jumps that have been seen in many other industries/services.
This obvious competition, paired with low inflation, makes a new report from the Public Advocates Office (PAO) of the California Public Utilities Commission (CPUC) all the more curious. The report, “Broadband Competition and Pricing Strategies in California’s Urban Markets,” was based on an interesting new data set that looked at promotional broadband rates in four CA cities by detailed location, and compared those prices to the number of broadband providers and household income at those locations. The report’s goal, using regression analysis, was to show that fewer gigabit providers lead to higher prices and that providers were engaged in digital discrimination.
We applaud the effort to assemble the data set. However, the analysis makes several fundamental mistakes. First, the pricing analysis left out important variables like population density (which could have easily been added at the census block level). A high-density area is generally cheaper to connect, on a per-household basis. As a result, high-density areas are more likely to attract new providers, as well as leading existing providers to offer lower promotional rates. Conversely, low-density areas will typically have fewer providers and higher promotional rates.
Thus, by leaving out density from their analysis, the report potentially found spurious correlations between fewer providers at a location and higher promotional rates. To put it another way, the first sentence of the executive summary says, “Broadband prices in California’s urban markets vary widely depending on the level and type of competition available to households.” But that’s tautologically true because competition was basically the only independent variable in their regression equation (the one exception was income, which we’ll discuss below). And disturbingly, the report even omitted results that did not show the desired correlation between price and competition. The report appendix notes that “Comcast is excluded from the regression analysis because its pricing strategy reflects large, market-wide discounts followed by secondary geographic variation that do not correspond to local competition intensity.” In other words, the Comcast regression did not show the desired results, so the report did not show it. In addition, the report acknowledges (note 37) that its regression analysis produces inconsistent results for Charter.
The second elementary mistake, related to the first, was the repeated confusion between correlation and causation. For example, the report asserts confidently that “San Diego has the most limited competition, with many neighborhoods served by a monopoly gigabit provider.” But as the table below shows, San Diego has half the population density of the other three cities, as well as being hillier. So it might be more accurate to say that out of the four cities, San Diego is the costliest, on a per-household basis, to lay fiber and cable, leading to fewer providers and higher promotional prices. Causality is very different than correlation.
| San Mateo | Oakland | Los Angeles | San Diego | |
| Population density of city (people/sq mile) | 8710 | 7878 | 8311 | 4256 |
| Population density of surrounding county (people/sq mile) | 1704 | 2280 | 2468 | 784 |
Data: Census Bureau
Third, the report ignores intense competition in sub-gig markets, which many subscribers are intentionally choosing. As a result, the report only focuses on the four top fixed broadband providers, even though satellite providers, such as Starlink, and 5G internet providers, such as T-Mobile and Verizon, are available in many locations covered by the report.
Finally, we come to the impact of income, which is the one non-competition variable in the report’s analysis. On its website, the PAO alleges digital discrimination in the California broadband space. However, the analysis in this report shows “providers do not systematically adjust promotional pricing based on income levels” (p 16). Truthfully, the report could have been entitled “No Digital Discrimination Found in California’s Urban Broadband Markets.”
The CPUC should be careful not to rely on this flawed study to make any policy judgments related to broadband. Rather, we should take comfort that the increasingly competitive marketplace for broadband is benefiting consumers.
