Broadband Cost Recovery: A Study of Business Models for 50 Broadband Providers In 24 US States

Strand Consult identifies and quantifies the internet traffic and associated costs which shortchange the building and running of broadband networks and suggests restorative policy solutions. Cost recovery is the process to recoup the expense of building and running a broadband network with an accurate assessment and attribution of its use. This information helps operators and policymakers understand the problem at local and global levels and compare the pros and cons of different policy solutions. Effective broadband policy ensures that all people can access the internet and that networks evolve to serve a wide range of services. Most people in the developed world can access a basic set of internet services, but the situation is not optimal, as evidenced that at least 14 million people in USA access the soon expiring Affordable Connectivity Program to help purchase broadband.

The Covid pandemic increased the urgency for universal broadband as people had to learn, work, and receive healthcare from home. More largely, the internet increasingly drives the economy and productivity and is becoming the key medium for the delivery of government services. Ensuring essential social benefit services online may be frustrated by the proliferation of video streaming entertainment, the pricing and policy of which takes de facto precedence. However important and significant the rollout and adoption of broadband may be globally, gaps remain. Shortfalls are pronounced in rural areas, financially vulnerable communities, and in many emerging countries. These shortfalls could be addressed with pricing innovation, which seems to be stifled by a lack of policy evolution. In many countries, broadband is still sold like it’s 1995.

Strand Consult’s first report “Middle Mile Economics: How streaming video entertainment undermines the business model for broadband” from 2021 focused on four rural fiber-to-the-home (FTTH) service providers in the United States. This new report expands the list of providers to 50 which provide service in 24 American states. The investigation consisted of two larger surveys about internet traffic and a collection of cost data. It validates the first report’s findings and adds more information about broadband cost recovery for FTTH providers. The states covered are Alaska, Arizona, Arkansas, California, Colorado, Georgia, Idaho, Illinois, Indiana, Kansas, Louisiana, Maine, Minnesota, Missouri, Montana, Nebraska, New Mexico, North Dakota, Oklahoma, Oregon, South Carolina, Texas, Washington, and Wyoming.

Global video streaming companies, notably Netflix, YouTube, Amazon Prime, and Hulu/Disney+ and some key video gaming applications, account for a significant portion of traffic on broadband networks. Our study shows that streaming video entertainment accounts for 50-70% of all network traffic, if not more. The report “Recovery for Broadband Use: A study of the economics of 50 broadband providers in 24 US states” shows that video streaming traffic is also associated with broadband providers’ most significant ongoing, operational costs. Streaming video entertainment providers do not contribute to cost recovery for their use of the middle or last mile on broadband networks, whether through a universal service contribution mechanism, a reimbursement to broadband providers, or a financial stipend to end users. Even though broadband providers use state-of-the-art fiber technologies, expense for rural FTTH broadband providers grows 2-3 times faster than revenue. This is not because last mile fiber to the home networks is insufficient but rather that the middle mile investments required by the ever volume of video streaming data that needs to be delivered to the consumer.

Strand Consult´s new report “Recovery for Broadband: A study of the business model for 50 broadband providers that offer service in 24 American states” shows that many streaming video providers assert that the explosion of video data traffic is a revenue opportunity for broadband providers. The study summarizes the 3 categories of cost recovery and associated business models, including end user pays; edge provider pays, and the government pays. The report details the pros and cons of each model and estimates how much cost recovery revenue could be generated. Preliminary financial projections suggest as much as $20 billion annually could be generated (ceteris paribus) in the US and separately in the EU.

Strand Consult launched its Global Project for Broadband Cost Recovery to improve transparency. Our first broadband cost recovery study has already had a major impact on how regulators and telecommunications companies around the world view the business models currently used in the broadband market. The new report “Recovery for Broadband Use: A study of the business model for 50 broadband providers that offer service in 24 American states” helps to make our customers smarter while providing the documentation that many regulators demand. 

Our report will contribute to the ongoing policy discussion of Broadband Cost Recovery. Notably improving the funding for broadband offers a market opportunity for vendors, as there several thousand broadband providers in the US and outside US.

To find out more and review the table of contents, contact Strand Consult.

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