Comparing Wireline and Wireless Broadband Costs Over Two Years

Last week, coinciding with the release of the National Broadband Map, the National Telecommunications and Information Administration (NTIA) also released the latest report in the Digital Nation series. Titled Expanding Internet Usage, the report provides updated data on broadband adoption in the United States by analyzing U.S. Census survey data from 54,000 households and 129,000 persons. However, in praising President Obama’s wireless initiative the report makes a claim that I find to be a bit of a stretch. Addressing the persistent digital divide in the U.S. the report argues:

“The [wireless] initiative will help eliminate this access barrier by expanding 4G and facilitating the proliferation of mobile devices with computing capability. These mobile devices are significantly less expensive than computers, but still provide a means through with individuals can access the Internet, web applications, and other webs services." [Emphasis mine]

The focus on wireless to close the digital divide deserves some scrutiny. From the wireless generation gap of 4G wireless in the U.S., the Federal Communications Commission’s (FCC) recent rules on an open Internet have the effect of creating different Internets for wired and wireless. It is also worth contesting the claim that mobile devices, and implicitly mobile connectivity, are cheaper than wireline access.

While it is still possible to purchase wireline Internet unbundled from other services and connect the devices of your choice, many wireless broadband connectivity plans require consumers to purchase voice and text plans. Because wireless plans push subsidized devices in exchange for two-year contracts, the real costs of connectivity are best compared by examining two-year plans.

On AT&T, the HTC Aria or Palm Pixi can be purchased for a penny or less with a two-year contract while phones like the Apple iPhone 4 or the HTC Tilt2 are subsidized for $199.99 each. Each device requires a voice plan as well as a data plan. Since texting is optional, the lowers rates for Internet access, with the minimum 450 minutes of voice, range from $54.99 a month for 200 megabytes (MB) or $64.99 a month for 2 gigabytes (GB). The two-year cost totals up to $1,1319.77 for the 200 MB plan with a free phone or $1,759.75 for an HTC Tilt2 with 2 GB of monthly data, excluding taxes and other charges like an activation fee.

Other carriers are in a similar range.  A plan from T-Mobile with 500 voice minutes, unlimited texts and a 200 MB data cap would cost $1,439.76 over two years with a free phone like the Samsung Gravity T Steel or $2,169.75 for a plan with unlimited data and a $249.99 subsidized phone like the T-Mobile G2.  Plans with Sprint would cost $79.99 a month with a required  “Premium Data add-on,” bringing the two year price to $1,919.76 for a “free” phone like the Palm Pixi or $2,119.75 for the $199.99 (subsidized) HTC EVO 4G. With Verizon a phone like the Droid Incredible by HTC, subsidized for $99.99, can cost  $1,779.51 over 2 years for 450 voice minutes with unlimited data and no included texts. The iPhone 4, subsidized for $199.99, requires text and costs $2,359.51 over two years. All these prices exclude taxes and fees.

Incomplete Internet access is available through MetroPCS for closer to $1000. The Huawei Ascend costs $129 and plan for unlimited voice, text, “mobile web” and YouTube, and no additional data access is $40 a month or $1,089 over two years. While this plan is low cost, the plan offers “Internet access” while restricting streaming other than YouTube, drawing concerns from the New America Foundation and others. Adding unlimited data access raises the price to $60 a month. With this plan the $399.99 Samsung Galaxy Indulge would cost $1,839.99.

Wireline broadband costs considerably less and does not require a bundled device. Where available the lowest tier from AT&T, DSL Direct Basic with 768 kilobits per second (kbps) download speeds, costs $19.95 for the first year and $29.95 for the second, totalling $598.80. The upgrade to 1.5 megabits per second (mbps) only increases the two year costs to $659.40. At these speeds, Verizon DSL compares at $719.76 or $839.76 for 768 kbps or 1.5 mbps, respectively, over two years while a 1.5 mbps Comcast connection can cost $982.80 over two years. Like the prices above for wireless connectivity, these prices do not include fees or taxes.

Even the cost of a computer, available for under $400, keeps the costs of most of of these wireline offerings below the two year price of wireless. Assuming $400 for a computer, the total wireline cost ranges from $998.80 to $1382.80.

To recap: the cost for two years of wireless data access and a device range from $1,1319.77 for a “free” phone, mandatory voice service and data with a 200 MB data cap on AT&T to the minimum $2,359.51 required to use an iPhone 4 with unlimited data through the length of a contract with Verizon.  Many plans are roughly in the middle. Wireless carriers do offer USB modems but the monthly costs range from $24.99 for a limited 200 MB plan ($599.76 over two years) with T-Mobile or $59.99 a month ($1,439.76 over two years) for unlimited 4G and 5 GB of 3G service on Sprint.

In addition to being more expensive, wireless plans generally charge extra for tethering - sharing the phone’s Internet connection with a computer or other device. Although phones with WiFi can usually leverage cellular connectivity with a simple software upgrade, carriers tend to charge an extra $9.99 to $20 a month for the privilege, adding $239.76 to $480 over two years.

Mobile connectivity cannot be ignored as a potential valuable option to expand connectivity but there are policy concerns. The current business models are restrictive, requiring voice plans or, like the monopoly telephony of generations past, limit the ability to choose a device independently from the carrier. Despite being able to purchase a data only plan for a USB modem the same service is not offered for phones. Further, the FCC has adopted rules that allow for different Internets for wireline and wireless access.

Claiming wireless is cheaper is misleading at best and factually incorrect at worst. The NTIA’s claim that “these mobile devices are significantly less expensive than computers” does not accurately reflect the real two-year cost of mobile connectivity through a smart phone. Perhaps the NTIA is suggesting that one can get access to the Internet by adding $15 data plan with a 200 MB data cap to an existing plan at the exact time a user is eligible for a free upgrade for a capable phone. Alternatively, the suggestion could that the upfront cost of a subsidized device with two year contract can is less than purchasing a computer or netbook outright. But both are short-sighted assessments.

Assumptions aside, cell phones also have limitations on functionality compared to a computer. Can you imagine trying to do your taxes on a cell phone, or the challenge of typing a resume and applying for a job on a thumb-sized keyboard? What about printing a homework assignment?  Wireless can serve has as a component in expanding connectivity but with the current restrictions on mobile devices and networks a cell-phone in every pocket does not close the digital divide.