Net Neutrality Could Add Billions to Broadband Fees for Consumers

February 5, 2015 Updated: February 5, 2015

On Wednesday, FCC chair Tom Wheeler confirmed once again that he would propose strict net neutrality rules during the commission’s open meeting on Feb. 26. Net neutrality activists cheered on the decision as a hard-earned victory for an open Internet, but for many consumers, neutrality comes at a price.

The FCC (Federal Communications Commission) will likely vote to regulate ISPs as common carriers under Title II of the Telecommunications Act, which would impose a new set of state and local taxes and fees on broadband Internet. The left-leaning Progressive Policy Institute (PPI) estimated that the new fees will total $15 billion annually, which amounts to $49 for wireline broadband users and $53 for wireless users every year.

The price increase could squeeze millions of price-sensitive customers to switch from broadband Internet to an alternative.

Exactly how consumers will react to more expensive broadband is hard to predict, but some economists have tried to model the price sensitivity of broadband users. An analysis by two economists from the FCC found that the demand for broadband has a price-elasticity of -.62.

A rough calculation of how many people would give up their broadband multiplies .62 by the percent change of the price (9.1) and the number of current wireline subscribers (84 million), which yields a figure of 4.7 million.

The survey asked people who were not subscribed to broadband (and not current subscribers of broadband) how much the price would have to decrease for them to purchase it, so the 4.7 million is a high upper-end estimate of how many people would switch from broadband.

Still, the 4.7 million figure assumes that the price increases will be uniformly distributed, but the actual change in broadband prices will vary widely by state. PPI estimates that the annual increase in broadband costs will range from $8 at the low end for Delaware to $148 at the high end for some parts of Alaska.

This number includes potential taxes by the state and local government, some of which broadband providers may not have to pay as a result of the Internet Tax Freedom Act. Assuming that the federal ordinance does preempt state and local taxes, the annual costs from fees would still be $11 billion.

The authors of the PPI report called on the FCC to impose net neutrality rules through Section 706 of the Telecommunications Act instead, but neutrality advocates argue that Section 706 doesn’t give the FCC enough power, pointing to a 2014 Court of Appeals ruling, which said that the FCC cannot regulate ISPs as common carriers.