Free Press Misleads on Internet Prices

The last year has taught us that an affordable and reliable internet connection is critical for work and relaxation. It’s a worthy goal of public policy to help facilitate this for as many Americans as possible. What stands in the way of that goal is when politicians are fed unreliable data about the state of the internet market. The Biden administration is convinced that internet access prices in the United States are too high. But, much of the reporting backing this up is based on misleading data from a group called Free Press. Upon even the briefest examination of Free Press’s interpretation of the data, their errors become obvious.

A recent article published in Ars Technica states that, “The average US home-Internet bill increased 19 percent during the first three years of the Trump administration[.]” That 19 percent figure comes from Free Press. Their report uses data from the Bureau of Labor Statistics (BLS), traditional keepers of data related to consumer prices. The problem is that Free Press used data from the Consumer Expenditure Survey to get their result. Expenditures and prices aren’t the same thing.

For example, if you switch from driving a hybrid vehicle to a gas-guzzler, the expenditure on gasoline is sure to go up, but that doesn’t mean the price of a gallon of gas has increased. In fact, falling gasoline prices have been shown to correlate with increased sales of SUVs and trucks.

Something similar seems to be happening with internet access. People are indeed spending more, but that might largely be because they’re choosing to, allowing them to achieve higher speeds, better connections, and the ability to reliably connect more devices to the internet. The consumer expenditure data Free Press cites is based on households, after all. If a family is growing and adding more devices, then they’re going to have to spend more to add capacity. And more and more devices are becoming “smart devices” all the time. You can even buy refrigerators that connect to your Wi-fi!

This is even more apparent in the cellular service data Free Press also trots out. Once again, it is on a household basis. If a family buys cellphones or tablets with data plans for their kids, their expenditure is sure to go up, but that doesn’t mean the price has increased. Again, it’s a sign that such things are becoming more affordable.

Internet service is also likely becoming more affordable relative to families’ budgets. As more and more Americans cut the cord on cable TV, eliminate newspaper and magazine subscriptions, and end their landline service, they’re undoubtedly going to spend more on internet service… as well as internet-based services.

A particularly glaring error with using the data Free Press cited as a direct substitute for the price of internet access is that it is household expenditures on all “Computer Information Services.” However, access to the internet itself is only one component of this category. With the increasing number of internet-based services, it is to be expected that consumer expenditures would increase in this area.

After looking extensively through BLS publications and data, it was unclear what exactly does comprise the “Computer Information Services” for the purposes of the Consumer Expenditure Survey. However, subscriptions for things like Netflix, Amazon Prime, and Spotify are not explicitly accounted for elsewhere in the survey.

The BLS does have Consumer Price Index data for internet services, as opposed to expenditures. The BLS makes clear that for this data, “Fees for online activities such as music or video downloads, streaming media (both music and video), fees for online gaming, and subscriptions to online newspapers or magazines are excluded.” So, the question is what the Consumer Price index data for internet service looks like. It’s relatively flat, and certainly not a 19 percent increase in three years. It’s more like 4 percent over the last decade.

At the very least, it’s clear that the data is unclear. With an industry like internet access, an industry that is still relatively young, changing rapidly, and spread across a wide-range of firms and technologies from fiber lines to satellites, it is important to get a better handle on what the market actually looks like before deciding to radically change public policies surrounding it. Selling expenditure data as a direct substitute for prices does the opposite of that.