I came across this website, outlining the price of broadband internet connection of four countries; Japan, England, USA and Canada.
Source: http://xcrew.net/content/the_cost_of_bandwidth_canada_versus_the_world.html
I did not attempt to verify the data, but it looks right. Assuming the graph accurately depicts the pricing structure of involving countries, Canadians are paying the most expensive internet service.
In Canada, the monopoly nature of the industry is well known. Some argue it is the case of a natural monopoly given our tiny population. In Calgary, only recently does Telus (Optik) be able to compete head-to-head with Shaw (High Speed). As an average user, I can attest to the fact that Telus’ service is superior to Shaw’s in terms of speed and stability. Before the switch to Telus about six month ago, internet service provided by Shaw was slow and spotty. Customer service was less than satisfactory.
Economic theory stipulates that internet companies (with monopoly power) try to maximize profits by restricting output (bandwidth). Although it is supported by simply theory, it is rather difficult to prove in court. I will explain the coming lectures.
To free up available resources, Usage Based Billing (UBB) seems to make economic sense, the internet providers argue. Imagine that bandwidth is like street roads; it is a common resource for all subscribers. It only allows a certain number of traffic flow freely. As traffic volume increases, congestion is usually the results. Since subscribers cannot be excluded from using the service, having additional traffic to an already congested network would slow down the flow of all users even further, rendering poorer services.
On the surface, UBB would reduce traffic flow to free up available bandwidth. The idea sounds simple and could effectively free up bandwidth to create more pleasant experiences for all users, as heavy users must pay a premium for each additional bandwidth they occupy (increasing MC). But there is a catch.
Unlike roads, internet bandwidth is relatively cheap and scalable. It is the internet providers that control the amount of resources they put into building additional capacities. Often, monopolies with market power have no desire to increase capacity. I would argue, UBB would further discourage internet providers from building extra capacities. Why would internet providers increase supply (increasing marginal cost) to lower the market price (downward sloping demand / MR) if they find a way out without doing so?
For internet providers, UBB would allow a much more pleasant experience for average users without adding capacity. To justify price hike within different segments of its market under UBB, internet providers can simply allow existing bandwidth capacity to reach its capacity, blaming yet gain the ‘heavy users’ once again and charge all at a higher price. It is only fair if UBB is implemented and profit is tightly controlled and regulated, just like power, water and natural gas. I don’t think companies like this idea.
We all agree having access to the internet has tremendous social benefits. Both speed and volume count. The low cost of access to information (unlimited by only opportunity costs) alone benefits all of us.
Building endless private toll roads to solve traffic gridlocks wouldn’t be wise.
