Why Does Internet Cost So Much in the USA?

Internet Speed and Price Around the World. Internet Speeds and Prices in the USA Compared to the Rest of the World.

The United States of America is one of the countries where the internet is a costly luxury to have. A major proportion of Americans don’t seem to be happy with their internet services. Upon probing we have found three reasons why they aren’t happy with their internet services. Slow speed, unreliability, and high-costs are the main reasons which make Americans furious with their internet service providers. Research has also proved that Americans are being overcharged for the internet as compared to the rest of the world.

The above-shared graphs are taken from PBS NewsHour and the Open Technology Institute conducted research to compare America’s internet speeds and prices with Europe and Asian countries. The warm colors represent fast speeds and the circle size represents the prices. The graphs clearly show that Americans are being overcharged for the speeds they are getting as compared to other regions of the world.

For example, a typical New Yorker is paying $55 for 25 Mbps speed which is double than the internet consumers in London and Seoul. Plus residents of Seoul, Tokyo, Hong Kong, etc. are getting eight times higher speeds in less than $55. This clearly depicts that the internet is the basic necessity which is quite costly in America than in other parts of the world. Why is that so? Let’s discuss it.

Low Competition:

Low competition is the most prominent factor which is driving the hike in the internet prices in America. Well, internet service providers are making use of the supply and demand rule of economics. There is a high demand for internet services however there are few internet service providers which results in high internet prices.

According to the Federal Communications Commission, half of the Americans have almost two options for internet service providers. In case they want to get themselves high speeds they are only left with one choice to opt. For example, I have two ISPs in my area, among which one provides better and reliable service than the other.

Obviously, with low competition, ISPs are under less pressure of improving their services. It’s basically a monopoly. They are controlling the offered services in specific regions and their prices.

As compared to this, Citizens of Paris has around options of seven internet service providers to choose from.

Why is there low competition?

Low competition in the telecom industry has several reasons. Following are few of the most prominent ones:

  • Huge investment is required to become an ISP:

Obviously entering as an internet service provider requires a huge investment. One needs millions of dollars up-front in order to get themselves the basic equipment that they require to function. Besides they will be needing permits to lay out a new network of fibers. Certainly, arranging this much of money isn’t the job of some common man. As the initial cost is quite high, investors would hesitate to invest in it. Investors certainly want quick returns to their investment and don’t have the patience to wait for five to ten years. Plus fiber networks are not so valuable collaterals to the banks. So, getting a loan to do so is quite difficult.

  • Incumbent ISPs are quite strong:

All the previous Internet service providers have a firm grasp on the internet market because of the low competition. It certainly would be quite difficult for a newbie to challenge the giants in the market and capture a fair share of their market. If they don’t come strongly in the beginning, it will become highly difficult for them to recover their initial investment.

  • Legal actions against newbies:

Most of the people feel vulnerable in investing in the internet business is because of the lawsuits. When a major internet service provider feels threatened by a start-up they utilize their power and money to take legal actions against these newcomers with the sole goal of burying them in the very beginning.

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