Customer Price Sensitivity to Broadband Service Speed: What are the Implications for Public Policy?

Accessing many applications over a broadband pipe produces diverse traffic patterns among users in comparison to traditional voice service. The focus of this chapter is whether it is in the financial interest of application providers as a group to buy down end user charges. Application providers, as a group, may be willing to subsidize end users if two conditions hold: first, end users are price sensitive to the cost of broadband speeds; and second subsidization of end users must be competitively neutral across providers and across networks. Buying down of end user charges could be done through a universal broadband fund such as the newly established Connect America Fund (CAF). Lower prices may boost demand for broadband services at higher speeds. The chapter aims at estimating price elasticities of demand for different speed service packages purchased by broadband users.