Broadband Adoption at Home in the U.S: Growing But Slowing

1. Broadband Adoption at Home in the U.S: Growing But Slowing John B. Horrigan Presented at “Internet Use in the Americas” workshop Mexico City June 2005

2. Presentation Overview • Big picture on internet access • Trends in home broadband adoption • The adoption environment for broadband • Price • Availability • Preferences of dial-up users • The migration to broadband • Policy implications • All data, except where noted, from national random digit dial telephone surveys of U.S. residents 18 & older conducted by Pew Internet Project

3. Operating assumption • Encouraging high-speed internet adoption is a worthwhile policy goal • Lots of social benefits • Civic engagement & political knowledge • Informational benefits with respect to health care, government transactions, consumer information • Social connectedness • Good for business • Lower transaction costs • Sell gadgetry

4. Percent of adult U.S. residents with internet access, 2000-2005

5. Portraits of Access: end of 2002

6. Portraits of Access: March 2005

7. Broadband at home, 2000-2005

8. Fast broadband adoption – compared with penetration of other technologies

9. Broadband at home – segments (April ’03 & Nov-Dec ’04 surveys)

10. Broadband at home – regions (% with broadband of all in group, March 2005)

11. Broadband gaps over time (I) (% with broadband of all in group)

12. Broadband gaps over time (II) (% with broadband of all in group) 2004 data through June ’04

13. Adoption environment: availability • 77% of Americans say broadband is available where they live • 8% say it’s unavailable • 15% don’t know • Rural gaps • 27% of rural dial-up users say it’s not available • 11% of non-rural dial-up users say it’s unavailable • Overall, 14% of dial-up users say broadband is unavailable where they live • All data on this slide from October 2002 survey

14. Adoption environment: price, service providers • Among those with broadband or who know it’s available where they live: • 61% say they have more than one service provider • 17% say they have a single service provider • 22% don’t know • Price (I) • $38.50 for those with > 1 service provider • $42.80 for those with a single service provider • February 2004 survey

15. Adoption environment: price • Price (Feb. 2004) – average monthly broadband price=$39 • $38 for DSL users • $41 for cable modem users • Price (Oct. 2002) – average monthly broadband price=$38

16. Adoption environment: who wants it? • Of dial-up users, in Feb ‘04: • 40% say they want broadband • 58% say they don’t want it • In Oct ’02, of dial-up users: • 38% say they want broadband • 57% say they don’t want it • Home broadband growth from 10/02 to 2/04: • 24%  42% • Not a lot of evidence of dial-up users more urgently wanting to switch to broadband

17. Are new users getting broadband? • Not at a great rate • Share of new internet users who have broadband at home = 23% • New users  online for a year or less • Nov04-March05 data • Compared with 50% average • From a small & shrinking pool • 6% of internet users online for a year or less (March ’05) • 21% ofinternet users online for a year or less (Jan ’02)

18. Reasons for switching to broadband at home (Feb ’04 data)

19. Interim recap • Broadband growth has been quick, despite little change in prices • But lots of people still say they don’t really want it. • Growth in online penetration flattening in U.S. • Some availability gaps in U.S., especially rural areas. • Suggests that broadband adoption may not be on smooth upward path in U.S.

20. The migration to broadband • People’s online time preferences change with experience. • Dial-up becomes a hassle as people do more things online  and people do more things online & spend more time on the internet with more online experience irrespective of type of connection • This changes the value proposition of being online • The bits per buck calculation: • 200 bpm/$20 = 400bpm/$40 • Upshots: • Broadband is a good deal for experienced dial-up users when they reach a certain point in the evolution of their online behavior. • Price points may not be not a big part of the calculation

21. Time online per day -- by type of connection & online experience(June 2003 data)

22. Model of broadband adoption peer-to-peer gaming politics research for job banking blogs own web site virtual tour health care search engine government website buy a product travel information High speed email news Dialup Rural wall Time spent online 2 Time spent online 1 Cost of broadband Cost of broadband

23. To get lots of people to switch to broadband, you want … • Pool of experienced dial-up users to be: • Large • Relatively heavy users of the internet • Online experience to have a large impact on intensity of internet use • I will suggest that the effect of online experience on intensity of internet has declined over time

24. Experienced dial-up users – millions who have been online 6 or more years

25. Number of online activities(typical day)

26. Amount of time (in minutes) spent online, average day, experienced dial-up users (those online 6 or more years) v. broadband

27. Declining magnitude of online experience on intensity of internet use: multivariate analysis • Want to disentangle effect of broadband use & online experience on two measures of intensity of internet use: • Time spent per day online & number of internet activities • Must deal with causality • Preliminary results using 2SLS • Online experience & broadband had about same effect on intensity of use in 2002 • Broadband’s impact was about 5 times that of online experience in 2005

28. Discussion • Results not too surprising in some respects • Gotten the “low hanging fruit” of early adopters • But . . . • Apparently not growing new fruit to harvest • And one could imagine alternative adoption patterns by which … • Overall internet penetration increased faster in past few years • Price drops – or other factors such as network effects, or “killer aps” – drove more people to broadband • Faster networks made switching to broadband more attractive to users (i.e., counteracts diminishing “onlnie experience effect”).

29. Upshot • Fewer engaged dial-up users suggests ground isn’t fertile for lots of switching from dial-up to broadband • Tepid internet growth in recent years means soil isn’t being replenished with new dial-up users • Little evidence of new users signing up with broadband de novo

30. Summing up • There are policy implications!!! • Universal service, however defined, still relevant • “Help” programs for low-income users? • Not a lot of political support presently in U.S. • Direct subsidies? • No political support in U.S. • State or Local initiatives? • Promising, especially municipal broadband initiatives • Close availability gaps

31. Thank you! John B. Horrigan jhorrigan@pewinternet.org Pew Internet & American Life Project 1615 L Street, NW Suite 700 Washington, DC 20036 202-419-4500