Comcast Profits from the Poor with Internet Essentials Deal

The cable giant's program for low-income customers is touted as a solution to the digital divide, but it only distracts from the need for more regulation and competition.

Regulatory failures and telecommunications market consolidation have left most Americans with few options when it comes to a high-speed Internet access connection at home. There is a lack of market pressure to keep prices low or encourage the investment needed to expand networks, or to upgrade them for higher speeds or better service. This has exacerbated our digital divide. And while Comcast’s highly publicized Internet Essentials program is supposed to address this problem, a deeper look shows that it is more effective as a customer acquisition program for Comcast than anything else.

The digital divide is an equity issue, an education issue, and an economic issue. Over 100 million Americans, about one-third of us, don't subscribe to fixed high-speed Internet access at home. For many, the problem is price. Internet adoption rates for American households are lower, on average, in counties with the lowest median household income and outside of urban areas. Some have no options at all: 19 million Americans (6 percent of the population) cannot buy a connection where they live at any price.

How can children with no Internet connection at home compete with peers who are lucky enough to live in households that can afford access? There are more online educational opportunities than ever before, but a good Internet connection is needed to take advantage of many of them. Which kid will be able to learn to program, work with online tutors, rip through Khan Academy lessons, or participate in a Massive Open Online Course (MOOC)? Students with home access to the Internet are 8 percent more likely to graduate. And the divide doesn’t disappear once they’ve graduated: Eighty percent of Fortune 500 companies require that job applications be submitted online. Can we afford to leave a third of Americans out of the new economy?

Against this backdrop, the public relations department at Comcast has been hard at work over the past 16 months, talking about the successes of the Comcast “Internet Essentials” program, which has been credited with providing 150,000 low-income households with a $9.95-per-month “high-speed” Internet connection. To be eligible for the program, a household must include a student who currently receives a “free” or “reduced price” lunch through the Department of Agriculture’s National School Lunch Program (NSLP), live in an area where Comcast currently offers Internet access, have not subscribed to Comcast Internet access within the last 90 days, and not have an overdue Comcast bill or unreturned equipment.

While the program may sound like a noble effort to combat the digital divide, it is deeply flawed in practice. Its so-called high-speed connections are painfully slow: 3Mbps downstream and 768Kbps upstream. This is equivalent to Comcast’s bottom-tier service, normally billed at $39.95, and is slower than 89 percent of cable connections in the U.S. These connections may not even be fast enough for modern web applications, especially if multiple users in the house are sharing the same connection at the same time. (The Internet Essentials program originally offered only 1.5Mbps, but Comcast raised the speed cap in the second year in response to criticism and a protest outside of Comcast’s headquarters.)

The program is also ineffective because it is not serving enough low-income households. Comcast estimates that 2.6 million households are eligible for Internet Essentials. Of that 2.6 million, the program serves only 150,000 households (5.8 percent of those eligible). In the Philadelphia region, the heart of “Comcast Country” and the location of Comcast’s corporate headquarters, only 3,250 families are participating (3.3 percent of those eligible). Even the number of eligible households is extraordinarily low, as the limits to participation noted above allow Comcast to capture new customers without cannibalizing its existing low-income subscriber base. Comcast's approach provides no relief to families on a tight budget that have already purchased a plan. For low-income NLSP families (at or below 130 percent of the poverty rate), affording the “market” rate for these packages can be quite challenging. The program will have zero effect on our national communications failings.

These limits aren’t the result of cost concerns. Within its footprint (which spans 50 million households in 39 states– 45 percent of the US population), the cost for Comcast to connect additional households is vanishingly low. With no additional network build needed, Internet Essentials represents almost pure profit for Comcast.

Comcast Internet Essentials is a customer acquisition program in disguise. Because it is limited to non-subscribers in Comcast’s existing footprint, the program allows Comcast to acquire additional customers without needing to invest in expanding or upgrading its network. Gross profit margins for cable Internet access in areas where the network is already built are about 95 percent. Even at Comcast's “reduced” $9.95 rate, every Internet Essentials customer represents additional profit for Comcast, and those 150,000 Internet Essentials subscriptions represent almost $18 million a year in income.

But that isn’t all. When the program ends, many of these newly acquired customers will become highly profitable full-price customers. Comcast reserves the right to bill Internet Essentials subscribers at the full-price rates if they are dropped from the program. A household can be deemed ineligible if it fails to submit the right paperwork, fails to maintain its Comcast account in good standing, moves and changes its address, or decides to upgrade its access (which many will feel the need to do because of the slow speeds offered). Comcast plans to stop accepting new signups at the end of the 2013-2014 school year, and though it claims those receiving service through Internet Essentials will remain enrolled in the discount service plan as long as they meet the program's requirements, it will be telling to see how many families have been able to run the gauntlet.

When the dust settles, Comcast will have profited greatly from the Internet Essentials program, even without taking into account Comcast’s gains in the government and public relations sphere. While most observers might assume that the program is an act of corporate generosity, it was originally conceived in the fall of 2009 as a way to turn a profit by offering slower connections to certain low-income households. These plans were temporarily tabled at the direction of Comcast lobbyist David Cohen, who knew that this type of program would be attractive to the FCC and thus useful as a bargaining chip. When the time came for negotiations over Comcast's $13.75 billion takeover of NBC Universal, Comcast was able to offer something it was planning on doing anyway. In the end, the FCC was able to claim credit for forcing Comcast to implement a program to combat the digital divide, while in reality no arm-twisting was needed.

Comcast routinely points to the Internet Essentials program in response to calls for regulation aimed at reliably easing the digital divide. This distracts the press and regulators from the real issues: local monopolies, the lack of competition for high-speed Internet access, and the need for regulatory attention. As of June 21, 2012, Comcast had delivered the Internet Essentials message to over 100 members of Congress and more than 2,000 state and local officials. To broaden its outreach effort, Comcast also engaged leading intergovernmental associations at the state and local level such as the National Governors Association, National Conference of State Legislatures, U.S. Conference of Mayors, and various other organizations of elected officials. On top of that, Comcast say that the impressions generated by media coverage of Internet Essentials launch events earned it “millions of dollars” worth of media.

Comcast's Internet Essentials program does more to benefit Comcast's customer acquisition, public relations, and lobbying departments than to help people in America who need high-speed Internet access at a reasonable price. The reality is that the program is a cleverly designed customer acquisition program that benefits Comcast's bottom line. The program is ineffective: the connections are not “high-speed,” the program assists very few people, and the the program does nothing for those who can’t get a connection at all where they live. More importantly, the program does nothing to address the fundamental reason for the lack of ubiquitous, affordable high-speed Internet access in this country – the lack of competition. It earns Comcast good press while distracting regulators and public officials into thinking that changes in policy aren't needed and that digital divide problems will somehow work themselves out on their own as a result of corporate generosity. In the long run, Comcast Internet Essentials will do no more than contribute to the delay of much-needed regulation.

John Randall is a Program Manager at the Roosevelt Institute who provides legal, technical, and policy research assistance and strategic direction for the Telecommunications Equality Project.

 

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