There is an axiom in technology: New products typically go to wealthy customers first, before prices eventually fall to reach the masses.
With broadband now classified like a utility, telecom and tech companies including Sprint, Comcast and Facebook are increasingly working to make high-speed internet accessible to every American, not just a luxury.
The companies are among those that have set their sights on bringing free or cheap high-speed internet service to low-income and rural populations in the United States, spurred by philanthropy and, for some, the hope of turning Americans who are not online today into full-paying customers in the future.
Those goals were on display last Tuesday, when Sprint announced that it planned to give 1 million low-income high school students a free device and a free high-speed data plan until graduation. Facebook is also working to bring to the US a service known as Free Basics, which gives people free access to certain websites, including Facebook. Comcast recently loosened requirements for its low-cost broadband service, expanding it to anyone in public housing.
These moves go toward closing what has been an intractable divide between broadband haves and have-nots. About 20% of Americans do not have a mobile data plan or broadband at home because the services are too expensive or they live too far from the networks, among other reasons. That often leaves such households in a worse-off position for basic tasks like doing homework and applying for jobs, all of which have moved online over the years.
“The private sector has as much responsibility as the public sector to make devices and broadband available to millions of young Americans,” said Broderick Johnson, President Barack Obama’s Cabinet secretary and chairman of a White House task force that worked with Sprint on its new programme.
Free and low-cost broadband programmes have been around for a while, with Comcast rolling out one called Internet Essentials in 2011, Google offering free broadband in public housing, and Dell and Microsoft providing free or discounted devices to schools. But the new initiatives could reach much larger populations and are directed toward specific digital divide problems, such as the struggle for children without broadband at home to complete their homework.
Yet, while telecom and web companies cite altruism as propelling free or low-cost broadband programmes, what is often left unsaid are the benefits the services bring to the companies. It is part of a textbook business strategy known as “loss leaders,” when a company provides discounted or free goods to get customers to buy more once they are in the store.
The strategy is increasingly important for the telecom industry, where growth has slowed and new broadband customers are harder to find. Internet service providers “are trying to go after those folks who are willing to pay less, but not to appeal to those willing to pay more,” said Robert Seamans, an associate professor at New York University’s Stern School of Business and a former economist at the Obama White House.
Some of the companies acknowledged the business strategy involved in providing low-income products. But Sprint’s chief executive, Marcelo Claure, said the priority has been to work on a problem that telecom firms are best positioned to help solve. “The internet is one of the few things that doesn’t discriminate, but the one thing that does discriminate is who can get online and who can’t,” he said.
Sprint, the fourth-largest mobile carrier in the US, typically charges customers about $60 a month for high-speed internet service. In the last six months, Claure, who emigrated from Bolivia as a college student, has made the digital divide an issue within the firm and assembled tech and nonprofit partners around the effort.
The mobile carrier is particularly focused on bridging the “homework gap” that exists for students without broadband, which Claure said particularly hurts low-income African-American and Hispanic children. “Being a Hispanic CEO, this bothers me,” he said.
Sprint’s new programme, called the 1 Million Project, will provide high school students from low-income families free laptops, tablets or smartphones and 3 gigabytes of free high-speed data every month. After reaching that data limit, which is the equivalent of browsing for 60 hours or sending 3,000 emails, students will be switched to slower broadband speeds but still have free texting and calling.
The programme will be rolled out in seven to 10 cities, including Kansas City, Missouri, early next year, before becoming more widely available in the 2017-18 school year. Nonprofits including My Brother’s Keeper Alliance and EveryoneOn will recruit students for the nine-year programme and Sprint will use its retail stores and customer service representatives to sign up and serve the students.
Social value
The White House has started several programmes in the past year with corporate partners to provide free or subsidised broadband to schools, libraries and public housing. The new programme’s cost to Sprint is minimal because it does not require additional network upgrades; instead, it would be the equivalent of adding more cars to a highway, the company said.
And there is social value for Sprint in doing this. “People will look at Sprint as a good guy,” Claure said. “Brands that create social value by making a meaningful difference in people’s lives are in a stronger position to attract new customers.”
More recently, Facebook has been working to persuade US officials to approve its Free Basics programme, according to four people involved in the discussions, who spoke on condition of anonymity.
The company, which has been vocal about connecting everyone on the globe to its site, has already rolled out Free Basics in such countries such as Malawi and Indonesia. But it ran into issues in India last year, when public interest groups protested that the programme discriminated against certain websites by providing free access only to Facebook and its partners. Regulators ended up blocking the service.
In the US, Facebook has met with several members of the FCC and officials at the White House to assure them that the service will not disadvantage or block other websites, according to several people who have been at the meetings.
Facebook did not offer a timeline for a rollout of Free Basics in the United States. “While we have nothing to announce, Facebook’s mission is to connect the world, and we’re always exploring ways to do that, including in the United States,” the company said in a statement.