Hidden Costs: Why Internet Service Providers Regularly Raise Their Prices

Posted under: Blog and Internet

If you've noticed your broadband bill creeping up month to month, you're not alone! Broadband pricing has never been regulated, which means that internet service providers are free to charge whatever they want and to hike their prices whenever they want. There was a time when there was talk of instituting price regulation under Title II authority at the FCC, but the fact is that the end of Title II regulation has little to do with increases to your broadband bill.

Those increases are often so tiny (i.e., a few dollars here and there) that customers don't notice them until they've stacked up. Recently, however, a number of internet providers have subjected their customers to substantial increases. There are a few factors driving these hikes - most of which customers can't control.

First, the explosive growth that broadband once enjoyed has slowed as a fast internet connection gradually becomes an everyday necessity instead of a luxury. Next, there's very little actual competition in the broadband market, and the big players set the prices. Finally, internet providers are feeling the pinch because more and more customers are giving up their landlines and cable TV subscriptions in favor of mobile service and Netflix.

What These Price Increases Look Like

From 2017 to 2018, Comcast, Frontier, and Cox all increased the prices on their internet-only packages, but package prices aren't the only place internet providers are digging for a bigger share of customer dollars.

The Special Fees are Higher, Too

Most people don't even bother looking at the laundry list of special fees on their broadband bills because who knows what they even mean? Your cable bill, for instance, may include regional sports fees and broadcast television fees, while a DSL bill could include a county telecom surcharge or a state universal service fund fee. There are Federal Universal Service fees or Universal Connectivity Charges, which are related to requirements that ISPs work to extend broadband infrastructure into rural or low-income areas. And that's just the tip of the iceberg.

All these fees add up quickly! By some estimates, fees can add 20-40% onto the base rate of your service package, which can make that great deal you signed up for feel not so great. Tracking these fees is hard enough. Staying on top of them so you know when they go up is even tougher.

You should review your bill each month, however, because increases to these unexplained fees are often what drives those slight increases you won't notice until your monthly broadband bill has suddenly jumped by $10 or $20. Not sure what a fee is for? If you have the time, call up your broadband company and ask. You may discover that you can negotiate some fees off of your bill.

Equipment Rental Is Going Up

When internet providers provide customers with a modem as part of a broadband package, they are not doing it out of the goodness of their hearts. These are rentals - in some cases, rent to own - and they show up on customer bills as a modem rental fee or simply an equipment fee. Some internet providers charge this fee even when a customer has opted to purchase their own modem and returned the company's equipment or never had it to begin with. Maybe it's an honest mistake, but it's a mistake that happens a lot. If you're being charged a rental fee but never rented a modem, this is another area where you may be able to get the fee taken off your bill - but good luck getting a refund.

Your Installation Fee May Be Pricier

Signing up for a broadband package with some internet providers will mean paying an installation fee… even when there's nothing to install. Watch out for this charge, which an ISP may tack onto your first bill even though they didn't have to make any changes or upgrades to your residence to turn on service, and don't be surprised if it's a lot higher than it used to be the next time you switch providers.

Then There are the Tax Hikes

Technically, you shouldn't be seeing miscellaneous taxes on your broadband bill because the Internet Tax Freedom Act (which became a permanent law in 2016) prohibits federal, state, and local governments from taxing internet access, taxing bandwidth or email, or imposing additional taxes on digital purchases. However, a grandfather clause was built into the Act that lets states that were charging taxes on internet access to continue charging the tax until 2020. Internet providers can, of course, charge sales tax on physical devices like modems and on software, and in some states, they can add taxes to the setup fee, but you shouldn't keep seeing taxes related to those charges appearing on your statement. So if you see taxes on your bill, be sure to look into whether the laws in your state support them.

Is the Government Doing Anything About Broadband Price Hikes?

The quick answer is no. Chances are it will be some time before the federal government gets involved in regulating broadband prices. Contrary to popular belief, the cost of your broadband plan isn't directly connected to the repeal of Net Neutrality just like Net Neutrality had little impact on your bills when it was on the books. No evidence showed that Net Neutrality harmed the ability of ISPs to make a profit or forced them to raise their prices. Likewise, the repeal of Net Neutrality did not lead to any major internet providers lowering their prices.

All that has changed is that FCC regulators may take a more relaxed approach to internet providers (who get big tax cuts) raising their prices from now on. Customers who feel they've been overcharged can only hope that state officials take a closer look at what broadband companies are charging for their plans. Not too long ago, the state of Washington mounted a lawsuit against Comcast for allegedly adding $100 million in fake fees to customers' bills, and other states may follow suit.

The ISPs that Regularly Raise Their Prices

Comcast has a history of adding unexplained fees and taxes to their bills, but those haven't prevented the company from increasing their service rates. Recently, they increased the rate of standalone broadband and the price of renting a cable modem. They charge $75 (up from $65) for their most basic internet-only plan (with 25 Mbps download and 3 Mbps upload speeds) in a lot of markets and increased all bundled packages by $5 per month.

Frontier didn't change their package rates by much but did add a $1.99 per month Internet Infrastructure Surcharge, which is one of those mysterious fees most customers won't notice right away. It's a sneaky way to increase broadband rates without making broadband look more expensive on an itemized bill.

Cox, on the other hand, increased the prices of all their plans AND rolled out a one-terabyte data cap to customers in the majority of states it serves. These customers were previously paying for unlimited broadband and were switched to capped plans. They do have the option for paying a surcharge for the ‘new' unlimited add-on, which costs $50 on top of whatever plan they're paying for now, but that would mean paying a whopping $50 more for the plan they already had.

Are Cord Cutters to Blame?

If you look at how broadband package prices are trending, you may notice that price hikes are more likely to affect standalone plans than bundles. That's because internet providers are watching their stable of once-loyal bundle customers dwindle, and they are trying to keep people from switching to broadband-only plans by de-incentivizing ditching the bundle. The cat's out of the bag, though, and it's unlikely that ISPs will ever again have the amount of bundle customers they once did.

Competition Is One Solution

Did you know that only one in five people in the US has more than one option when it comes to wired internet providers? Satellite internet is getting better and better, and wireless may one day be cheaper, but right now a lot of Americans don't have much choice when it comes to broadband - which means ISPs can charge whatever they want and raise their rates whenever the mood strikes them. Smaller providers are slowly hitting the market but there are not enough competitors yet to drive down prices.

The most promising competition may not come in the form of new providers, however, but rather in the form of point-to-multi-point 5G. If this technology delivers as promised and the providers price it competitively, wireless providers like T-Mobile, Sprint, and AT&T could make a killing providing wireless home broadband widely and undercut fixed-line internet providers in the process, driving down wired broadband prices. For the consumer, it'll be a win win.

So which internet providers are the worst offenders when it comes to raising their prices? The honest answer is that they're all guilty of raising prices when and where they can. There may come a time in the future when broadband internet is treated like a public utility and there are limits to how much companies can charge for certain services but for now, the best thing you can do is shop around to find a provider and plan you can afford and then be ready to negotiate and to switch when your new ISP decides it's time for that next big price hike.

Are you ready to switch internet providers after reading your bill? Start comparing ISPs in your area.