Pew Identifies the “Smartphone-Dependent” – What Could It Mean For Lifeline?

Many people own a smartphone but have limited or no other form of high-speed Internet access beyond their phone’s data plan.

Is all broadband created equal? Just last month, the White House announced that 98 percent of Americans nationwide live in areas served with 4G, high-speed wireless Internet. Does that mean the U.S. can afford to give up on efforts to bring broadband everywhere? Mission accomplished? Some recent research indicates that wireless Internet access is a distinctly different service than wireline broadband -- and one that offers a distinctly different experience for users.

The Smartphone-Dependent Population
This week, the Pew Research Center, in association with the John S. and James L. Knight Foundation, released new findings about U.S. smartphone use. Fully 64% of American adults own a smartphone, a cellular phone that performs many of the functions of a computer, typically having a touchscreen interface, Internet access, and an operating system capable of running downloaded applications. Many smartphone owners have ample options at their disposal when they need to go online: 85% have a high-speed broadband connection at home, 87% own a desktop or laptop computer, and 53% own a tablet computer in addition to their smartphone. But what of the consumers who must rely on wireless for their connections to the Internet?

The Pew research identified what the authors call the “Smartphone Dependent” population. The Pew survey measured reliance on smartphones for online access in two different ways — first, by asking smartphone owners whether or not they have traditional broadband service at home, and second, whether they have a reasonable number of options for accessing the Internet in general from any location. It found that:

  • Ten percent (10%) of Americans own a smartphone but do not have any other form of high-speed Internet access at home beyond their phone’s data plan.
  • Using a broader measure of the access options available to them, 15% of Americans own a smartphone but say that they have a limited number of ways to get online other than their cell phone.

In all, one-in-five American adults (19%) indicate that at least one of those conditions apply to them, and 7% of the public say that both of these conditions apply — that is, they do not have broadband access at home, and also have relatively few options for getting online other than their cell phone. The Pew authors refer to this latter group as “smartphone-dependent” users.

Certain groups of Americans rely on smartphones for online access at elevated levels, in particular:

  • Younger adults — Fifteen percent (15%) of Americans ages 18-29 are heavily dependent on a smartphone for online access. (Twenty percent of them have a smartphone but not traditional broadband service, and 25% have a smartphone but have relatively limited options for going online otherwise).
  • Those with low household incomes and levels of educational attainment — Some 13% of Americans with an annual household income of less than $30,000 per year are smartphone-dependent, and 9% of those with a high school diploma or less fall into this category as well. By comparison, just 1% of Americans from households with an annual income of $75,000 or more depend on their smartphone for Internet access to a similar degree.
  • Non-whites — Twelve percent (12%) of African Americans and 13% of Latinos are smartphone-dependent, compared with 4% of whites.

Compared with other smartphone owners, smartphone-dependent users are less likely to own a traditional computer (50% do so, compared with 91% of other smartphone owners) or tablet (27% vs. 56%); less likely to have a bank account (63% vs. 91%); and less likely to be covered by health insurance (71% vs. 87%). They are also less likely to own their current residence, and more likely to rent or to live with a friend or family member.

Lower-income smartphone owners are especially likely to use their phone during a job search. Compared with smartphone owners from households earning $75,000 or more per year, those from households earning less than $30,000 annually are nearly twice as likely to use a smartphone to look for information about a job — and more than four times as likely to use their phone to actually submit a job application. Similarly, “smartphone-dependent” users are much more likely to use their smartphones to access career opportunities. Sixty three percent of these smartphone-dependent users have gotten job information on their phone in the last year, and 39% have used their phone to submit a job application. Young adults (85% of whom are smartphone owners) are also incorporating their mobile devices into a host of information seeking and transactional behaviors. About three-quarters of 18-29 year old smartphone owners have used their phone in the last year to get information about a health condition; about seven-in-ten have used their phone to do online banking or to look up information about jobs; 44% have consumed educational content on their phone; and 34% have used their phone to apply for a job.

Problems With Wireless Service

Wireless technologies will not be a replacement for, but rather a complement to, wireline broadband technologies.

The NTCA - The Rural Broadband Association was recently touting a report by Vantage Point Solutions that concluded that wireless-based alternatives are not a viable substitute for landline broadband. Terrestrial wireless networks are considerably more costly on a per-bit basis than wireline networks. “Modern wireline networks rarely cost more than $10 per Mbps and often are less than $5 per Mbps, while it is common for a wireless network to cost several hundred dollars per Mbps,” the report notes. And there is insufficient spectrum available to support widespread use of wireless in place of landline broadband service. Instead, the report says, “wireless technologies will not be a replacement for, but rather a complement to, wireline broadband technologies.”

Smartphone owners encounter a range of issues and challenges when trying to use their phones, some of which relate to the physical function of the phone itself. The Pew survey asked smartphone owners about three such issues and found that:

  • Forty-nine percent (49%) of smartphone owners experience content that they are trying to access not displaying properly on their phone at least on occasion, with 10% saying that this happens to them “frequently.”
  • Forty-seven percent (47%) experience poor or dropped signal quality that prevents them from using their phone, with 11% saying that this happens to them “frequently.”
  • Forty-six percent (46%) experience apps that they have downloaded not working correctly, with 9% experiencing this “frequently.”
  • Each of these issues impacts a fairly wide spectrum of smartphone owners, although certain groups do report problems with apps not working correctly at somewhat elevated rates. These include African Americans (55% of whom experience at least occasional problems with their smartphone’s apps), those with relatively low household incomes (52% of those earning less than $30,000 per year experience this), and those younger than 50 (half of smartphone owners ages 18-49 have at least occasional problems with apps, compared with 39% of those 50 and older).

Problems Keeping Service

Many smartphone-dependent users gravitate towards relatively low-cost plans, but owning a smartphone can be a financial burden.

Owning a smartphone can be a financial burden for some users. “The connections to online resources that smartphones facilitate are often most tenuous for those users who rely on those connections the most,” said Pew senior researcher Aaron Smith. “A substantial minority of Americans indicate that their phone plays a central role in their ability to access digital services and online content, but for many users this access may not be available when they need it due to financial stresses or technical constraints.” While a majority of smartphone owners (80%) say their mobile device is worth the cost, 19% describe their phone as a financial burden. This is particularly the case for smartphone owners whose annual household income falls below $30,000.

Many smartphone-dependent users gravitate towards relatively low-cost plans: among those who pay for at least some portion of their plan, 27% say their monthly bill is less than $50. But at the same time, many devote fairly substantial resources towards maintaining their cell phone service: 29% spend between $100 and $200 per month, and 5% say that their monthly bill is $200 or more. Lower-income smartphone owners tend to subscribe to relatively low-cost plans covering only themselves as individuals rather than higher-cost group or family plans. Accordingly, individual plan subscribers are around twice as likely to have canceled or cut back service as those on group or family plans (34% of individual plan members and 18% of family plan members have done so), and those with relatively low-cost plans are actually more likely to have canceled or suspended service than those with more expensive plans.

Although nearly one-quarter (23%) of smartphone owners have canceled or suspended their cell phone service because the cost was too expensive, fully 48% of smartphone-dependent Americans have had to cancel or shut off their cell phone service for a period of time because the cost of maintaining that service was a financial hardship. That is double the rate among those who have broadband at home and/or ample alternate access options (just 17% of these smartphone owners have had to cancel or suspend their service). Along with lower-income users, African Americans and Latinos are around twice as likely as whites to have canceled or cut off their smartphone service, and younger smartphone owners are substantially more likely to have done so compared with older adults.

Pew asked about three potential challenges relating to the financial cost or contractual constraints of smartphone ownership and found that financial and contractual limitations more consistently impact non-whites, younger users, and those with relatively low household incomes:

  • Thirty-seven percent (37%) of smartphone owners reach the maximum amount of data they are allowed to use as part of their plan at least on occasion. Fully 15% of smartphone owners say that this happens to them “frequently.” Thirty percent (30%) of smartphone-dependent Americans “frequently” reach the maximum amount of data that they are allowed to consume as part of their cell phone plan, and 51% say that this happens to them at least occasionally. Forty-three percent (43%) of black smartphone owners, 49% of Latinos, and 48% of those ages 18-29 say that they reach the maximum amount of data they are allowed to use on their plan at least occasionally, with around one-in-five from each group indicating that this happens to them frequently.
  • Twenty-seven percent (27%) at least occasionally encounter a monthly bill that is substantially higher than they expected it to be, with 7% saying that this happens to them “frequently.” Nine percent (9%) experience unexpected charges from in-app purchases at least occasionally. Just 2% of smartphone owners say that this happens “frequently,” and 60% indicate that this never happens to them. Roughly one-third of African American and Latino smartphone owners experience much higher-than-expected monthly bills at least on occasion, and about one-in-ten indicate that surprisingly high bills happen to them “frequently.”

Wireless and Lifeline

How can the research impact the upcoming Lifeline debate?

The Pew research may be especially informative as the Federal Communications Commission considers modernizing its Lifeline program to include subsidies to make broadband more affordable for low-income households. Central to the FCC debate will be a decision to support wireline or wireless services – or both. The Vantage Point report argues that scarce public funds should be directed to wireline broadband. “It would be short-sighted and expensive if a broadband network required significant upgrades or had to be replaced altogether before the end of its economic life simply because it can no longer meet customers’ broadband demands.”

In 2012, the FCC established a Broadband Adoption Pilot Program to test and determine how Lifeline can best be used to increase broadband adoption among Lifeline-eligible consumers. In December of 2012, the FCC selected 14 pilot projects, spanning 21 states and Puerto Rico. The pilots ended in November of 2014. In a March 2015 filing at the FCC, Sprint reported on the design and execution of Virgin Mobile’s Broadband Lifeline pilot project.

Virgin Mobile, in conjunction with its Assurance Wireless branded Lifeline service, jointly designed a Broadband Lifeline pilot proposal leveraging Virgin Mobile’s Broadband2Go product and Assurance Wireless’s Lifeline experience. The Company set out to market its Broadband Lifeline offering to existing Assurance Wireless Lifeline customers in good standing in Massachusetts and Ohio. The device offered to pilot participants was a Virgin Mobile branded MiFi device. Service was offered on a prepaid basis, like all Virgin Mobile service offerings, such that customers who chose plans with a monthly recurring charge could choose to pay and receive service (or not) in any given month.

Virgin Mobile marketed each of the four Lifeline pilot plans to approximately 26,000 Assurance Wireless customers in Massachusetts and 38,000 customers in Ohio. Customers were targeted with only one of four plans. Thus, a total of approximately 104,000 Massachusetts customers and 150,000 Ohio customers received an offer for Broadband Lifeline service from Virgin Mobile. Most customers received one mailer, although some received a follow-up mailer.

Virgin Mobile planned for participation by 2,500 customers for each of the four plans. In fact, participation in all plans was considerably less – in the hundreds of customers total in any given month. Plan 1, with a $30 upfront cost and no monthly recurring charge, attracted the most customers. Plan 4, with a $50 upfront cost and $20 monthly recurring charge, attracted the fewest customers. In terms of usage, only a handful of participants exceeded one gigabyte of data in any given month. The vast majority of participants used well below one gigabyte of data.

Without conducting a customer survey, Virgin Mobile came to the following conclusions:

  1. A required contribution, either upfront or in the form of a monthly recurring charge, even if it is relatively small, is a significant barrier to participation for Lifeline-eligible households. Annual income for the average Assurance Wireless household is approximately $11,000. Any broadband Lifeline program should be designed with the extremely cash-constrained consumer in mind.
  2. Approximately 70% of Assurance Wireless Lifeline subscribers report having no access to the Internet either at home or in the community (family, school, library, etc.). Assurance Wireless households may not have hardware available to access the Internet using broadband service. Any broadband Lifeline program should consider the inclusion of a subsidy for hardware, including, but not limited to, a smartphone.
  3. It is likely that a robust consumer education effort will need to precede and accompany any broadband Lifeline program to educate targeted consumers about both the benefits of broadband access and how to use the service.

The Virgin Mobile finding could be compared to Dr John B. Horrigan’s research on Comcast’s Internet Essentials program. In Comcast service areas, households with students who are eligible to participate in the National School Lunch Program may receive home Internet service with download speeds of up to 5 Mbps and upload speeds of up to 1 Mbps for $9.95 per month. These households may also purchase a computer through Internet Essentials for $149.99 plus tax. Comcast guarantees no price increases, activation fees or equipment rental fees. The service includes a basic modem, but not a wireless router. Importantly, Internet Essentials also makes training available for participants – either in print, in person or online.

In The Essentials of Connectivity, Dr Horrigan recommended:

  • Institutions should partner with the full spectrum of broadband adoption initiatives to encourage broadband adoption among client populations.
  • Libraries, schools, and non-profits should create spaces where new users can find the “social effect” that hastens the path to engaged online use.
  • Broadband adoption programs should collaborate with online learning resources that can help with education and digital skills.
  • Stakeholders focused on economic and community development must make appropriate investments to facilitate broadband adoption at home.
  • Stakeholders should undertake periodic community and user needs assessments to facilitate dialogue on what strategies work to close broadband adoption gaps.

In Deepening Ties, Horrigan followed up with Internet Essentials customers eight months later asking, What has changed for respondents with the passage of time? Have respondents’ relationships with the Internet deepened? Have reported impacts of having the Internet at home changed? To what, if anything, can we attribute identified changes? The key takeaways from that research include:

  • Internet Essentials customers became more frequent and confident Internet users.
  • Internet Essentials users view home access as a pathway to economic opportunity—both in terms of job searching and workforce skills development.
  • Having broadband at home helps respondents to manage work schedules, communicate with employers and sometimes to work from home.
  • Internet Essentials service provides everyday convenience for users by helping them to manage schedules and search for bargains.
  • Nearly one-third (31%) of Internet Essentials users have had formal training on the Internet or computers, meaning they took classes at libraries, community centers, an IE program or a program other than IE. Those who have had such training are more likely than those who did not to use the Internet for job searching and cultivating social ties.
  • A strong majority—79%—would be interested in training in additional areas such as their child’s education, financial literacy, and workforce skills.

As policymakers consider reforming the Lifeline program, they face many tough choices. Should the program remain focused on basic telephone service or should it include broadband? Will recipients be able to choose between wireline and wireless service? Is the current $9.25 per month subsidy enough? How can the program encourage outreach programs to ensure potential recipients know about the program and make best use of the tools it helps provide? Luckily, researchers are beginning to provide some data to help drive these decisions.

By Kevin Taglang.