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America’s Broadband Service Is Not Falling Behind

Thursday, February 28, 2013

It’s easy to think that the grass is greener abroad, but when it comes to broadband being delivered efficiently, there’s no place like home.

As an American who has worked and studied in Japan, Holland, Sweden, and now Denmark, I have experienced these countries’ broadband, which critics say is better, faster, and cheaper than in the United States. However, there is no application that people in these countries get from broadband that Americans don’t. Furthermore, a hard look at the global broadband data shows there is a serious gap between the picture critics such as Susan Crawford paint and what actually exists in the real world.

A new report from the Washington-based Information Technology and Innovation Foundation (ITIF) provides an excellent review of major broadband studies from the Organization for Economic Cooperation and Development (OECD), the Federal Communications Commission (FCC), Akamai, and others. Each study has a unique focus and methodology, and it is easy to confuse measures such as deployment (the geographic reach of broadband networks) with adoption (the number of users who subscribe). There is no doubt that one could cherry-pick a data point to say the United States is failing, but taking into account the whole picture that the studies provide, the conclusion is clear: the United States is doing well in broadband.

End-user prices may be cheaper in some countries, but prices don’t tell the whole story. The real cost of broadband may be borne by taxpayers through subsidies or other factors such as South Korean landlords required to upgrade their apartment buildings. Population density drives lower prices for broadband. It takes more equipment, and hence more money, to wire the United States, a largely suburban nation with many single-family homes. Japan, South Korea, and the Netherlands, on the other hand, are much more densely populated, and in Denmark, the population is concentrated in the major cities. But before you pack up and move abroad, keep in mind that people in these countries pay more for gasoline and consumer products than do Americans.

It takes more equipment, and hence more money, to wire the United States, a largely suburban nation with many single-family homes.

Some critics call the American market uncompetitive, but American carriers fight fiercely for customers. A look at the FCC’s National Broadband Plan website shows that there are four or more competitors in many markets. But competition is not necessarily driven by the number of players; it’s driven by the technology. Where I live in Denmark, the wireline incumbent controls more than 50 percent of that market, but there are still low prices. This is because mobile operators are in a race to upgrade their infrastructure, so the incumbent keeps prices down so its DSL customers won’t flock to mobile. Indeed, the United States is rated third in the OECD for intercarrier competition between cable and DSL (behind Belgium and the Netherlands).

The ITIF also notes that the United States has the OECD’s second-lowest price for entry-level broadband; what you pay scales with what you consume. For some time, adoption of broadband in the United States was hindered by people not having a computer. With the prices for mobile devices falling (half of all Americans owned a smartphone in 2012) coupled with the world’s biggest rollout of 4G/LTE, lower-income Americans increasingly purchase broadband. We are reinventing the Internet with mobile while wired networks continue to innovate.

In Denmark in 2000, no fewer than 14 local utility cooperatives attempted to create their own fiber networks, arguing that there is little difference between bringing fiber or electricity to homes. They estimated that once one is in the business of providing electricity, the transition can easily be made to providing another pipe service: broadband. Their business case never worked because the price of broadband on other networks plummeted. Today, fewer than 200,000 Danish homes subscribe to these fiber networks, a number that’s small even for Denmark.

The Norwegian Centre for Integrated Care and Telemedicine, the world’s leading institute for telemedicine, notes that most applications run fine on average broadband levels (for example, video consultation), and even the most advanced app would require no more than 10 megabits per second (Mbps). Indeed the limiting factor for telemedicine is not broadband but rather health care providers who are resistant to change.1 This finding echoes the U.S. Chamber of Commerce study of broadband in schools, which found that many American schools have the requisite level of broadband, but the bottleneck is teachers who are not up to speed on technology. Thus, public funds may be better spent on digital literacy and teacher training than on fiber.

With the prices for mobile devices falling coupled with the world’s biggest rollout of 4G/LTE, lower-income Americans increasingly purchase broadband.

To be sure, the country with the fastest broadband speeds has bragging rights. Making a broadband target of 100 Mbps or greater is politically expedient, but not necessarily meaningful. It’s not the speed that matters, but what you do with it. In South Korea, which has the world’s fastest speed of 45 Mbps, the primary uses of broadband by far are still entertainment for consumers and video conferencing for businesses. While broadband has enabled productivity in many industries and supported a marginal “Gangnam Style” entertainment economy, make no mistake: the real money in South Korea’s economy still comes from electronics, automobiles, shipbuilding, semiconductors, steel, and chemicals — the same growth engines from the pre-broadband days. Ditto for Japan and Sweden. The United States, however, has diversified its economy because of broadband, and boasts the world’s largest internet companies and innovation economy. This was achieved with massive but wise investment in multiple wireline and wireless broadband networks, and shows that we get bang for our broadband buck.

In South Korea the national broadband project has not yielded the jobs that were expected. Broadband has enabled entertainment but not employment. A new report by the Korea Information Society Development Institute, “A Study on the Impact of New ICT Service and Technology on Employment,” bemoans the situation of “jobless growth.” The government is also concerned about internet addiction, which afflicts some 10 percent of the country’s children aged between 10 and 19, who essentially function only for online gaming but not in other areas of society.

In crafting broadband policy, European Commission Vice President Neelie Kroes is looking not at Sweden or South Korea, but the United States, where she notes “high speed networks now pass more than 80 percent of homes; a figure that quadrupled in three years.” Furthermore, she advocates private along with public investment to achieve broadband goals. It is no small accomplishment that some $250 billion of private investment funded American broadband between 2008 and 2011, and that investment continues today. In the last few years, American telecom firms bought more fiber than all of Europe combined.

It’s easy to think that the grass is greener abroad, but when it comes to broadband being delivered efficiently, there’s no place like home.

Roslyn Layton is a PhD fellow in internet economics at Center for Communication, Media and Information Technologies at Aalborg University in Denmark.

FURTHER READING: Jeffrey Eisenach says “The Internet Doesn’t Need More Regulation” and discusses “Broadband Competition in the Internet Ecosystem.” Christopher Yoo explains “The Internet’s Changing Architecture.” Arthur C. Brooks blogs about “An Internet for the People: Reducing Cronyism in Broadband.”

Footnote:

1. Sture Pettersen, interview with author, February 21, 2013.

Image by Dianna Ingram / Bergman Group

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