Don't buy the hype about lagging US broadband

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Article Highlights

  • The U.S. has far better, Internet service than the EU, and the EU says so.

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  • At best, the EU has only pockets of high speed networks and faces an investment shortfall of $150-230 bn to reach its broadband goals.

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  • Americans account for 4% of the world's population, but enjoy one-fourth of the world's broadband capex.

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  • The American broadband approach of market-led, technology-neutral, infrastructure-based competition has won over the EU approach

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Last Friday marked the heralded release of the Season 2 of the popular Netflix miniseries House of Cards-- available only to Netflix subscribers on the Internet. As Netflix consumes about one-third of America's internet traffic at any time, it's no wonder that there is an obsession over access to next generation broadband networks. But in the U.S., headlines often read that America is falling behind other nations, particularly the European Union (EU), and that to achieve next generation broadband availability, more government involvement is needed. But government-led broadband is truly a house of cards: The U.S. has far better, Internet service than the EU, and the EU says so.

As an American academic in Europe, I experience these things first hand, and my new report "The European Union's Broadband Challenge" examines documents from the EU about their broadband performance. Led by the European Commission and EU Commissioner for the Digital Agenda Neelie Kroes, the EU has launched an effort to catch up to the U.S. and the rest of the world with a Digital Single Market initiative. To build support for this effort across its 28 member nations, the EU has developed a series of reports and assessments. Its Digital Scoreboard tracks progress on digital readiness, and it notes that the 2020 goals of ensuring that all EU citizens (some 500 million) have access to a 30 Mbps broadband connection, and that at least 50 percent of households subscribe to Internet connections faster than 100 Mbps are not on track. Indeed, some 24 percent of European households currently do not subscribe to broadband at all.

The EU further commissioned detailed broadband mapping to illustrate the dearth of next generation broadband networks across the continent. This exercise showed that at best, the EU has only pockets of high speed networks and faces an investment shortfall of €110-170 billion ($150-230 billion) to reach its broadband goals.

The clarion call comes from Neelie Kroes:

"The world envied Europe as we pioneered the global mobile industry in the early 1990s (GSM), but our industry often has no home market to sell to (for example, 4G) consumers miss out on latest improvements or their devices lack the networks needed to be enjoyed fully. These problems hurt all sectors and rob Europe of jobs it badly needs. EU companies are not global internet players... 4G/LTE reaches only 26% of the European population. In the U.S. one company alone (Verizon) reaches 90%!"

French minister delegate Fleur Pellerin added that in 2002, six European phone makers produced 50 percent of the world's phones, but that with Microsoft's acquisition of Nokia, no European phone makers remain.

How does the U.S. stack up?

A decade ago, the EU accounted for one-third of the world's communications infrastructure capital expenditure. That amount has fallen to less than one-fifth today. Americans, on the other hand, account for 4% of the world's population, but enjoy one-fourth of the world's broadband capex. In fact, per capita investment in the U.S. is twice that of Europe, and the gap is growing.

Then there is the claim that Americans pay more for broadband than Europeans. As I point out in my report, critics forget to include the impact of value added taxes (as high as 27% in some countries) and compulsory media license fees (adding hundreds of dollars per year to the cost of every broadband subscription). When accounting for these real differences, Americans pay less for broadband.

The American broadband approach of market-led, technology-neutral, infrastructure-based competition has won over the EU approach of managed access and unbundling-and the EU says so.

The strength of the U.S. broadband market is also evident in its flourishing Internet economy. Not lost on Kroes and the Europeans is that the U.S. leads in the number of global Internet companies and that Europeans overwhelmingly use American, not European, search engines, social networks, and mobile applications. Of the world's top 25 Internet companies (as measured by revenue and market value), some 15 come from the U.S. Just one, Asos, comes from the EU. The U.S. now exports over $350 billion annually in digital goods and services, making it our third largest category of exports. If America's broadband networks were not up to speed, there is no way the U.S. would have the digital economy it has today.

Data from both the U.S. and EU demonstrate that the the U.S. exceeds the EU on a number of important broadband measures, including prevalence of speeds of 100 Mbps or greater and availability of cable, LTE, and Fiber to the Home (FTTH). All told, 74% of Europeans rely on DSL for broadband, whereas only 34% of Americans do.

America's de facto single market allows companies of all size to achieve scale, and this holds true for both large broadband providers that deploy infrastructure, and for entrepreneurs and emerging companies that want to access to a large domestic market. Neelie Kroes observes, "The time for change is now. . . We can't afford to remain trapped in 28 national markets; if this continues, we will fail to feed the digital economy the raw materials it needs: connectivity and scale. The writing is on the wall, and many EU leaders are abandoning their approach and looking to the American broadband model of infrastructure-based competition and private investment."

Roslyn Layton is a visiting fellow at the American Enterprise Institute's Center for Internet, Communications, and Technology Policy, and an Internet economist at Aalborg University in Copenhagen, Denmark, where she studies communications policy and the Internet.  She is also a Contributor at TechPolicyDaily.com.    

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