Rare reason in the broadband debate

Calm and reasoned discussion in debates over broadband and Internet policy are rare. But Saul Hansell, in a series of posts at the NYTimes Bits blog, does an admirable job surveying international broadband comparisons. Here are parts I and II, with part III on the way. [Update: Here’s part III. And here’s a good previous post on “broadband stimulus.”]

So far Hansell has asked two basic questions: Why is theirs faster? And why is theirs cheaper? “Theirs” being non-American broadband.

His answers: “Their” broadband is not too much faster than American broadband, at least not anymore. And their broadband is cheaper for a complicated set of reasons, but mostly because of government price controls that could hurt future investment and innovation in those nations that practice it. 

Ask America. We already tried it. But more on that later.

Hansell makes several nuanced points: (1) broadband speeds depend heavily on population density. The performance and cost of communications technologies are distance-sensitive. It’s much cheaper to deliver fast speeds in Asia’s big cities and Europe’s crowded plains than across America’s expanse. (2) Hansell also points to studies showing some speed-inflation in Europe and Asia. In other words, advertised speeds are often overstated. But most importantly, (3) Hansell echoes my basic point over the last couple years:

. . . Internet speeds in the United States are getting faster. Verizon is wiring half its territory with its FiOS service, which strings fiber optic cable to people’s homes. FiOS now offers 50 Mbps service and has the capacity to offer much faster speeds. As of the end of 2008, 4.1 million homes in the United States had fiber service, which puts the United States right behind Japan, which has brought fiber directly to 8.2 million homes, according to the Fiber to the Home Council. Much of what is called fiber broadband in Korea, Sweden and until recently Japan, only brings the fiber to the basement of apartment buildings or street-corner switch boxes.

AT&T is building out that sort of network for its U-Verse service, running fiber to small switching stations in neighborhoods, so that it can offer much faster DSL with data speed of up to 25 Mbps and and Internet video as well. And cable systems, which cover more than 90 percent of the country, are starting to deploy the next generation of Internet technology called Docsis 3.0. It can offer speeds of 50 Mbps. . . .

In the wake of the tech crash in the early 2000s, my then-colleague George Gilder and I were among the first to sound the alarm that the U.S. had fallen seriously behind in broadband. South Korea had leapt out to a big lead and, with its fiber-optic nets and early deployment of 3G wireless, commanded some 40 times the per capita bandwidth of the U.S.

But then we made some important changes. Between 2003 and 2006 we scrapped many of our complex rules that had inhibited broadband deployment. Investment took off. The telecom companies launched their big fiber-optic plans that are now bearing fruit. In response, the cable companies kept ratcheting up the speeds on their Docsis 2.0 networks and, as Hansell mentions, are now moving toward very fast Docsis 3.0. So between 2002, when Gilder and I offered our warning, and today, average U.S. residential broadband speeds rose five-fold, from about 1 megabit per second (Mbps) to more than 5 Mbps, with more on the way. At the same time 3G wireless smart-phones and laptop antennas, combined with good (if not great) Wi-Fi availability, took off. Although America is still (and always will be) more difficult to fully blanket with mobile coverage than Japan or Korea, our wireless nets are now among the world’s best.

What about prices? It’s easy to keep prices low with subsidies, which is essentially what many nations do. Some subsidies went directly to telecom companies to build out their broadband networks. Then, once the network was built, the telecom companies had to “share” their lines with “competitors,” who offer a “service” to consumers but don’t do much to improve network capacity or applications. So end-consumer prices go down, at least for that product. But the costs must be borne by someone. In places like Europe and Asia, with less real facilities-based competition than the U.S., where telecoms are more aligned with the government, these costs are either made up with government funds, higher prices elsewhere, or through the power of monopoly that many communications companies enjoy at other layers of the network. In the end, consumers, who are also taxpayers, end up footing the bill in one way or another, through higher taxes or higher prices on other communications products.

It’s easy, once a network is built, especially with government help, to “open” the network to “competitors” to push down prices. It’s much more perilous, in a competitive environment like the U.S. with telecom, cable, satellite, and wireless, etc., to mandate open access. We know. We tried it. It didn’t work. It was a disaster. It was the very reason we fell behind in broadband in the first place. It severely retarded the building of new capacity in shortsighted favor of lower prices on existing services. At the time, those services were voice calling and dial-up and dinky “broadband” Internet access. The result was wasteful competition in the existing domain of insufficient technology and products, rather than investment and innovation toward the much-needed networks and products of the future. “Open access competition” in our last-mile networks in the late 1990s and early 2000s may have lowered prices here or there, but it helped crash the whole tech/telecom market by pushing most investment away from the last-mile and into truly deregulated long-haul networks (remember the “fiber glut”?). This mismatch — lots of bandwidth in the core, not much at the consumer edge — prevented us from consummating the whole broadband system, which is necessary for any true network to function. Thousands of Silicon Valley companies, whose business plans depended on a new broadband Net that never came, crashed, as did many telecom companies.

Hansell did mention one interesting idea from abroad: Japan’s more-immediate expensing of broadband build-outs. We should accelerate depreciation of these big investments in America.

We’ve still got a way to go, but we’re in the midst of a broadband renaissance. The most important thing we can do is avoid new government policies in Washington and the states that stop the broadband surge in its tracks.

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