In 1960, only three countries — Canada, Sweden and the United States — had more than one phone for every four inhabitants. For most of what would become OECD countries a year later, the figure was less than 1 for every 10 inhabitants, and less than 1 in 100 in a couple of cases. At that time, the 84 million telephones in OECD countries represented 93% of the global total. Half a century later there are 1.7 billion telephones in OECD countries and a further 4.1 billion around the world. More than two in every three people on Earth now have a mobile phone.

Very useful stuff. But in recent times the report has also served as a chance for some to misrepresent the relative health of international broadband markets. The common refrain the past several years was that the U.S. had fallen way behind many European and Asian nations in broadband. The mantra that the U.S. is “15th in the world in broadband” — or 16th, 21st, 24th, take your pick — became a sort of common lament. Except it wasn’t true.

As we showed here, the second half of the two-thousand-aughts saw an American broadband boom. The Phoenix Center and others showed that the most cited stat in those previous OECD reports — broadband connections per 100 inhabitants — actually told you more about household size than broadband. And we developed metrics to better capture the overall health of a nation’s Internet market — IP traffic per Internet user and per capita.

Below you’ll see an update of the IP traffic per Internet user chart, built upon Cisco’s most recent (June 1, 2011) Visual Networking Index report. The numbers, as they did last year, show the U.S. leads every region of the world in the amount of IP traffic we generate and consume both in per user and per capita terms. Among nations, only South Korea tops the U.S., and only Canada matches the U.S.

Although Asia contains broadband stalwarts like Korea, Japan, and Singapore, it also has many laggards. If we compare the U.S. to the most uniformly advanced region, Western Europe, we find the U.S. generates 62% more traffic per user. (These figures are based on Cisco’s 2010 traffic estimates and the ITU’s 2010 Internet user numbers.)

As we noted last year, it’s not possible for the U.S. to both lead the world by a large margin in Internet usage and lag so far behind in broadband. We think these traffic per user and per capita figures show that our residential, mobile, and business broadband networks are among the world’s most advanced and ubiquitous.

Lots of other quantitative and qualitative evidence — from our smart-phone adoption rates to the breakthrough products and services of world-leading device (Apple), software (Google, Apple), and content companies (Netflix) — reaffirms the fairly obvious fact that the U.S. Internet ecosystem is in fact healthy, vibrant, and growing. Far from lagging, it leads the world in most of the important digital innovation indicators.

— Bret Swanson

Mobile, perhaps not coincidentally, has also been historically a quite lightly regulated industry. But emerging is a sort of slow boil of small but many rules, or proposed rules, that could threaten the sector’s success. I’m thinking of the “bill shock” proceeding, in which the FCC is looking at billing practices and various “remedies.” And the failure to settle the D block public safety spectrum issue in a timely manner. And now we have a group of  rural mobile providers who want the FCC to set prices in the data roaming market.

You remember that “roaming” is when service provider A pays provider B for access to B’s network so that A’s customers can get service when they are outside A’s service area, or where it has capacity constraints, or for redundancy. These roaming agreements are numerous and have always been privately negotiated. The system works fine.

But now a group of provider A’s, who may not want to build large amounts of new network capacity to meet rising demand for mobile data, like video, Facebook, Twitter, and app downloads, etc., want the FCC to mandate access to B’s networks at regulated prices. And in this case, the B’s have spent many tens of billions of dollars in spectrum and network equipment to provide fast data services, though even these investments can barely keep up with blazing demand.

The FCC has never regulated mobile phone rates, let alone data rates, let alone data roaming rates. And of course mobile voice and data rates have been dropping like rocks. These few rural providers are asking the FCC to step in where it hasn’t before. They are asking the FCC to impose old-time common carrier regulation in a modern competitive market – one in which the FCC has no authority to impose common carrier rules and prices.

In the chart above, we see U.S. info-tech investment in 2010 approached $500 billion. Communications equipment and structures (like cell phone towers) surpassed $105 billion. The fourth generation of mobile networks is just in its infancy. We will need to invest many tens of billions of dollars each year for the foreseeable future both to drive and accommodate Internet innovation, which spreads productivity enhancements and wealth across every sector in the economy.

It is perhaps not surprising that a small number of service providers who don’t invest as much in high-capacity networks might wish to gain artificially cheap access to the networks of the companies who invest tens of billions of dollars per year in their mobile networks alone. Who doesn’t like lower input prices? Who doesn’t like his competitors to do the heavy lifting and surf in his wake? But the also not surprising result of such a policy could be to reduce the amount that everyone invests in new networks. And this is simply an outcome the technology industry, and the entire country, cannot afford. The FCC itself has said that “broadband is the great infrastructure challenge of the early 21st century.”

Economist Michael Mandel has offered a useful analogy:

new regulations [are] like  tossing small pebbles into a stream. Each pebble by itself would have very little effect on the flow of the stream. But throw in enough small pebbles and you can make a very effective dam.

Why does this happen? The answer is that each pebble by itself is harmless. But each pebble, by diverting the water into an ever-smaller area,  creates a ‘negative externality’ that creates more turbulence and slows the water flow.

Similarly, apparently harmless regulations can create negative externalities that add up over time, by forcing companies to spending  time and energy meeting the new requirements. That reduces business flexibility and hurts innovation and growth.

It may be true that none of the proposed new rules for wireless could alone bring down the sector. But keep piling them up, and you can dangerously slow an important economic juggernaut. Price controls for data roaming are a terrible idea.

• Mobile data traffic was even higher in 2010 than Cisco had projected in last year’s report. Actual growth was 159% (2.6x) versus projected growth of 149% (2.5x).
• By 2015, we should see one mobile device per capita . . . worldwide. That means around 7.1 billion mobile devices compared to 7.2 billion people.
• Mobile tablets (e.g., iPads) are likely to generate as much data traffic in 2015 as all mobile devices worldwide did in 2010.
• Mobile traffic should grow at an annual compound rate of 92% through 2015. That would mean 26-fold growth between 2010 and 2015.

• The order appears to be more intrusive on the topic of “paid prioritization” than was Chairman Genachowski’s outline earlier this month. (Keep in mind, we haven’t seen the text. The FCC Commissioners themselves only got access to the text at 11:42 p.m. last night.)
• If this is true, if the “nondiscrimination” ban goes further than a simple reasonableness test, which itself would be subject to tumultuous legal wrangling, then the Net Neutrality order could cause more problems than I wrote about in this December 7 column.
• A prohibition or restriction on “paid prioritization” is a silly rule that belies a deep misunderstanding of how our networks operate today and how they will need to operate tomorrow. Here’s how I described it in recent FCC comments:

In September 2010, a new network company that had operated in stealth mode digging ditches and boring tunnels for the previous 24 months, emerged on the scene. As Forbes magazine described it, this tiny new company, Spread Networks

“spent the last two years secretly digging a gopher hole from Chicago to New York, usurping the erstwhile fastest paths. Spread’s one-inch cable is the latest weapon in the technology arms race among Wall Street houses that use algorithms to make lightning-fast trades. Every day these outfits control bigger stakes of the markets – up to 70% now. “Anybody pinging both markets  has to be on this line, or they’re dead,” says Jon A. Najarian, cofounder of OptionMonster, which tracks high-frequency trading.

“Spread’s advantage lies in its route, which makes nearly a straight line from a data center  in Chicago’s South Loop to a building across the street from Nasdaq’s servers in Carteret, N.J. Older routes largely follow railroad rights-of-way through Indiana, Ohio and Pennsylvania. At 825 miles and 13.3 milliseconds, Spread’s circuit shaves 100 miles and 3 milliseconds off of the previous route of lowest latency, engineer-talk for length of delay.”

Why spend an estimated $300 million on an apparently duplicative route when numerous seemingly similar networks already exist? Because, Spread says, three milliseconds matters.

Spread offers guaranteed latency on its dark fiber product of no more than 13.33 milliseconds. Its managed wave product is guaranteed at no more than 15.75 milliseconds. It says competitors’ routes between Chicago and New York range from 16 to 20 milliseconds. We don’t know if Spread will succeed financially. But Spread is yet another demonstration that latency is of enormous and increasing importance. From entertainment to finance to medicine, the old saw is truer than ever: time is money. It can even mean life or death.

A policy implication arises. The Spread service is, of course, a form a “paid prioritization.” Companies are paying “eight to 10 times the going rate” to get their bits where they want them, when they want them.5 It is not only a demonstration of the heroic technical feats required to increase the power and diversity of our networks. It is also a prime example that numerous network users want to and will pay money to achieve better service.

One way to achieve better service is to deploy more capacity on certain links. But capacity is not always the problem. As Spread shows, another way to achieve better service is to build an entirely new 750-mile fiber route through mountains to minimize laser light delay. Or we might deploy a network of server caches that store non-realtime data closer to the end points of networks, as many Content Delivery Networks (CDNs) have done. But when we can’t build a new fiber route or store data – say, when we need to get real-time packets from point to point over the existing network – yet another option might be to route packets more efficiently with sophisticated QoS technologies. Each of these solutions fits a particular situation. They take advantage of, or submit to, the technological and economic trade-offs of the moment or the era. They are all legitimate options. Policy simply must allow for the diversity and flexibility of technical and economic options – including paid prioritization – needed to manage networks and deliver value to end-users.

Depending on how far the FCC is willing to take these misguided restrictions, it could actually lead to the very outcomes most reviled by “open Internet” fanatics — that is, more industry concentration, more “walled gardens,” more closed networks. Here’s how I described the possible effect of restrictions on the important voluntary network management tools and business partnerships needed to deliver robust multimedia services:

There has also been discussion of an exemption for “specialized services.” Like wireless, it is important that such specialized services avoid the possible innovation-sapping effects of a Net Neutrality regulatory regime. But the Commission should consider several unintended consequences of moving down the path of explicitly defining, and then exempting, particular “specialized” services while choosing to regulate the so-called “basic,” “best-effort,” or “entry level” “open Internet.”

Regulating the “basic” Internet but not “specialized” services will surely push most of the network and application innovation and investment into the unregulated sphere. A “specialized” exemption, although far preferable to a Net Neutrality world without such an exemption, would tend to incentivize both CAS providers and ISPs service providers to target the “specialized” category and thus shrink the scope of the “open Internet.”

In fact, although specialized services should and will exist, they often will interact with or be based on the “basic” Internet. Finding demarcation lines will be difficult if not impossible. In a world of vast overlap, convergence, integration, and modularity, attempting to decide what is and is not “the Internet” is probably futile and counterproductive. The very genius of the Internet is its ability to connect to, absorb, accommodate, and spawn new networks, applications and services. In a great compliment to its virtues, the definition of the Internet is constantly changing. Moreover, a regime of rigid quarantine would not be good for consumers. If a CAS provider or ISP has to build a new physical or logical network, segregate services and software, or develop new products and marketing for a specifically defined “specialized” service, there would be a very large disincentive to develop and offer simple innovations and new services to customers over the regulated “basic” Internet. Perhaps a consumer does not want to spend the extra money to jump to the next tier of specialized service. Perhaps she only wants the service for a specific event or a brief period of time. Perhaps the CAS provider or ISP can far more economically offer a compelling service over the “basic” Internet with just a small technical tweak, where a leap to a full-blown specialized service would require more time and money, and push the service beyond the reach of the consumer. The transactions costs of imposing a “specialized” quarantine would reduce technical and economic flexibility on both CAS providers and ISPs and, most crucially, on consumers.

Or, as we wrote in our previous Reply Comments about a related circumstance, “A prohibition of the voluntary partnerships that are likely to add so much value to all sides of the market – service provider, content creator, and consumer – would incentivize the service provider to close greater portions of its networks to outside content, acquire more content for internal distribution, create more closely held ‘managed services’ that meet the standards of the government’s ‘exclusions,’ and build a new generation of larger, more exclusive ‘walled gardens’ than would otherwise be the case. The result would be to frustrate the objective of the proceeding. The result would be a less open Internet.”

It is thus possible that a policy seeking to maintain some pure notion of a basic “open Internet” could severely devalue the open Internet the Commission is seeking to preserve.

All this said, the FCC’s legal standing is so tenuous and this order so rooted in reasoning already rejected by the courts, I believe today’s Net Neutrality rule will be overturned. Thus despite the numerous substantive and procedural errors committed on this “darkest day of the year,” I still expect the Internet to “survive and thrive.”

Despite the Federal Communications Commission’s “net neutrality” announcement this week, the American Internet economy is likely to survive and thrive. That’s because the new proposal offered by FCC chairman Julius Genachowski is lacking almost all the worst ideas considered over the last few years. No one has warned more persistently than I against the dangers of over-regulating the Internet in the name of “net neutrality.”

In a better world, policy makers would heed my friend Andy Kessler’s advice to shutter the FCC. But back on earth this new compromise should, for the near-term at least, cap Washington’s mischief in the digital realm.

. . .

The Level 3-Comcast clash showed what many of us have said all along: “net neutrality” was a purposely ill-defined catch-all for any grievance in the digital realm. No more. With the FCC offering some definition, however imperfect, businesses will now mostly have to slug it out in a dynamic and tumultuous technology arena, instead of running to the press and politicians.

What the per capita metric really measures is household size. And because the U.S. has more people in each household than many other nations, we appear worse in those rankings. But as the Phoenix Center has noted, if each OECD nation reached 100% broadband nirvana — i.e., every household in every nation connected — the U.S. would actually fall from 15th to 20th. Residential connections per capita is thus not a very illuminating measure.

But look at the actual Internet traffic generated and consumed in the U.S.

The U.S. far outpaces every other region of the world. In the second chart, you can see that in fact only one nation, South Korea, generates significantly more Internet traffic per user than the U.S. This is no surprise. South Korea was the first nation to widely deploy fiber-to-the-x and was also the first to deploy 3G mobile, leading to not only robust infrastructure but also a vibrant Internet culture. The U.S. dwarfs most others.

If the U.S. was so far behind in broadband, we could not generate around twice as much network traffic per user compared to nations we are told far exceed our broadband capacity and connectivity. The U.S. has far to go in a never-ending buildout of its communications infrastructure. But we invest more than other nations, we’ve got better broadband infrastructure overall, and we use broadband more — and more effectively (see the Connectivity Scorecard and The Economist’s Digital Economy rankings) — than almost any other nation.

The conventional wisdom on this one is just plain wrong.

What we have here is “mission creep.” First, Net Neutrality was about an “open Internet” where no websites were blocked or degraded. But as soon as the whole industry agreed to these perfectly reasonable Open Web principles, Net Neutrality became an exercise in micromanagement of network technologies and broadband business plans. Now, Louderback wants to go even further and regulate prices. But there’s still more! He also wants to regulate the products that broadband providers can offer.

International comparisons in such a fast-moving arena as tech and communications are tough. I don’t pretend it is easy to boil down a hugely complex topic to one right answer, but I did have some critical things to say about a major recent report that got way too many things wrong. A new article by that report’s author singled out France as especially more advanced than the U.S. To cut through all the clutter of conflicting data and competing interpretations on broadband deployment, access, adoption, prices, and speeds, however, maybe a simple chart will help.

Here we compare network usage. Not advertised speeds, which are suspect. Not prices which can be distorted by the use of purchasing power parity (PPP). Not “penetration,” which is largely a function of income, urbanization, and geography. No, just simply, how much data traffic do various regions create and consume.

If U.S. networks were so backward — too sparse, too slow, too expensive — would Americans be generating 65% more network traffic per capita than their Western European counterparts?

As Washington and the states pile up mountainous liabilities — $3 trillion for unfunded state pensions, $10 trillion in new federal deficits through 2019, and $38 trillion (or is it $50 trillion?) in unfunded Medicare promises — the U.S. needs once again to call on its chief strategic asset: radical innovation.

One laboratory of growth will continue to be the Internet. The U.S. began the 2000’s with fewer than five million residential broadband lines and zero mobile broadband. We begin the new decade with 71 million residential lines and 300 million portable and mobile broadband devices. In all, consumer bandwidth grew almost 15,000%.

Even a thriving Internet, however, cannot escape Washington’s eager eye. As the Federal Communications Commission contemplates new “network neutrality” regulation and even a return to “Title II” telephone regulation, we have to wonder where growth will come from in the 2010’s . . . .