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Broadband - The American Way

Paul Budde

There have been some interesting discussions recently regarding the status of broadband in the USA.

On the one hand there are those who maintain that most people have access to high-speed networks, in particular HFC services based on the DOCSIS 3.0 standard. Theoretically, the standard can deliver speeds of 100Mb/s, or higher, but in practice most customers subscribe to, or have access to, far lower speeds.

On the other hand, people point to the semi-monopolistic position of the cable companies that is keeping prices high and hampering innovation, and to the relatively large number of Americans who do not have access to good quality — let alone high-speed — broadband.

In many situations, therefore, the issue is less about theoretical access than affordability. In most cases high-speed services of between 25Mb/s and 50Mb/s — if they are made available at all by the providers — are relatively expensive (between $50 and $100 per month) and the majority of Americans cannot afford those prices. At the same time, one can question whether at this stage there is actually a demand for such high-speed services.

While policymakers and politicians agree that high-speed broadband is important for the economic and social development of the country, few are actually making the connection that access to high-speed broadband needs to be coupled with affordable pricing. Most still adopt a more commercial approach: that the dynamics be left to the market, that businesses be allowed to make commercial arrangements, and that end-users can decide for themselves whether or not they want those services.

It is the lack of affordability that is the main issue for America. We see countries elsewhere in the world that provide high-speed internet at affordable prices. There, the uptake is very high, and this in turn stimulates service providers to offer feature-rich (video-based) applications — both commercial ones (entertainment) and social ones (healthcare, education, etc.).

Within the context of the new digital economy the current regulatory system in the USA is completely broken. To deal with this, in 2009 the Obama Administration launched a fresh approach and laid down in its National Broadband Plan, where many of these issues were addressed. However, the plan landed on barren ground and nothing has happened since.

Many Americans loathe government involvement in stimulating broadband affordability and innovation: they prefer to leave this to the market, and very few accept or discuss the fact that the market is monopolistic in its nature. At the same time, over the last few decades the companies involved have been able to dictate government and regulatory policies. Of course, they are happy with their resulting near monopolistic status since this keeps margins and profits high.

In the absence of broad public support there is little chance that any administration can successfully tackle the duopoly/monopoly of the broadband market. As a result of political ineptitude, all that has happened on the regulatory side of US telecoms over the last five years have been changes that have strengthened the market stranglehold held by the three or four leading telcos.

Running out of options and looking to find alternative ways to stimulate broadband use in the USA, it would be reasonable to give consideration to the FCC's Free Public WiFi 'proposal'. In the absence of commercial incentives to deliver internet access to those who can least afford it, free WiFi — using government-owned and controlled spectrum — is certainly an option. However it is highly questionable whether such a program could be implemented in the current US political climate. The all-powerful telcos have already voted against it. Hardliners will also argue: why not sell that spectrum and make some money, rather than creating more equitable access?

The lack of affordable broadband has also contributed to America slipping further down international league tables for broadband penetration — the slide is not too dramatic, but many countries now have high-speed broadband services at far more affordable prices than the USA.

There is an increased call for better government policies to allow the USA to regain its position — and indeed lead new and innovative developments that can ride on the back of a utilities-based broadband infrastructure. It is most unlikely that the incumbent operators will create such an environment. Regulatory or legislative incentives are needed to create a utilities-based infrastructure and the incumbents are lobbying hard to avoid any changes — if anything they want more regulation to further bolster their monopolies. They are waging an all-out legal campaign against any municipality that wants to build its own broadband network. They have been very successful in this — after 15 years of municipal broadband initiatives less than 1% of Americans are connected to such networks.

One breakthrough has been the Google FttH network in Kansas City, but if competition has to be extended this way it could take 20 years or more to see any large-scale effect. The question remains: can the USA afford to slip further and further down the broadband ladder?

With so many political issues in the USA it is unlikely that anything will happen soon using the more traditional policymaking tools. So they will simply muddle along in the hope that suddenly something will happen outside the box that will break through the lethargy.

Something will happen eventually, of course, but it is most disappointing that this will not be done in a strategic way. Those in the know and with their heart in the right place (the president, people within the FCC and many others) recognise this, but with a dysfunctional Congress none of their plans are pushed through. As Obama mentioned at his inauguration, he depends on people power to get these policies through. (I assume that, unfortunately, telecoms is not at the top of this list.)

Those who support the laissez faire attitude rely on commercial organisations to lead the way. Time will tell if that is going to work and it will not be too long before we will see the results from countries where a more government-led approach is being taken. These include South Korea, Japan, Australia, New Zealand, Singapore and the Arab States, while even some European countries lie somewhere in the middle of the curve.

By Paul Budde, Managing Director of Paul Budde Communication. Paul is also a contributor of the Paul Budde Communication blog located here.

Related topics: Access Providers, Broadband, Policy & Regulation

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Comments

Expensive is relative Dan Campbell  –  Feb 19, 2013 2:51 PM PDT

I suppose it is all relative, but in my mind $50-100 for 25-50Mbps home broadband Internet is at least reasonable if not inexpensive.  In the mid-90s we were frequently paying $20/month (and sometimes higher usage based fees) for 33.6Kbps (more or less) dial-up Internet access that was not always on and sometimes gave you busy signals.  Not a bad price increase in 15 years given the orders of magnitude increase in performance.  Maybe that is not "cheap" compared to prices in other countries, but the US also has many people more rurally located then, say, Western Europe. Americans are used to long commutes and even though they work in a major city may have 1.5 - 2 hours commutes each way.  For most, an hour each way is normal, yet they are still considered "suburbanites".  From what I see for those of us who really are in the suburbs and not literally out in the country, the pricing for braodband in that range is set more by what carriers know they can charge rather than what their costs may be and how to fully cover them.  The prices points are in that $40-100 range regardless of regulation.  For me, I recently moved and ordered Verizon FiOS instead of the Comcast cable service I previously had.  The price difference to upgrade from Verizon's base offering of 25Mbps (perhaps they have a lower speed, I don't remember) to 50Mbps was trivial and kind of like a "super sizing" trick that fast food companies use to shake a few more quarters out of you by luring you to upgrade in size with little additional cost on their end.  It was easy to go to 50Mbps.  In fact, the Internet portion of my triple play bill - and this was true of Comcast as well - is dwarfed by the cable TV portion since you can get so many add on channels and services on the TV portion.  You also have to consider that Americans are fairly spoiled in terms of what we have and what our entertainment outlets are.  Despite what the media makes to look like bleak 1930s-like economic conditions, the amount of disposable income I see is stunning.  For many I know, $50 or even $100 a month for Internet access when considering what it provides only sits in the middle of "utility" bills, not at the high end.  For some like me, compared to the rest of my "utility" bills it doesn't even register.  I call Interet access a "utility" because it sort of combines practical near-necessity usage (not quite the level of electricity, gas and water, but just below and maybe on par with cell phones) with discretionary entertainment sources (cable TV, pay per view, movies, video games, etc) into one service/bill.  The entertainment portion competes with many other things in the average house, inside or out.  Frankly, if I heard anyone I know complaining about $50-100/month for Internet access at those speeds, I'd question how that perspective fits into the rest of their monthly spending not just utilities but all entertainment expenses.  One single night at pro sporting event crushes that.

Thx for your comment DanI can fully Paul Budde  –  Feb 19, 2013 8:46 PM PDT

Thx for your comment Dan

I can fully understand your position. However, I believe that the real strength of high-speed broadband is that all people are connected, for that to happen that would require a true utility. Affordability is the key to high-speed broadband, this roughly works as follows at prices of $100+ pm you get 10-20% penetration, at $50 your get 50 - 60% penetration, at around $30 pm your get 90% penetration.

At the same time of course that high-speed broadband has to be available and currently a third of Americans don't have access to it, even if they could afford this, this is where America's National Broadband Plan kicks in that is aimed in filling in the gaps and making access affordable for all.

So if you want to use broadband as a utility to for example deliver healthcare, education, smart grid and other services on a universal basis you will also have to have those low entry level prices.

Best Regards,

Paul

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