America’s Broadband Is Not Broken

The argument for a massive reorganization of America’s broadband markets depends on a set of facts that don’t exist.
April 22, 2013

Anyone who insists that broadband networks are “natural monopolies” best provided by government agencies as adjuncts to the electrical power grid, as Governing columnist Alex Marshall did in his recent article, doesn’t have a very sound understanding of broadband.

Apart from a few superficial similarities -- they’re both networks, both involve wires of some sort, and both involve billing and maintenance -- broadband information networks are as different from power networks as they could possibly be. Power networks deliver the same service to each user all the time, but the technology-driven services that information networks deliver are dynamic, tailored to the needs and activities of each customer, and constantly adapting to a changing environment.

There’s no information content in a power network, so the service is perfectly depersonalized, fungible and interchangeable. The Web site I’m reading is not the one my neighbor reads, so something very different is going on with broadband than with power. Even the reliance on common wires doesn’t go very far because broadband services can be provided by wireless systems and even by satellites.

While the service provided by electric utilities is the same as it was 100 years ago, the services that broadband networks provide double in speed every three to five years. Broadband service providers constantly evaluate new equipment, install upgrades, invest in outsourcing and insourcing and devise new service plans. They do these things while maintaining complex systems constantly beset by viruses, malicious attacks and new applications that alter network load in unpredictable ways. Electrical power services have issues of their own in terms of fluctuating market prices for natural gas and coal, weather-related crisis management, and aging equipment, but the challenges draw on very different skill sets. The ability to manage one type of network efficiently doesn’t translate to the other.

According to the National Telecommunications and Information Administration’s National Broadband Map, America is literally awash with broadband choices:

  • 89 percent of Americans have a choice of five or more broadband providers, including wireless and satellite.
  • 85 percent of Americans have a choice of two or more wireline broadband providers.
  • 96 percent have a choice between wireline, terrestrial wireless and satellite.
  • Only a tenth of one percent of Americans are beyond the reach of all broadband services.

Broadband service is many things, but a “natural monopoly” is not one of them. In fact, advances in technology such as wireless LTE, faster satellites and increased deployment of fiber optic cable are combining to make broadband markets more competitive year after year. Forward-looking policymakers would love electricity markets to enjoy the benefits that competition brings where it’s practical and meaningful.

Some argue that competition doesn’t matter in broadband markets because cable companies have permanently won the market contest with traditional telephone companies, but this declaration jars with the facts. Phone companies are signing up more new subscribers for their advanced fiber optic-based services (Verizon’s FiOS and AT&T’s U-verse) every quarter than cable companies are. While cable and fiber duke it out, the four national wireless providers now offer speeds capable of carrying heavy broadband loads with a wide variety of pricing plans, connection options and mobile coverage zones. Wireless broadband reaches us practically everywhere we go, but we have to generate or store our own power to use it on the go. Given this, the competition for broadband customers is actually increasing, and service levels are improving across the board.

Still other critics of U.S. broadband markets claim that American consumers are being fleeced for unreasonably high fees for services they consider shoddy by the global standard. This argument is wrong on several counts. As ITIF found in our recent report on American broadband, "The Whole Picture: Where America’s Broadband Networks Really Stand," America’s broadband companies are less profitable than those in Europe, and the prices they charge are the third lowest in the world for entry-level service plans.

America’s population distribution imposes high costs on broadband compared to most nations, and we finance broadband differently. Each of the nations touted for low-cost, high-speed service -- typically places like Hong Kong, Korea, Japan and Sweden -- has much higher density cities than we have, which translates into lower costs for both active equipment and cabling. These nations have also subsidized next-generation networks with generous tax incentives and outright grants to such an extent that as much as two thirds of service costs are born by the tax bill rather than the monthly broadband bill. It’s disingenuous to compare monthly service bills without examining tax payments.

Finally, critics of the American broadband system like to charge that our services are slower than those of most other countries, an oft-repeated fib. It certainly was the case that the average speeds of the most popular service plans in use in the U.S. during the economic collapse of 2008-2009 were not the world’s fastest: On average, American broadband speeds were 22nd in the world in late 2009.

Tremendous attention was paid to America’s 2009 standing, but very little mention has been made about the fact that our position in the global ranking has since risen to 8th place thanks to steady increases year after year. The publicity campaign around the 2009 figures and the subsequent silence has left many with the mistaken impression that we’re in dire straits when quite the contrary is true: 82 percent of American homes are passed by a broadband network capable of delivering 100 Mbps service today, and we’re the world leader in the adoption of the fastest mobile technology.

Given that some of the large American broadband suppliers, such as Comcast, have doubled the speeds of most accounts without an increase in price, we can expect our rankings to continue improving. It’s unlikely that the U.S. will ever seize the title for the world’s fastest broadband from Hong Kong (essentially, a high-rise city), but there’s no reason to believe that American service levels are a barrier to innovation.

The argument for a massive reorganization of America’s broadband markets depends on a set of facts that don’t exist. Our system needs constant attention at the margins, to ensure full participation and development in the right direction, but the system is fundamentally sound and in no need of major repairs. I wish we could say as much for our utility networks.

Richard Bennett is a senior research fellow with the Information Technology and Innovation Foundation and co-author of the report, The Whole Picture: Where America’s Broadband Networks Really Stand.

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