Free Markets

How Market Forces Are Expanding Broadband Access in the U.S.

America's relatively laissez-faire policies are driving broadband growth.

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Over the years we have been told that when it comes to broadband, Europe leads America. That the U.S. model tends too much toward monopoly, while Europe's ensures strong competition among many small players. Well, queue the schadenfreude.

A series of recent reports shows that the U.S. is taking the lead, and that its relatively laissez-faire broadband policies, which encourage investment, are the reason why.

First, some plain and simple good news. The White House this month released a report on broadband growth finding that since 2009, the percentage of American homes reached by high-speed broadband have more than quadrupled, and that average broadband speeds have doubled. More remarkably, between 2000 and 2010, the percentage of American households with a home connection to broadband exploded from 4.4 percent to 67 percent.

Meanwhile, Europe's broadband speeds have remained stagnant. Broadband companies in the U.S. are installing advanced fiber-optic technology faster than Europe, according to a recent study by the Information Technology and Innovation Foundation. That likely ensures that the gap will continue to widen.

Indeed, it's the willingness of telecom companies to invest in new infrastructure that ensures broadband growth. In the U.S. we enjoy what's known as "facilities-based competition," which means that broadband providers own their network and compete with each other based on improvements to their facilities. In most of Europe, by contrast, broadband providers lease access to the network from the local phone company at fixed rates. That may mean a greater number of competitors, but also little incentive to improve the network facility.

As the White House report noted, just two U.S. telecommunications companies—AT&T and Verizon—"account for greater combined stateside investment than the top five oil/gas companies, and nearly four times more than the big three auto companies combined." If companies thought they would be forced to lease their networks to rivals at regulated rates, it's doubtful they'd make such investments.

The story repeats in the market for wireless broadband. According to a new report from the GSM Association, the U.S. has opened a wide lead in the deployment of next-generation wireless infrastructure. By the end of the year, nearly 20 percent of U.S. mobile connections will be on LTE networks, compared to fewer than 2 percent in the EU. Additionally, average mobile data speeds in the U.S. today are 75 percent faster than those in Europe, and by 2017 they will be more than twice as fast.

Again, it's the willingness of companies to invest in infrastructure that explains the disparity. While wireless infrastructure capital expenditures have grown in the U.S. by 70 percent since 2007, according to the GSMA report, they have declined in the EU. Competition policy again plays a role.

While the U.S. has seen major consolidation of its wireless networks, the European market remains fragmented. Sure, there are many more wireless carriers in the EU, but they don't enjoy the economies of scale and scope that would incentivize greater investment.

In the U.S., we have only a handful of major wireless broadband providers, but they compete vigorously for customers by constantly upgrading their networks. According to the ITIF report, the profit margins of American wireless carriers are a quarter of their EU counterparts.

Yet even if one is still concerned about the number of competitors in the market for broadband, there are promising signs of new facilities-based competition emerging from pretty odd places. Google, which has already entered the fiber-to-the-home market in Kansas City, Austin, and Provo, recently announced Google Loon, a scheme to encircle the world with wireless connectivity via stratospheric balloons. The point is not that you'll be getting your broadband service from these balloons anytime soon, but that facilities-based innovation is far from over. Other ways we might get new broadband networks include next-generation satellites and high-altitude drones.

The good news for Europe, is that its regulators are taking notice of their lost lead and have begun to make noises about removing barriers. To them we should say, bon chance!

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44 responses to “How Market Forces Are Expanding Broadband Access in the U.S.

  1. Markets don’t expand infrastructure; government stimuluseses do.

    1. Stimulusesses has 5-6 S’s. Get it right.

    2. my co-worker’s step-aunt makes $76 every hour on the computer. She has been unemployed for six months but last month her pay check was $21126 just working on the computer for a few hours. Read more on this site…. http://www.cnn13.com

    3. like Johnny implied I’m blown away that a single mom able to get paid $4012 in four weeks on the internet. did you see this webpage… http://www.Blue48.com

  2. But… but… but… NEUTRALITY! We need network neutrality or… or… THINK OF THE CHILDREN!

  3. Well, writes Jerry Brito, queue the schadenfreude

    Is the shadenfreude queue behind the “ate-ball”?

    1. This is just one, in a long line of issues in which Americans can enjoy schadenfreude when looking across the pond.

  4. 12 mbps download from the sky! Whoopeeeeeeee!

    1. coupled with shitty allotments.

      I would go through that in an hour

      1. Do you live out in the countryside away from any reasonable wired network?

        1. No, I like having fantastic internet and the amenities of living in a city. Plus, I don’t want to be hours away from the nearest ER should something happen.

          1. que sera sera

            I am only 20 minutes from work and 30 minutes from the hospital.

          2. Unless you live in the Dakotas or Alaska, I can’t see an ER being hours away. It’s certainly nothing close to the norm for those of us living the countryside.

  5. I have it on good authority that progress is not made unless the government mandates it.

    I do loves my 50+ mbps downloading, though.

    1. Where I used to live, progress was not made until the city government stopped strangling it in the crib. When the city was in talks with a possible competitor, the company that had traditionally had the monopoly franchise decided, purely out of the goodness of some crony capitalist’s heart, to increase download speeds by an order of magnitude. After talks with the possible competitor fell through, the monopoly provider lost interest in further improvements.

      1. yeah. people want to blame tech companies for shitty speeds/service/prices/etc… but they are that way because the local governments grant them monopolies in certain areas. If they were all allowed full competition, their shit would change dramatically.

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    2. I do loves my 50+ mbps

      Only have 25 with my FIOS, but since Steam is the only thing that actually takes advantage of it, moving upto 50 just doesn’t seem worth it.

      When more sites can manage to allot more than 100k per connection, maybe.

      Then again, single-connection speed isn’t the whole story, when there’s 3 people in the house watching netflix simultaneously. 25 is still more than sufficient for that though.

      1. what I really love is the upload speed. uploading 100+ 1920×1440 photos to my website sucked on cable.

  6. It’s bonne chance. [/pedant]

  7. Funny, when I visited France in ’98, everyone was still playing Sega Genesis while we had Playstation in America. Their computers were a few years behind, connecting over dialup, while all my American friends were getting DSL.

    1. (socioeconomically, the neighborhoods were similarly upper-middle-class)

    2. Er, no. They have Playstation in France.

  8. I love my FiOs. Never an outage. My 25/25 is usually 30/30.

    I mean, I grew up in the 1960s and 1970s and now I have fiber optics in my home. If you’re a science geek in my age range, you’d understand how incredibly fucking cool that is.

    1. It’s like Space Age or something.

      1. The space age sucks. All I can get is Satellite internet.

        I guess it beats dial up, but it costs $80 a month, is capped at 500 megabytes a day,

        So I can’t actually use it for anything but web browsing.

    2. I mean, I grew up in the 1960s and 1970s and now I have fiber optics in my home. If you’re a science geek in my age range, you’d understand how incredibly fucking cool that is.

      Don’t worry, Reason will soon develop more links and ads so that the website will still take forever to load.

      1. It’s like CGI. The computers get faster, but that just means the content creators just want more detail. So render times don’t really improve.

        1. Eventually they’ll achieve resolution on par with the virtual reality simulation we’re actually living in.

          1. That’s when some of us will wake up and disconnect from the grid or hook into the better grid provided by market competition.

  9. Ars panned the ITIF report. Some substance, some nonsense.

    UPDATE 4:15pm CT: On a second look, the ITIF does cite the same Akamai report, although not on its first reference on Page 5 of the ITIF report, which is where we were looking. Later, on Page 41 of ITIF’s report, the group clarifies that it’s referring, in fact, to an “average peak broadband connection speed of 29.6Mbps,” and cites that figure, accurately, to Akamai’s Q3 2012 report.

    Ars contacted Chris Nicholson, a spokesperson at Akamai, who agreed with us that the “average connection speed,” of 7.2Mbps represents the actual, real-world average. As any Internet user can attest, real-world speeds fluctuate quite a bit, and an “average peak connection speed” is hardly the same as “average connection speed.”

    But the ‘duopoly is not competition’ sentiment in the face of customer churn and upgrades hurts their cause.

    ITIF rebuttal…
    http://www.innovationfiles.org…..-rankings/

    1. I take policy issues from Ars with a grain of salt. There isn’t a government regulation that they didn’t like.

      1. Agreed. But I tolerate their command/control ramblings because their writing typically is heavy on details.

  10. easiest way to increase percentage of broadband users is to just change the definition. As the government did. (Under 2mbps up + down is still narrow band in my book)

    “High speed broadband” is like the “Department of Redundancy Department”

  11. Er, no. I live something like 30 miles south of St. Louis, and I can’t get any broadband other than Satellite. No cable, no DSL, not even 3G. 30 miles south of one of the biggest cities in the country.

    It’s never going to be worth it for major companies to roll it out to me, so they never will.

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  13. this is nonsense. first Europe isn’t what you need to compare to, its Asia. Here in America we’re getting excited that someone has finally started laying down gigabit infrastructure, its google, and at&t, verizon, and time warner’s only response is ridicule, and obstruction. in japan they have wide access to gigabit internet, and are starting to lay down 2 gigabit infrastructure. secondly the telecom companies aren’t doing anything with the investments they are getting, the speeds that we are getting are plateauing. thirdly our telecom companies are hardly laissez-faire if you are an American tax payer you should know about the tele-comunication act of 1996, and you should get mad because the government invested billions in our telecom companies, so that we would have gigabit internet over the whole country by now, and they just pocketed it, and a lot of smaller isps have tried to pick up the slack but they are shut down before they can start because these big telecom companies, that are content to keep their monopolies, sue them into oblivion before they even start.

    1. If we were comparing the US to Asia, then the US is way ahead. Most of Asia is a third world area.

      But it appears as if you are really talking about Japan. A country where most of the population lives in a fairly constrained coastal plain and population densities are far higher than the US. Which is an apple to oranges comparison and completely irrelevant to most people.

      Furthermore, the Telecom Act of 1996 does not have anything to do with providing gigabit internet access. Here’s a link, read it, you’ll be more knowledgeable:

      http://en.wikipedia.org/wiki/T…..ct_of_1996

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