The Terrible Broadband Situation in America Is Solvable -- But There's a Catch

By The Fiscal Times  MAY 16, 2014 10:19 AM

US consumers are losing out compared to the rest of the world, but Americans would need to welcome government intervention if they want to see change.

 


At any given moment in the US, an untold number of citizens sit, seething in impotent rage, staring at computer or television screens that have stopped displaying the content they want because the data their device needs is "buffering."

Some blame their Internet service providers for purposefully slowing down their connection, and in certain cases, that might be true. Others blame the fact that they don't have access to state-of-the-art fiber-optic connections with lightning-fast data transfer speeds -- something that, from a purely technical standpoint, is no longer that difficult to provide.

In the end, US broadband consumers are the victims of a combination of historical decisions about how services that predate the Internet age by decades would be delivered, and a regulatory culture that -- objections from libertarians notwithstanding -- isn't quick to step in and disrupt existing business models.

First, let's bring things into perspective. US consumers have better Internet access than the majority of people on the planet. That said, there are large swaths of the planet where basic services such as electricity and clean water are hit or miss at best, so we probably want to narrow the field a bit and consider just industrialized countries.

Also, the US is far less densely populated than many industrialized countries. Running fiber-optic cable to homes in the Western US is far more difficult than it is in densely populated Japan or South Korea. So maybe it's fair to look at Internet access in metropolitan centers to get a fair measurement.

Even under those more favorable conditions, though, it's clear that US broadband consumers pay more for less connectivity than most of their peers in other countries.

A study late last year by the New America Foundation's Open Technology Institute demonstrated that consumers in US cities generally pay much more for a connection to the Internet and receive less connectivity than peers in Europe and Asia. They also have fewer choices, both in terms of ISPs and service packages.

In Seoul and Tokyo, for example, consumers can subscribe to "gigabit" service for less than $35 a month. The gigabit service delivers download speeds of up to 1,000 megabits per second. The average US consumer's download speed is about 24.2 mbps, and while gigabit service is available in a few US markets, such as San Francisco and Chattanooga, Tennessee, even the cheapest US carrier charges twice as much as those in Tokyo and Seoul.

Even at sub-gigabit levels of service, the Open Technology Institute found, US providers don't come close to matching the deals available abroad. Verizon (NYSE:VZ) last year announced that in certain markets, it would provide 500 mbps service for those willing to pay $300 a month for it. A similar plan in Amsterdam would cost about $86.

The problem is that in the US, most homes are served by a limited number of ISPs. In some cases, the only option for a broadband connection is a cable television provider that has exclusive access to entire metropolitan areas. Others have a cable provider that competes with a phone company offering DSL service. In rare cases, companies such as Verizon have run fiber-optic cable to domestic subscribers, but in most markets, that remains rare.

Cable companies generally have a monopoly on the markets they serve, due to the cost and disruption associated with the installation of a wire to every home in a city or town. Similarly, consumers usually have one choice for DSL services, depending on which phone company is allowed to provide local phone service. Wireless broadband may eventually help level the field, but it's currently too slow and unreliable to be considered a true competitor to wired services.

The end result is that there's little competition among US broadband providers. In many cases, cable companies are the only game in town and face very little competition on either price or service. It's no coincidence that US broadband providers consistently rank near the bottom of customer satisfaction surveys.

This means that broadband providers with a captive audience have little incentive to improve their existing infrastructure -- which they're not doing -- and see no need to protect themselves from start-ups looking to break into the business.

Further, while US broadband providers are often absurdly vague in describing the services they offer, ISPs in high-competition countries are extremely specific about what they offer and at what price, because that's what they compete on.

This problem is solvable, but the solution applied in Europe and Japan would face serious challenges in the US. For example, many of the European countries with objectively better consumer Internet access than the US pursue an "open access" policy, meaning that cable and telecom providers are required to allow competitors access to their networks at a reasonable, often government-set price.

In the US, forcing a company that assumed both the cost and the risk of a major infrastructure project to allow competitors to use its systems would be a hard, though not unprecedented, sell.

In the end, it's hard to imagine that US broadband providers won't eventually be forced to provide consumers with state-of-the-art service at competitive prices, but absent a major change in public attitude toward government regulation, the change likely won't be arriving anytime soon.

Editor's Note: This article by Rob Garver originally appeared on The Fiscal Times.

For more from The Fiscal Times:

Despite Protests, Internet "Fast Lanes" Proposal Gets OK

Yet Another Reason to Hate Your Broadband Provider

FCC Move Seen as Disaster for Online Start-Ups


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