Posts Tagged Wall Street Journal
Since the publication of Susan Crawford’s book on the alleged failings of U.S. Internet policy, several mainstream outlets have run stories repeating her mantra that Internet speeds are too slow, coverage is shoddy, there is a growing “digital divide” among rich and poor, and broadband prices are too high.
Consider the barrage of “bad news” in just one week:
- The Wall Street Journal reported that six percent of Americans “lack high-speed service” in a story provocatively titled “Gaps Persist in High-Speed Web Access”;
- The Financial Times reported that the United States ranks 16th in Internet speeds, and that U.S. prices on a per-megabit-per-second basis (Mbps) are more than double those in Europe; and
- Digital Trends ran an article touting Ms. Crawford’s policies titled “Admit It: U.S. Internet Service Sucks.”
Are things as gloomy as the naysayers claim? A close look at the facts suggests otherwise. (Yes, that is a link to Need for Speed, my new e-book on Internet policy from Brookings Press; if Bob Woodward can shamelessly promote his book in the Washington Post when reporting the origins of the sequester, surely I can do the same.)
Let’s start with connection speeds. According to Akamai, a global provider of Internet services, the United States ranked ninth in average connection speeds (7.7 Mbps) in the third quarter of 2012, and seventh in percent of Internet connections with speeds above 10 Mbps (18 percent). South Korea leads both categories (average speed of 14.7 Mbps, 52 percent above 10 Mbps). It’s a bit misleading to compare our speeds with those of the fastest country in the world; a seven-minute-per-mile runner looks shoddy compared to the fastest runner in the world. And like any average, our nationwide average speed combines fast connections with slow ones. For example, the average connection speed in eight states (mostly along the densely populated Northeast corridor) exceeds 9 Mbps; any of those states would rank third fastest in the world on Akamai’s list. It’s a bit of a stretch to say that we are the tortoise among rabbits; the United States is more like Danica Patrick, who finished eighth at Daytona on Sunday.
Moving on to coverage gaps. The empirical basis for the share of Americans without “high-speed service” is the FCC’s annual report on the state of broadband deployment. There are two important caveats to keep in mind when assessing these data: The FCC counts wireline connections only, and only those wireline connections that exceed 4 Mbps. Thus, a wireline connection of say 3 Mbps (such as DSL) would not be counted in the FCC’s tally, and a wireless connection of say 10 Mbps (such as 4G LTE) would also be ignored. As of 2011, the latest year for which the FCC has reliable data, only about 7 million U.S. households did not have broadband access; if wireless broadband technologies are counted, the number of households without access to broadband at the FCC’s minimum speed is in the range of 2 to 5 million. It is hyperbole to suggest that broadband operators have ignored large swaths of the country.
And what about that growing “digital divide”? Once again, the naysayers ignore speedy wireless connections to create the appearance of a problem. It is not surprising that wealthier people have greater access to the Internet; they likely have greater access to most goods in the U.S. economy. A 2012 Pew survey shows that the same percentage of white, black, and Hispanic adults (roughly 62 percent) go online wirelessly with a laptop or a cellphone; that slightly more blacks and Hispanics own a smartphone than do whites (49 versus 45 percent); and that twice as many blacks and Hispanics go online mostly using their cell phone compared to whites (38 versus 17 percent).
The third statistic may indicate that blacks and Hispanics lack wireline access relative to whites or that blacks and Hispanics simply have stronger preferences for wireless connections relative to whites; if the latter, there is no problem to be solved. And if income differences explain the differences in broadband choices, income-based subsidies are the logical policy instrument.
Broadband price comparisons. There is a lot of casual empiricism in this area. International price comparisons of a differentiated product such as Internet connectivity should be taken with a grain of salt because the quality of Internet service might not be comparable. Moreover, if you put a gun to a provider’s head (as regulators do in Europe), and require it to make its services available to resellers at incremental costs, you are going to get cheap service—and destroy investment incentives as a nasty byproduct. Citing “harsher rules that have sapped profitability,” Reuters reported that European telco stocks were trading at roughly 9.9 times earnings compared to 17.6 times for their U.S. peers.
In large swaths of this country, the incumbent cable operator faces a fiber-based telco offering triple-play packages. Unless you think that cable operators are colluding with the telcos—a position espoused by Ms. Crawford—Internet prices are less than monopoly levels where telco-based fiber is available. And help is on the way for the rest of us in the form of wireless 4G LTE offerings, satellite broadband connections, and further telco deployment.
This is not to say that market forces and a largely hands-off Internet policy have delivered the ideal state of competition. In a market with large fixed costs, when consumers are reluctant to switch providers, and when certain must-have video programming is controlled by the incumbent cable operator, we shouldn’t expect ten broadband providers in each zip code.
The United States appears to being doing just fine in the broadband race; perhaps not in first place, but certainly deserving of a cameo on the next GoDaddy commercial. Any efforts to stimulate greater deployment should be targeted, and they should respect the incentives of broadband operators to continually upgrade their networks. The naysayers have misdiagnosed the state of broadband competition.