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As an American academic living in Europe, I’m often surprised by the cavalier pronouncements that the EU has more choices, lower costs and faster speeds in broadband and therefore the U.S. should follow the European regulatory model. A number of respected studies show the opposite is true.
For starters, consider the state of competition. Americans have greater choice of broadband technologies and speeds than nearly anywhere in the world, including in the EU. Networks capable of providing 100 Mbps speeds reach 85 percent of U.S. homes, whereas just over half of European homes can access speeds of 30 Mbps or greater. Seventy-four percent of Europeans rely on DSL technology – largely because Europe lacks competition among different broadband technologies – whereas only 34 percent of Americans do. Today, the U.S. has roughly twice the percentage of homes with access to advanced fiber-optic networks as does the EU.
The U.S. also leads on wireless broadband. Only 26 percent of Europeans live in areas where they can get the faster wireless 4G LTE networks; 95 percent of Americans are not only covered but most can choose from multiple 4G LTE providers.
The U.S. leadership in broadband is attributable to a bipartisan effort in the U.S. to incentivize investment in better and more advanced networks. Since 1996, the U.S. decidedly moved to a “facilities-based competition” model where ISPs own the underlying networks and are motivated to invest in them in order to avoid losing customers to their competitors. By contrast, Europe’s “leased-access” approach where ISPs lease transmission lines at regulated rates from incumbent telecom firms, have no incentives to invest in the underlying facility.
It is unarguable that the U.S. policy approach has incentivized investment more effectively. Since 1996, American broadband providers spent $1.2 trillion building and upgrading wired and wireless networks, laying thousands of miles of fiber optic cable, erecting cell towers and increasing capacity to meet consumer demands. Per capita investment in networks in the U.S. – perhaps the most important indicator of future vitality in the broadband industry – is nearly double that of the EU. Americans comprise just 4 percent of the world’s population but enjoy 25 percent of its broadband investment annually.
It seems strange that some argue that we emulate Europe while the EU is in fact abandoning its own model. European Commission VP Neelie Kroes has announced a Digital Single Market initiative to “burn the red tape,” increase investment and move towards the facilities-based model of the U.S.
But none of this seems persuasive to “Europe is better” detractors. Some point singularly to report by the New America Foundation (NAF) that purports to claim that Americans pay more for inferior broadband service. But the NAF’s findings are contradicted by far more comprehensive reports from the OECD, the ITU, the Information Technology & Innovation Foundation (ITIF) and others that find that the U.S. has more choice among competing technologies and compares favorably on speed and pricing.
The difference with the NAF study is that it cherry-picks limited data and then provides sloppy analysis. For instance, the study lauds cable company Stofa for providing ultra-high broadband speeds in Copenhagen where I live, but the company doesn’t even serve Copenhagen and the bulk of its customers are some 160 miles away. The report applauds EU companies that offer “low” broadband prices but then fails to mention that broadband service is tied to a customers’ purchase of cable. It also misses that many of the “low” broadband price offerings of European ISPs reflect only temporary, sale-pitch discounts.
Elsewhere the NAF outlier study suffers woeful methodological errors by failing to account for hundreds of dollars in hidden costs to European consumers in the form of “compulsory media license fees” needed to subsidize state-owned media companies and value added taxes that are as high as 27 percent. These taxes and fees prop up the state-controlled broadband system in the EU – a system where, because so many broadband providers are owned by parent telecom providers there is far less competition and innovation than in the U.S. Consider that 70 percent of Danes get their broadband from the incumbent telecom operator or one of its daughter companies.
The reality is that the most recent data from the ITU shows that the U.S. has the lowest entry level broadband pricing in the developed world and the OECD recently found that U.S. broadband pricing has fallen drastically in the last two years when measured on a per megabit basis. The U.S. leads the world in broadband investment and technology diversification, and its broadband networks support a vast and growing economy of digital commerce and exports that is the envy of Europe. This is why European leaders are abandoning their regulatory approach and looking to the American broadband framework.
Roslyn Layton is a Ph.D. Fellow in Internet economics at the Center for Communication, Media and Information Studies at Aalborg University in Copenhagen, Denmark.
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