A Model Broadband Ecosystem

broadband network

Europe’s telecom woes are “coming home to roost.” An article in the September 14th issue of The Economist discusses European Union Digital Commissioner Neelie Kroes’ call for major reforms to the European telecom system to address the poor performance of broadband networks on the Continent. This is just the latest effort by EU regulators to address a broadband system that lags well behind the U.S. and Asia, hampering economic growth and technical innovation.

As the article notes, “Only a quarter of the European Union’s people have access to new 4G networks, according to the European Commission. In America a single company, Verizon…reaches nine out of ten.”

Unfortunately, The Economist article does continue a misleading argument that has been used by some activists to denigrate U.S. broadband successes and justify the European model despite its obvious flaws. “Americans may have faster networks, but they pay a lot more.”

In fact, America enjoys the second lowest prices in the OECD for introductory level broadband. The U.S. does have higher relative prices for faster broadband, but this is not, as some critics have claimed, because of relatively higher profits. Among OECD nations, profits of U.S. broadband providers are fourth lowest. The price differential is a result of the fact that the U.S. has the second least densely populated urban areas in the OECD (dense areas are much cheaper to serve) and has devoted relatively little in tax dollars to subsidizing broadband in comparison to other nations.

Taking into account the high cost of operating and upgrading broadband networks in a largely suburban nation and the wide economic diversity of the population, the U.S. has made significant progress in creating a vibrant, high-quality and affordable broadband ecosystem. And it is clear that other nations are taking notice and looking to follow our model.

For example, one of Kroes’ key proposals for addressing the current European broadband problem calls for reducing the fragmentation of the telecom market and making it easier for companies to work across borders. This concentration would increase competition and provide stronger incentives to providers to build better infrastructure and more advanced networks. This would more closely resemble the competition-based U.S. telecom system, which as ITIF has noted, has been a key factor in driving the deployment of 4G/LTE networks and improving average speeds over the last half-decade, while at the same time not drastically raising prices.

So for those who argue that U.S. broadband is too expensive and not as good as it could be, one only needs to look to Europe for another reality that could be a whole lot worse.

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About the author

Dr. Robert D. Atkinson is one of the country’s foremost thinkers on innovation economics. With has an extensive background in technology policy, he has conducted ground-breaking research projects on technology and innovation, is a valued adviser to state and national policy makers, and a popular speaker on innovation policy nationally and internationally. He is the author of "Innovation Economics: The Race for Global Advantage" (Yale, forthcoming) and "The Past and Future of America’s Economy: Long Waves of Innovation That Power Cycles of Growth" (Edward Elgar, 2005). Before coming to ITIF, Atkinson was Vice President of the Progressive Policy Institute and Director of PPI’s Technology & New Economy Project. Ars Technica listed Atkinson as one of 2009’s Tech Policy People to Watch. He has testified before a number of committees in Congress and has appeared in various media outlets including CNN, Fox News, MSNBC, NPR, and NBC Nightly News. He received his Ph.D. in City and Regional Planning from the University of North Carolina at Chapel Hill in 1989.