Debunking the EU Broadband Utopia

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As an American academic in Europe, I find the claims by some American media about an EU broadband utopia curious.  Europeans roundly complain about the quality of their broadband, and, there is no European who would say that the US is falling behind Europe. In fact some of the biggest critics of the EU are the EU leaders themselves.  Consider EU Commissioner for Digital Life Neelie Kroes:

The world envied Europe as we pioneered the global mobile industry in the early 1990s (GSM), but [because] our industry often has no home market to sell to (for example, 4G) consumers miss out on latest improvements or their devices lack the networks needed to be enjoyed fully. These problems hurt all sectors and rob Europe of jobs it badly needs. EU companies are not global internet players. . . . 4G/LTE reaches only 26% of the European population. In the US one company alone (Verizon) reaches 90%!

Kroes praises the success of the American broadband mode, noting its ability to drive private investment and innovation. She is increasingly joined by other European leaders who recognize that the European approach is not working.  For some time, Kroes and the European Commission have championed an effort for a Digital Single Market , with the idea of catching up to the US and some Asian nations in broadband and internet innovation.  To build their case, they have requested a number of independent assessments about broadband in Europe.

My new report and video reviews these EU documents to see how Europeans see themselves. They say the opposite of the American media:  It is the EU that is falling behind in the USA.  To be sure, there are pockets of high speed networks in Europe, but overall, three-quarters of Europeans rely on DSL for broadband. Just 34% of Americans can say the same.

As the ITIF’s broadband report observes, network deployment in the US is remarkable, especially given the geo-demographic challenges of the country, but the area where the US can improve is adoption. The issues of adoption are related not to US networks, but US demographics, including povery and age.  America, the country with the most broadband subscriptions of any in the OECD, still has a low rate of digital literacy, especially among seniors.  Those who never needed the internet for their job find little motivation to get online.

If there is such a thing as broadband utopia, then it is probably Denmark where I live.  It is one country in the OECD that has consistently scored well on all relevant measures for broadband.  Digital adoption is particularly high for the simple reason of labor cost.  In order to lower outlays on wages (particularly for government jobs), people were forced to become digital early on, and the Danish government quickly digitized its social services.

When the digital revolution began, many jobs were eliminated that could be replaced by digital self-service.   Handwritten personal checks have not been seen in more than a decade and no library has a drop box; you check in your books yourself.  The government simply won’t pay librarians to check in books!   Furthermore by next year, all communications with municipal offices will be by electronic communication only.  You can no longer call the county office. That position will no longer be staffed.

Today, 65 percent of Denmark’s population has access to ultra-fast broadband of 100 Mpbs or higher, but just 1.4 percent subscribe to the highest-speed tier. The Danish telecom regulator reports that 79 percent of Danes purchase broadband packages with speeds of less than 30 Mbps, even though prices of all tiers are reasonable and broadband is widely available. This is particularly important because in many sectors of the economy, including banking, health, and government, users can access services only digitally. Services are fully functional at speeds less than 30 Mbps, including at speeds on mobile services. This is further underscored as 7 percent of Danes now use 3G or 4G as their primary broadband connection, surpassing FTTH customers by 100,000.  Like most Danes, my home broadband connection is DSL, and there is absolutely nothing that I am missing.

A report by the New America Foundation lauds Danish cable company Stofa for providing ultra-high broadband speeds in Copenhagen, but Stofa does not serve my city; the bulk of its customers are 160 miles away. The NAF report also applauds EU companies that offer “low” broadband prices but then fails to mention that broadband service is tied to a customer’s purchase of cable TV service. It also neglects to take into account that many of the “low” broadband price offerings of European ISPs reflect only temporary, sales-pitch discounts.

While by no means a comprehensive analysis of pricing, my report attempts an honest comparison of cable broadband prices in the US and Denmark by including the real cost of taxes and subsidies in the total price of broadband.

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The figure illustrates a comparison of premium cable broadband packages in the US and Denmark. Broadband and content account for a larger portion of the total cost of the cable subscription in the US (about 86 percent of the total price), and the US package also includes more premium channels. The US package has 200 channels, while the Danish package offers only 63 and does not include HBO, Cinemax, ESPN, and others that are part of the premium package in the US.

In the Danish offering, which has a slightly higher broadband speed but two-thirds less content, broadband and content make up just 60 percent of the cost. The remaining 40 percent is taxes and compulsory fees. On balance, Danish subscribers pay 35 percent more than Americans for a similar premium package. The figure clearly shows that taxes and fees dramatically change the overall picture of broadband prices. Not incorporating all relevant costs makes for a superficial and incomplete analysis. In any case, if the NAF praises the Europeans, but the Europeans are paying more for cable, then it can’t be true that Americans are paying too much.

The US has plenty of areas for improvement, but broadband networks is not one of them. Americans, who comprise just 4 percent of the world’s population, enjoy one-fourth of the world’s broadband infrastructure investment, and private per capita investment in the US is twice the rate of the EU.  As resources are limited, it makes sense to leverage the private sector for network investment.  Any public funds for broadband are better spent on adoption than infrastructure.

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About the author

Roslyn Layton is a PhD Fellow in Internet Economics at the Center for Communication, Media and Information Studies at Aalborg University, a Vice President of Strand Consult, and a Visiting Fellow at the Center for Communication, Internet and Technology Policy at the American Enterprise Institute.