Innovation, Investment and Competition in Broadband and the Impact on America's Digital Economy
81 Pages Posted: 31 Mar 2014 Last revised: 31 Mar 2016
Date Written: March 29, 2014
A number of claims in the media assert that America is falling behind in broadband, that Americans pay more for broadband of less quality than people of many countries, and that broadband providers don’t compete, innovate or invest. The EU, Japan and South Korea are said to be leading these aspects of broadband. This paper investigates whether there is evidence for those claims.
Taking “The Whole Picture: Where America’s Broadband Networks Really Stand” (Bennet 2013) from TPRC41 as a departure point, this paper expands the investigation into key innovations in fixed and wireless networks, capex investment of broadband, intermodal competition for DSL, cable, 4G/LTE and FTTH in the US and EU, and measures of how the US has leveraged broadband to develop its digital economy. The paper also provides microeconomic analysis of municipal broadband and wireless networks.
Some key discoveries include that OECD broadband prices for EU countries do not include compulsory media license fees or value added taxes which can add up to $80 per subscription per month. Adjusting for these real costs, American broadband prices are lower. The broadband innovation discussion includes a review of broadband providers’ newest developments, particularly with G.fast and neighborhood wifi. It reviews the role of mobile in stimulating consumer adoption, the domestic digital economy and digital exports. It also highlights how over the top (OTT) services create competition on and for networks. With a comparison to EU, the analysis shows that the level of technology development, not the number of the competitors, drives competition. This is evidenced by 74 percent of broadband subscriptions in the EU being DSL, while broadband subscriptions in the US are more evenly distributed amongst different broadband network technologies. As the EU Digital Agenda Scoreboard and America’s National Broadband Map reports, the US has a higher deployment of next generation networks, twice as much FTTH and nearly 4 times at much LTE. Almost all Americans are covered by LTE, 97 percent, while only 26 percent of Europeans are covered. The US-EU comparisons also test whether there is a telco-cable duopoly in the US. The Infonetics database of communications contains capital expenditure numbers for global private providers for the last decade that was then segmented for each country and per capita. The results show that while the US has just 4% of world’s population, it enjoys nearly one quarter of the world’s broadband investment. A decade ago the EU accounted for more than one-third of the world’s broadband investment; today it is less than one-fifth. This paper is novel in its attempt to attribute the role of broadband to the larger digital economy. It reviews leading studies of the digital economy, including the OECD, ITU, Boston Consulting Group, the United States International Trade Council and the Cisco Visual Networking Index.
Lastly, the paper provides policy suggestions based on the conclusions of the analysis. It makes a number of suggestions on how to improve the business case for FTTH, how to improve broadband coverage in rural areas, particularly by accelerating the deployment of wireless infrastructure, and whether the government should support broadband adoption or deployment.
This paper is developed expressly for TPRC and has not been presented or published before.
Keywords: broadband, innovation, investment, competition, digital economy, America
JEL Classification: D10, D57, E22, H00, H70, O31, O32
Suggested Citation: Suggested Citation