[1st-mile-nm] The Economist: Broadband - Open up those highways

[Richard Lowenberg]

From the Economist: more of what we already know.   rl
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Broadband
Open up those highways

Jan 17th 2008 | TOKYO
From The Economist print edition

www.economist.com.hk/world/international/displaystory.cfm?story_id=10534573

Rapid internet services are a boon. But not all regulators understand
them.

In eras past, economic success depended on creating networks that
could shift people, merchandise and electric power as efficiently and
as widely as possible. Today's equivalent is broadband: the high-speed
internet service that has become as vital a tool for producers and
distributors of goods as it is for people plugging into all the social
and cultural opportunities offered by the web.

Easy access to cheap, fast internet services has become a facilitator
of economic growth and a measure of economic performance. No wonder,
then, that statistics show a surge in broadband use, especially in
places that are already prosperous. The OECD, a rich-country club,
says the number of subscribers in its 30 members was 221m last June-a
24% leap over a year earlier. But it is not always the most powerful
economies that are most wired. In Denmark, the Netherlands and
Switzerland, over 30% of inhabitants have broadband. In America, by
contrast, the proportion is 22%, only slightly above the OECD average
of just under 20%.

In terms of speed, Japan leads the world. Its average advertised
download speed is 95 megabits per second. France and Korea are ranked
second and third, but are less than half as fast, and the median among
OECD countries is not much more than a tenth. America's average speed
is supposed to be a bit above the median, but most users find that it
isn't, or that the faster speeds are vastly more expensive. A New
Yorker who wants the same quality of broadband as a Parisian has to
pay around $150 more per month.

What accounts for the differences among rich countries? Two or three
years ago demography was often cited: small, densely populated
countries were easier to wire up than big, sparsely inhabited ones.
But the leaders in broadband usage include Canada, where a tiny
population is spread over a vast area. The best explanation, in fact,
is that broadband thrives on a mix of competition and active
regulation, to ensure an open contest.

A lack of competition-boosting oversight is one reason for the poor
record of the United States (and indeed for New Zealand, another
unexpected laggard). Most Americans have a choice of only two
broadband providers, either a telecoms or a cable operator. This
virtual duopoly suits both sorts of provider, and neither has raced to
offer its customers faster access. In some American states, prices
have risen; in most other countries they have dropped.

In theory, America's 1996 Telecoms Act obliged operators to rent out
their lines to rivals; in practice, a regulatory decision and then a
court ruling (in 2003 and 2004 respectively) have made it easy for
operators to keep competitors out. The supposed aim of these decisions
was to force new firms to build their own infrastructure, instead of
piggybacking on facilities set up by older outfits. But new entrants
have found it hard to join the fray.

In any event, those American rulings may have been based on a faulty
idea of how competition works in this area. As Taylor Reynolds, an
OECD analyst, puts it, innovation usually comes in steps: newcomers
first rent space on an existing network, to build up customers and
income. Then they create new and better infrastructure, as and when
they need it.

In France, for example, the regulator forced France Télécom to rent
out its lines. One small start-up firm benefited from this opportunity
and then installed technology that was much faster than any of its
rivals'. It won so many customers that other operators had to follow
suit. In Canada, too, the regulator mandated line- sharing, and
provinces subsidised trunk lines from which smaller operators could
lease capacity to provide service.

In South Korea, where half the population lives in flats, each block
owns its own internal cabling and allows rival operators to put their
equipment in the basement; each tenant then chooses which to use. In
Japan, politicians put pressure on the dominant operator, NTT, to
connect people's homes by high-speed fibre lines. And this week the
communications ministry indicated that it will make NTT open those
fibre connections to rivals.

As broadband grows more popular, the political mood may change in many
countries. At present, consumers are often misled by the speeds that
operators promise to deliver. Soon regulators can expect to face
pressure to ensure truth in advertising, as well as to promote easier
access.

Pressure will also come to correct another problem: most operators cap
the amount of traffic users may send and receive each month, and
nearly all provide far less speed for sending than for receiving. In
other words, broadband doesn't really offer a two- way street. This
will matter more as users turn into creators of content, from videos
to blogs, and ask to be treated with due respect.