Broadband Consortium

Jessica Spiegel | October 2007

The lines of infrastructure of a major ISP | Graphic: Darko Gacov

The Internet is a world of seemingly endless possibilities, intrinsic freedom and infinite knowledge.  It is the place where the consumer is said to be king and all information is, literally, at your fingertips.  But first, you need a connection.

According to data recently released by the Organisation for Economic Co-operation and Development (OECD), the United States has dropped behind the rest of the developed world in high-speed connectivity – far behind.

In 2001, the U.S. still prided itself as a leader in high-speed access, taking advantage of slow economic growth in Asia and Europe to take the 4th rank in broadband use.  Today, it ranks 15th out of the 30 OECD nations, and has fallen three ranks since the beginning of 2007 alone.  Western European nations, particularly the Netherlands and Scandinavia, have taken the lead in both broadband penetration (percentage of users per 100 habitants) and in net increase in users since 2005, where the U.S. ranks 21st.

How Europe is getting ahead is no mystery; it is a pure example of fierce market competition coupled with light, but well-directed, government regulation. An interesting example of this is France, which has surpassed the U.S. not only in high-speed connectivity but also in advanced use of these connections, such as the voice-over-internet-protocol (VoIP) and Internet protocol technology (IPTV), making France a leader in on-line phone calls and video-on-demand services.

Not so long ago, former French president Jacques Chirac accused the Internet of being an "Anglo-Saxon Network." So how did France, of all countries, become a leader in cutting-edge information technology?

A recent Business Week article explains that it is all about infrastructure. French regulators employed competition through cable and local loop "unbundling," which is the process of forcing established telecoms to rent parts of their broadband infrastructure to competitors. State-owned France Telecom (FTE) was required to share their lines with other European telecom giants, which invited competition and in turn stimulated each to improve the quality of their services and competitiveness of their prices. This process also encouraged smaller local Internet providers to compete with the big players, who would have otherwise been unable to do so, due to the excessive costs of building broadband networks.

While the U.S. initially attempted the same course, large telecoms fought so aggressively against the regulatory measures, that the Federal Communications Commission (FCC) eventually gave in and settled for what is called "facilities-based competition," which was meant to spur competition between cable and telecom companies by promoting use of various channels of infrastructure rather than all using the same wires.

However, this approach can only work if there is, in fact, competition.  Like many industries in the U.S, particularly in the media industry, the Internet providing service is left in the hands of several large corporations. "Unbundling" was either completely forgotten or abused; the large corporations would offer their infrastructure to smaller competitors, but only at exorbitant rates.  The main players, on the other hand, would swap customers, territories, and infrastructure at comfortably priced packages – or at no charge at all – among themselves.  Today, four corporations control over 50% of the market share of broadband users, and one of those four, UUNET, controls more than 30% of all broadband infrastructure across the U.S.

In a personal example, last year in Washington D.C., I was able to experience the Net provider "free market" first hand. In my area, I had one provider to choose from – Adelphia – which was coincidentally also the only cable provider in the area. I paid over $120 a month for the simplest package of cable and high speed Internet, both of which broke down on an almost weekly basis. If I had the patience, I could call customer service during black outs – only to be put on hold an average of 15 minutes, always with same answer: It would be fixed sometime in the next few days.

When Adelphia was bought by Comcast – the second largest provider in the U.S. – I was sent a polite letter saying that the acquisition had taken place and that the rates would increase slightly. Without an alternate internet provider to choose from, I accepted the change and continued paying my bills each month, no questions asked.

But consolidation in the telecommunications industry isn’t particular to the U.S.. In Europe, the number of Internet Service Providers (ISPs) decreased from 4,000 in 2000 to 70 in 2001.  In the case of France, FTE is a state-owned monopoly and the competitors that originally took advantage of the "unbundling" policy were other state-owned companies with monopoly status, such as Deutsche Telekom and Telecom Italia.   Though the number of small providers decreased substantially, the regulatory measures, combined with the competitive activities, appear to have had the desired result. The smaller French competitors that latched on to the bigger networks and flourished have grown large enough to start building their own infrastructure. Because these smaller companies needed to compete with the state-owned telecoms by specializing in innovative technologies, the end result is a market offering a variety of cutting-edge services over multiple networks.

Statistics show that this not only worked for France; other European nations that implemented "unbundling," including the Netherlands, Finland, Denmark and Sweden, all experienced higher rates of broadband penetration, averaging around 25%. Countries that did not employ this strategy, such as Greece, Poland and Slovakia, held stagnate penetration rates of around 10%.

Critics accuse the OECD report of ignoring facts "in pursuit of bad policy," as one Wall Street Journal writer claimed, and argued that the U.S. has fallen behind Europe due to differences in population density. Still, Canada, Norway and Sweden – all with population densities below that of the U.S – also rank higher.

The issue of Net service monopolies offers an insight into the controversial topic of market regulation and its influence on competition. While it is premature to say which philosophy – giving full reign to markets or imposing European-style regulation – will be more successful in the long run, recent developments suggest the latter is more sustainable. The U.S., for example, is the only industrialized nation without a national broadband policy.  Consumers have felt the effects in the form of higher costs for Internet services and less variety and innovation in products offered – the very things free-market capitalism promises to remedy.

But in media related industries, more is at stake than just higher prices and less choice.  A handful of dominant corporations have been building an increasingly impenetrable barrier between the public and the information the media provide.

The examples of the Chinese government’s attempt to filter Internet content about Tiananmen Square, or in Iran, where authorities have blocked sites deemed ‘harmful to the state,’ show the extent to which the public’s desire for knowledge and state and corporate objectives can clash.

In the U.S., conglomerates that control such staggering market shares in IPS – namely AT&T, Bell South, and Verizon – were the same companies that cooperated with the National Security Agency when asked to hand over call records of their customers.  In a more recent incident, AT&T caused a stir after censoring its Webcast of a Pearl Jam concert because of anti-Bush lyrics, putting AT&T at the forefront of the "Net Neutrality" issue. AT&T chief Edward Whitacre combated accusations of censorship by stating that "any provider that blocks access to content is inviting customers to find another provider."  But what if there is no one else to chose from?

Freedom of speech and grunge band lyrics may seem beside the point when looking at the bottom line. But economic indicators tell a different story. Open Internet use is closely related to education levels, and education is even more closely related to GDP and productivity. France enjoys one of the highest levels of productivity in the world, which experts claim to be partially due to high use of information technologies.

If the U.S. continues to lag behind in areas such as productivity rates, health care coverage and Internet use, Americans may soon look to France for more than just good Chardonnay.

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    the vienna review October 2007