The Broadband Gap: Why Do They Have More Fiber?

By Saul Hansell

This is the third in a series looking at the lessons for the United States from broadband deployment in other countries. Read the first and second posts.

Broadband Gap

In the paradises of broadband — Japan, South Korea and Sweden — nearly everyone can surf far faster and far cheaper than anyone in the United States. What is their secret sauce and how can we get some?

The short answer is that broadband deployment in those countries was spurred by a combination of heavy government involvement, subsidies and lower corporate profits that may be tough for the economic and political system in the United States to accept. Those countries have also tried to encourage demand for broadband by paying schools, hospitals and other institutions to use high-speed Internet services.

Sweden has built one of the fastest and most widely deployed broadband networks in Europe because its government granted tax breaks for infrastructure investments, directly subsidized rural deployment, and, perhaps most significantly, required state-owned municipal utilities to create local backbone networks, reducing the cost for the local telephone company to provide service.

Japan let telecommunications companies write down about one-third of their investment in broadband the first year, rather than the usual policy, which requires them to spread the deductions over 22 years. The Japanese government also subsidized low-cost loans for broadband construction and paid for part of the wiring of rural areas.

“The return to fiber takes time,” said Dave Burstein, the editor of the DSL Prime newsletter, in an e-mail message. “Governments can invest thinking 10 and 20 years, but few companies can. So putting the expensive part (ditch-digging) under the government in some form has good logic. Then you have the companies compete at an upper layer where the investment required is not so intimidating.”

In many countries, especially in Asia, government assistance has gone hand in hand with an expectation that private companies will accept lower profit margins in order to assist in achieving the national broadband goals.

“The South Korean government expects its private companies to drive the investment in broadband infrastructure with government support in the form of loans and tax subsidies as their incentive,” wrote the Information Technology and Innovation Foundation in a report last year.

There are only a handful of major projects worldwide to build fiber lines to homes that don’t involve significant government aid of some sort, Mr. Burstein said, including Verizon’s FiOS and Iliad’s fiber network in some large French cities.

Don’t count out “national pride” as a partial explanation for the creation of high-speed networks in Asia, Mr. Burstein wrote me:

Japan then got serious about fiber because they couldn’t accept Korea being ahead, and similarly in Hong Kong, Taiwan, Singapore, and now Malaysia. Singapore wants to pull ahead again, so they decided to go to 1 gigabit (shared) fiber with really intense regulation.

What lessons are there in all this for the United States, which historically has had an aversion to Asian-style industrial policy?

Finding a way to bring broadband to remote and rural locations where it is simply uneconomic for commercial companies to string wires is one clear option. Much of the $7 billion for broadband in the stimulus bill is allocated to this, but more will likely be needed to get the sort of universal coverage that Sweden and some other countries have.

The government also could help the people who don’t use the Internet because they don’t have the skills or even have a computer. The stimulus bill has some money for this. There are also some proposals to redirect some of the Universal Service Fund money now used to pay the operating costs of rural phone companies to rural broadband providers.

And of course if regulators can find a way to increase competition and lower the price of broadband, more people would no doubt sign up. Studies have shown that people in the United States with incomes under $50,000 are far less likely to have broadband service than those who earn more. Some argue that devoting more spectrum to wireless data services may also create more competition, but there is quite a debate about whether wireless service can match the speed and cost of cable or fiber.

But the biggest question is whether the country needs to actually provide subsidies or tax breaks to the telephone and cable companies to increase the speeds of their existing broadband service, other than in rural areas. Many people served by Verizon and Comcast are likely to have the option to get super-fast service very soon. But people whose cable and phone companies are in more financial trouble, such as Qwest Communications and Charter Communications, may well be in the slow lane to fast surfing. Still, it’s a good bet that all the cable companies will eventually get around to upgrading to the faster Docsis 3 standard and the phone companies will be forced to upgrade their networks to compete.

The lesson from the rest of the world is that if the Obama administration really wants to bring very-high-speed Internet access to most people faster than the leisurely pace of the market, it will most likely have to bring out the taxpayers’ checkbook.

Comments are no longer being accepted.

Hummingbird March 12, 2009 · 8:33 am

The answer to rural Internet access in the short run is power line Internet. But some incentive needs to be given to rural electrical cooperatives to make it a reality.

HSM-STL March 12, 2009 · 8:36 am

Right conclusion in the article. Government help is needed in tax breaks to invest in infrastructure to reduce prices assuming the telecom companies act in good faith.

Have you looked at number of tax items in phone/broadband bills…ridiculous..

Simon March 12, 2009 · 9:03 am

Uh, what?
Do you really think labor is cheaper in Japan and Sweden than in the USA?

These are among the richest countries in the world by any measure and their wage-level is certainly not lower then in the US, if anything it’s higher.

Korea might have a lower pay level but it’s nothing like the USA-India difference.

Slapped by the invisible hand March 12, 2009 · 9:20 am

We should not be investing in rural broadband. Look what happened with rural electrification: FDR pushed for it, and now the descendants of the beneficiaries are decrying big government, which was what got them electricity in the first place. I foresee that in the future, any beneficiaries of rural broadband will be complaining about evil big government liberals, always trying to meddle in the free market. I say, let the free market bring broadband to rural areas. If no companies want to do that, then too bad.

Mr. Reeee March 12, 2009 · 9:25 am

The sheer size of the United States coupled with the scourge of sprawl limits the spread of fibre cables. It simply does not pay enough profit to string wires to the middle of nowhere.

The fact that the US Government pours insane amounts of capital down the bottomless pit of “Defense” is not only sheer stupidity, but borders on insanity and criminality.

WE, the US, “protect” all those countries, so what they might might be spending on weaponry and such, they can put directly back into their own societies, giving them the ability to fund such frivolities as broadband internet and universal education and health care for all their citizens.

If the majority of the US populace is ignorant, broke, overweight and sick, it doesn’t matter how fast they can download porn or YouTube clips.

Fred Goldstein March 12, 2009 · 9:33 am

Adding to what the article said, the US has a policy gap that has crippled the sector. In every other industrialized country, there is a recognition that the underlying fiber optic and copper facilities need to be made available, at a fair price, to service providers other than their owners. That was the policy in the US before the Bush-Cheney-Rove FCC changed the rules. The current US policy is that the owner of the wire has total control over its content. So the phone and cable companies are the only ISPs.

This not only leads to the “neutrality” problem (it’s not an issue if there are many ISPs to choose from; you pick one whose policies you like, and new ones can spring up to meet unmet demand), but it spreads the cost of the fiber build among more players. The Bells are so dedicated to total control that they’ve closed their wires to wholesale customers.

So while many rural areas do need subsidies to get comparable service, the US could improve its broadband position dramatically just be going back to pro-competitive open network-facilities (not “neutral” regulated ISP) policies, like those in most other countries. The US led in this in the 1990s; the rest of the world followed us and reaped the rewards, while the US policy now resembles those little tinhorn dictatorships where the Post and Telephone Monopoly belongs to the President for Life’s brother-in-law.

Roy Jones March 12, 2009 · 9:43 am

Only a true socialist would care about the dubious benefits of broadband equality and would be willing to sacrifice yet another tiny sliver of freedom to get it.

Unindicted Co-Conspirator March 12, 2009 · 9:53 am

I seem to remember that the phone & cable companies got around $200 billion in tax breaks a number of years ago just for expanding broadband.
They seem to have managed to make everyone forget about that!

Mike March 12, 2009 · 9:53 am

In my case, it’s not the fiber that’s the problem! Verizon has had fiber within 500 feet of my door for the past 5 years and done nothing with it. It’s just not worth their trouble to provide service to a few dozen homes. They are looking to fry bigger fish.

robert March 12, 2009 · 9:54 am

I live in Center City Philadelphia and the only Internet service I can get is Comcast and that seems to be overpriced. I wonder whether that’s related to the fact that looking out my window, the Comcast Building dominates my view. Some other people in Philadelphia can get Verizon but somehow that costs exactly the same the overpriced Comcast service.

How about simply beating down all telecom regulation (whether urban or rural) and let the companies fight for their customers.

rjtex March 12, 2009 · 9:56 am

You forgot to mention that South Korea and Japan have granted their telephone companies/infrastructure owners a monopoly status. Just like the US government did in the early part of the 1900’s.

The only way the US government could promote telephone infrastructure deployment across the country in the early 20th century was it granted a monopoly status to AT&T Bells. This was the only way to give companies an incentive to invest in infrastructure, because it assured them a return on their investment and recoup their costs.

In fact, AT&T almost went out of business in the late 1990’s because they decided to invest billions of dollars in building out a robust cable infrastructure. This was a great example of how it’s extremely risky for any company to invest in broadband deployment, especially to rural areas.

Even Verizon and cable providers are given a quasi monopoly status within their counties through cable franchisees.

I’t’s easy to opine over why the US lags in broadband deployment, however; be careful what you wish for. There’s always a trade off between competition and lower prices vs. wide spread broadband deployment. Those who control and deploy the infrastructure will always want to be assured of a return on their investment – and there’s really only one way to do that.

john friedman March 12, 2009 · 10:07 am

The fact of the matter is that the large telcos have been given billions and billions to finance the deployment of broadband (be it fiber, coax, hybrid systems, wireless, etc.) and they’ve done nothing with the money that even resembles what they said they would. Witness the state of New Jersey which, in the late 80s and early 90s undertook a progressive and cutting-edge approach to the problem. They permitted Bell Atlantic (now part of Verizon) to raise its rates to consumers and business to amass the funds BA said were needed — only to see the telco thumb its nose at the rate payers and the regulators. Ten years and billions later — nothing to show for it except larger executive salaries, a diminished pool of competitors and mind-numbingly slow ‘net access. Sure there’s now FiOS but it pales in comparison to what was promised by BA — and it’s relatively expensive to boot.

Clearly the only way to ensure ubiquitous broadband availability throughout the US is for some type of government involvement in the infrastructure deployment investment AND regulated line sharing of the bottleneck facility. Clearly, too, no administration has the political wherewithal to undertake both of these initiatieves. Sure we’ll get public funding for the deployment but without mandated competition (i.e. sharing of the last mile infrastructure) this simply amounts to yet more (and vastly expensive) corporate welfare.

Doug Terry @terryreport.com March 12, 2009 · 10:13 am

American companies go for “the low hanging fruit”. We are such a big nation with so many opportunities, but established companies, and especially start-ups, go for the quick kill. Everything is about how much money you can project over the short term.

The last big round of regulatory changes came in 1996, which opened long distance fiber lines to the non-traditional phone companies and, at the same time, locked the Baby Bells out of the game. What resulted was a massive effort to lay long distance fiber and billions of investment dollars poured in on some weird assumption that anything having to do with fiber optics was somehow magical. Then came the tech collapse of 2000, which was much larger than the dotcom collapse of the same time period. In the wake of the tech implosion, fiber optics stalled for several years, if not longer.

Another major factor in the reluctance of carriers to put fiber in place has been a vast underestimation of the bandwidth needs of individuals. In other words, a failure of imagination. In my own work, I have for years told carriers about the coming of video as a huge user of bandwidth on local and longhaul networks. Most appeared to have been surprised and were not considering video as a developing source of demand.

There is a famous quote from Emerson in regard to connecting the U.S. by telegraph. He said, “What if Maine and Texas have nothing to say to each other?” Unfortunately, that has been the thinking of far too many people involved in making decisions at fiber optic providers. They would project into the future based only on known applications, such as e-mail. How much bandwidth would be required to send a billion e-mail per day? But, wait: what if a third of those e-mails contained video file attachments? Never considered.

Providers have been backward looking instead of forward thinking. At the top of corporations, the instinct to be cautious is as persistent as a desire for big paychecks, perhaps more so. When disasters like Global Crossing happen, which attempted to circle the world’s oceans with fiber and built a good deal of that network, caution is reinforced as conventional wisdom. The result: “Let’s wait until we can prove the demand is there”.

You can’t prove demand exists for services that have yet to be created. Who walked around ten years ago saying they wished they could post video on the net? Who felt their life was not complete without Twitter? The net is inventing itself every day. As a result of the inability of leadership to imagine the future, communications companies are constantly trying to meet yesterday’s needs. Small companies, with limited investment capital, simply cannot bridge the gap. They need to prove they can be viable before they can take big risks.

One of the biggest impediments to the developing of fiber optics in America has been the pricing models developed by longhaul carriers. Those models were designed to discourage its use. You read correctly: the carriers wanted to slow use of the networks in order to guarantee massive profits, not considering that wide spread use, at lower rates, would actually increase profits. The Internet, with its portals pricing model, along with Internet Protocol, opened the network that engineers had sought to protect and, in effect, close for decades.

We need 10 to 20 meg symetrical (two way) service to every house in America. Is that so difficult to understand? American business enterprises are spoiled by expecting to get all of their money back, plus big profits, over the short term. Investors, in turn, push for the quick return or nothing. That sort of non-thinking is a large part of why we are in a deep recession now.

The build out of fiber into the more densely populated areas has been glacier slow. Its all stop and start, boom and bust, go back and study the issue some more. The major reason is that corporations make so much money by being careful that they are risk averse in the extreme, plus senior management, having worked itself up through the ranks, is almost always in the 50+ age group with retirement, and all its benefits, looming on the horizon. Why bet the company?

An even casual study of the industrial growth of the U.S. in the late 19th and early 20th centuries reveals a parade of risk takers who bet their lives and fortunes on success. In their place, we have overly cautious business school careerists who are paid many millions to avoid risk.

Local, state and national government have all been far too passive in these developments. Some fearful steps have been taken to move into the broadband gap, but without much success.

Sadly, having watched the birth of the net “revolution” in the 90s (while online services actually started in the 80s), I am convinced we will still be having these debates ten years from now. At almost every stage, a lessor, dumber technology is proposed as a substitute for the real deal. dial up, ISDN, DSL and cable based connections all fall short of the mark, yet these interium technologies actually wind up setting back the deployment of full services. This happens so much, in so many varied forms of technological development, that it seems no longer to be an accident, but a planned blocking of the future, a means of making money while delaying what we really need.

Larry at Home March 12, 2009 · 10:16 am

Nope.Not true.Telecoms and cable companies are making VAST profits,and see no need to outlay any money when what they have is selling so well.
If you ignore the bottom line as reported to The Guv,because this is already rife with writedowns-it becomes clear.

Much of DSL in this country is managed and distributed in the same buildings and on the same equipment that ran pulse dialing, and those buildings sat dormant for years as a write off.

When it comes to rip offs,it’s hard to top the Telecom & cable industry.They are only beat by the moguls in the Oil Products Industry.

Waaaaa waaaah they’re always losing money.What a ridiculous stance.

It’s a National shame.Just like the US car industry and the health care mess.

West Texas Rancher March 12, 2009 · 10:18 am

There is no clamoring in the countryside for high-speed Internet access. Most of these folks don’t want it or need it. Many don’t even have PCs. They all pretty much have dial-up and high-speed satellite access if they want it. People move to the country, or stay there, to get away from all this city stuff! Now, our governent wants us all to spend a small fortune to force it on them. Where is the outcry from rural America demanding cheap, high-speed Internet access?

Rural web publisher March 12, 2009 · 10:19 am

Broadband is anything but frivolous. In ten years–if not sooner, broadband will be as vital to local economic development, public safety, communication and public discourse as electricity and phone service. It should be regulated as a utility.

Verizon and other telcomms should be required to fully serve communities, rather than cherry-pick the easiest places to wire and leaving the rest to fend for themselves.

In my small rural town, they wired 60 percent of the households and left the rest of us (including the town library) to figure it out because of the cost of replacing old equipment. This is a common pattern around New England, where volunteers and non-profits are trying to figure out ways of providing service. It’s nuts.

It’s also insane that the govt. doesn’t even know how widespread broadband is because the telcomms “own” that information.

Tom March 12, 2009 · 10:22 am

#4 and #5 are excellent comments. We treat this “universal broadband” thing as a human right, but it really isn’t. If information is truly what you want, you can get it just fine over a 56K modem.

RickJ March 12, 2009 · 10:26 am

From experience, I can say Sweden does have very fast and reliable broadband. They’ve been at the cutting edge of technology for quite some time. (I live in the UK now and the broadband here is only slightly better than two tin cans and a string).

I think the reason for Sweden begin far ahead results from more than providing tax breaks and incentives. They are a small country, population-wise. However, the Swedes also have a very forward looking philosophy to most aspects of life. In comparison, technology moves slower in the US and UK and these societies seem more resistant to change on many levels.

Coleman March 12, 2009 · 10:56 am

Americans are moving out of rural areas, and into cities and have been for a long time. This trend will continue. So, if we wait for the government to wire up rural areas, everybody will have left by the time the fiber gets there. Government-mandated broadband would take years to start connecting people. Imagine how technology will have changed by then. Fiber to the home will almost certainly be obsoleted by some kind of wireless, whether it’s satellite or WiMax.

Alton E. Drew March 12, 2009 · 11:18 am

A number of local and state governments shoulder the blame for underserved and unserved areas not receiving broadband. Instead of investing some of the franchise fees they collect indirectly from cable subscribers into broadband access, counties such as Fairfax County, Virginia spend excess millions on institutional networks that only serve county government buildings as opposed to citizens on a whole. There is no competitive bidding out for the construction of these institutional networks nor are the institutional networks monetized by inviting private entities to use them. It is no wonder that over 2,000 households in a very rich county not only have no broadband access but are not even wired for basic phone service that could be used to obtain at least DSL service. Local government mindsets will have to change before they play any constructive role in expanding broadband access to low income consumers and rural areas.

Alton E. Drew
//www.altondrew.com

thomcat00 March 12, 2009 · 11:40 am

Rural broadband support is a necessity. I live fewer than 5 miles from the nearest wired broadband connection and so I must limp along on dial up. Six yeas ago, I was assured broadband would be in my area within 3-6 months. I check back with periodically, get the same response and when I challenge the provider saying they’ve been feeding me the same line for the better part of a decade, I get apologies. But no further action. I have satellite tv but it suffers a higher number of outages than they admit. I’m willing to pay for some kind of broadband. I am not willing to fork over extortionate sums for the sevice, especially when I see others getting far more for far less. Once the data pipe is in place, the broadband providers will get their revenue streams. I am reluctant to give them money (government support) up front to invest in their long term interests.

@djvielledent March 12, 2009 · 12:45 pm

You think you have it bad? i live in mexico where TELMEX has a monopoly and dont really care to have a good sevice

Mike March 12, 2009 · 1:02 pm

The only thing the government should do is allow more competition in the telecommunications market. I live in washington, DC and there are only three internet options: verizon dsl (slow), comcast broadband (slow and expensive), and cox (slowest). The government will not allow verizon to install fiber optic wiring b/c comcast allows them to use public access TV for free. The government needs to let new companies enter the market so they have competitive pricing and better technology. The only group that suffers with government intervention in the market place is the consumer.

Daniel March 12, 2009 · 1:08 pm

Just an example. I’m living in France. I’ve got a fiber connection with an average speed of 25000 kbps up- & download (53 ms ping). I am paying for this 30 € (38 USD). But that’s not all ! The offer includes illimited phone calls to over 50 countries worldwide. That means all of Europe, all of North America, Australia and many more. Over 40 TV channels are also included.

That doesn’t mean that all french people got an connection like this. Nevertheless the monthly average price here for ADSL or fiber is 30 €.

Cordell March 12, 2009 · 1:15 pm

That Japan, Korea and Sweden have extensive high-speed broadband networks reflects not just government subsidies, but government subsidies for its home-grown telecom equipment vendors: NEC and Fujitsu in Japan, Samsung and LG in Korea and LM Ericsson in Sweden. By such indirect subsidies, these governments hope that their local telecom suppliers can better compete with the likes of Cisco System, Juniper Networks, et. al. in the US. A national, government-subsidized high-speed broadband network here would be the ultimate in corporate welfare and pork barrel spending, opposed by liberals and conservatives alike.