Surgery on a Healthy Patient | Commentary
As Congress considers new Internet openness rules to replace the “net neutrality” regulations recently struck down by the courts, critics of U.S. broadband have called for a major overhaul of how we regulate the net. At the extreme, they seek a complete “reclassification” of the Internet as nothing more than a juiced-up telephone, thereby moving it from modern rules that apply to information services to the “common carrier” rules that applied to the Bell system. They contend this would allow for stronger “open internet” protections and improve the speed of, and access to, the web.
This radical surgery is needed, they argue, because the American Internet is purportedly monopolized by a handful of providers and, as a result, is too slow and too expensive. If we don’t act now, some critics predict we’ll soon be “a third world country” online.
Is this radical surgery necessary? Or are the critics like the practitioners who intervene even when no treatment is needed? In a research paper published this week by the Progressive Policy Institute, I investigated the state of the U.S. Internet, and found it getting faster, more affordable, and more competitive. Whatever merit there may have been to such criticisms when they were first levied almost a decade ago, U.S. broadband has clearly left them in its tracks.
The U.S. now ranks 10th in average broadband speed around the world according to the Akamai Technologies, Inc. ranking service, and trails only South Korea and Japan among our major trading partners, both countries with extraordinarily high urban concentration (which vastly reduces deployment costs and boosts average speeds). We trail only Japan in the G-7 in percentage of the population connected at 10 mbps or higher. And the United States has the most affordable entry-level wire line broadband in the Organisation for Economic Co-operation and Development.
Nor does the data square with the idea that broadband monopolists are holding back. Our investment in the underlying broadband infrastructure is 50 percent higher than that of the European Union (measured on a per capita basis). As a share of GDP, our broadband investment rate exceeds those of Japan, Canada, Italy, Germany, and France.
But perhaps the most compelling evidence that U.S. broadband doesn’t behave like a monopoly is profitability. Not only are U.S. providers far less profitable than their foreign counterparts (1.9 percent versus 7.4 percent), but the profit margins of U.S. Internet providers are generally between one-sixth and one-eighth those the companies that use the Internet, whether device makers such as Apple, or content producers such as Google or Netflix. These data simply don’t fit a model in which providers are price-gouging and restraining innovation.
Perhaps the broadband industry doesn’t act like a monopoly because it isn’t one.
We are one of only two nations with three competing broadband technologies that are deployed and fully operational (cable, telco, and 4G LTE wireless). 90 percent of Americans can choose between wired and wireless providers offering 4 mbps broadband or faster service, and 88 percent can choose from at least two different wired services providers. As a result, 96 percent of U.S. households have access to speeds equal to or greater than 10 Mbps, and 99 percent can now access service of at least 3 Mbps. In fact, a remarkable 85 percent of U.S. households are served by networks capable of 100 Mpbs or better.
The mismatch between the data and the critics’ claims ultimately may tell us more about the critics’ worldview than the state of broadband. The Internet is becoming more diverse as mobile access becomes stronger, and new entrants (such as Google) prowl its periphery. And the companies that use the Internet now have more market power than the companies that provide it – there are fewer effective operating systems for mobile phones, or comprehensive Web search sites, than there are Internet providers. Which is more likely – that your provider will block Netflix, or that Netflix will deny access to your provider if they don’t pay up?
Before recommending major surgery, you’d better make sure the patient is sick. But U.S. broadband is thriving and robust. In fact, its performance surged once the courts freed providers from the last vestiges of the very same regulations critics want to reintroduce. A radical attempt to redefine the Internet as a subject for regulation, based on a misdiagnosis of where we stand in the world, could shut down the virtuouscycle of investment and innovation that the data show is already at work. The result might well be the well-known outcome – the operation was successful, but the patient died.
Ev Ehrlich is President of ESC Company, an economics consulting firm, and former Under Secretary of Commerce in the Clinton Administration.