Why is European broadband faster and cheaper? Blame the government

If you've stayed with friends who live in European cities, you've probably had an experience like this: You hop onto their WiFi or wired internet connection and realize it's really fast. Way faster than the one that you have at home. It might even make your own DSL or cable connection feel as sluggish as dialup.
You ask them how much they pay for broadband.

"Oh, forty Euros." That's about $56.

"A week?" you ask.

"No," they might say. "Per month. And that includes phone and TV."

It's really that bad. The nation that invented the internet ranks 16th in the world when it comes to the speed and cost of our broadband connections. That's according to a study released last year by Harvard's Berkman Center for Internet & Society on behalf of the Federal Communications Commission.

It's not surprising that we lag behind such hacker havens as Sweden (number one worldwide, according to the study) and Finland (number seven), nor densely-populated Asian nations like Japan and South Korea (numbers three and four). But the U.S. also trails countries that are poor by European standards: Portugal is just ahead of us in 15th place; Italy is number 14. (The full rankings are on page 81 of the study.)

By most measures, the U.S. has been losing ground. The UK, which traditionally lagged in international broadband rankings, is now number eleven, Germany, which has been slow to move to the most-recent DSL and fiber technologies, is number twelve.

I wanted to find out why we're doing so badly. So earlier this year I went to the UK and Netherlands under the aegis of the Washington-based Center for Investigation and Information to learn why broadband in those countries is so much better than ours. The project was funded by the Ford Foundation. (In April, my colleagues and I produced the first version of the story for the weekly PBS newsmagazine Need to Know; you can see that report here. Later this year, we hope to produce additional reporting for two NPR programs.)

We went to the Netherlands because it has one of the world's most advanced and fastest-growing fiber-optic networks. We visited homes there that get 100 mbps service in both directions -- they can upload as fast as they download -- as well as TV and phone for under $100 a month.

We chose the UK because it's racing ahead in global rankings. Over the past decade, average speeds increased by 25 percent between 2009 and 2010, while prices have tumbled. Broadband service comparable to what we get here in the U.S. is available for less than $6 a month. And no, there isn't a zero missing there. Six bucks a month.

So, what's the difference?

Our reporting suggests a one-word answer: Government.

Not government spending. The UK's administration hasn't invested a penny in broadband infrastructure, and most of the network in the Netherlands has been built with private capital. (The city government in Amsterdam took a minority stake in the fiber network there, but that's an investment that will pay dividends if the network is profitable -- and the private investors who own the majority share of the system plan to make sure that it will be.)

The game-changer in these two European countries has been government regulators who have forced more competition in the market for broadband.

The market in the UK used to be much like ours here in the U.S.: British homes had two options for broadband service: the incumbent telephone company British Telecom (BT), or a cable provider. Prices were high, service was slow, and, as I mentioned above, Britain was falling behind its European neighbors in international rankings of broadband service.

The solution, the British government decided, was more competition: If consumers had more options when it came to broadband service, regulators reasoned, prices would fall and speeds would increase. A duopoly of telephone and cable service wasn't enough. "You need to find the third lever," says Peter Black, who was the UK government's top broadband regulator from 2004 to 2008.

Starting around 2000, the government required BT to allow other broadband providers to use its lines to deliver service. That's known as "local loop unbundling" -- other providers could lease the loops of copper that runs from the telephone company office to homes and back and set up their own servers and routers in BT facilities.

BT dragged its feet and very few firms stepped up to compete with the telephone giant. "The prices were too high," Black says. "There were huge barriers to entry. The processes were long and drawn out."

When Black was named Telecommunications Adjudicator in 2004, he fought on two fronts to break the BT logjam. First, he used his own experience as a former employee of the telecom giant to push for change from the inside. When that wasn't enough, he used the bully pulpit provided by his government post to embarrass BT in public. He publicized the company's failure to meet goals. Reporters loved the story of the government regulator holding the giant firm's feet to the fire.

"Embarrassment works, you know?" he laughs.

When Black started work, only 12,000 British homes had multiple broadband providers. By the time he stepped down in 2008, about 5 million did, and today the number's closer to 6 million. "That's about a 500-fold increase in less than ten years," he says.

You can see evidence of the UK's competitive market on the streets of London: Broadband providers splash ads across bush shelters and train stations, touting prices that seem outrageously low by U.S. standards. Post offices sell broadband service; so does Tesco, one of the UK's largest supermarket chains.

Those providers target their offerings to users' needs. If all you plan to do is check you email every now and then, try TalkTalk's plan that goes for £3.25 a month (under $6). If you're a gamer and low latency is a key factor, buy a more expensive plan from Demon. (Bonus: Their customer service people are trained geeks who won't repeatedly insist that you reboot your computer and modem before moving on to help solve the problem.) Some London homes now have a dozen or more broadband providers.

Competition is spurring technological improvements. BT and its dozens of competitors realize that they're already pushing old-fashioned copper wires to the limit, and that speeds will increase only if homes are connected to fiber-optic cables. So right now, a consortium of competitive broadband providers is negotiating with BT for the right to use the phone company's poles and underground ducts to build their own fiber-optic network.

What's good for Britain is bad for America?

America's AT&T and Verizon are members of that consortium, pushing for faster service for British broadband users. Both firms back more competition in the UK and across Europe and fight to take market share from incumbent telephone companies there.

Yet both firms say the same policies they support in the UK would be a mistake here in the U.S. (You can see my questions to the firms here and here. AT&T's response is here, while Verizon's is here.)

Verizon told me in its written statement that it flat-out opposes the kind of local-loop unbundling that's reduced prices and increased speeds in Britain "for competitive reasons". Those regulations are "bad public policy and bad news for consumers", Verizon says, which "only benefit a few big phone companies, and those companies do not pass their savings on to consumers." Verizon also claims that "those competitors do not invest in their own networks".

Broadband industry insiders in the UK beg to differ.

AT&T takes a different tack: The firm says it supports competition, but notes that, "There is no 'one-size fits all' regulatory regime" that will work worldwide. AT&T cites two main differences between the UK and U.S. markets: First, more U.S. homes have the option of buying broadband service from cable companies. Second, the U.S. is more spread out -- the technical term is that those "loops" are longer.

But again, the facts in the UK suggest otherwise. Many homes in Britain's largest city -- London -- have cable access, but cable prices have fallen alongside that of DSL service.

Meanwhile, the size of the U.S. may be a red herring. Most of the region between Boston and Washington is as densely populated as most of Europe and the UK. So is the California coast between San Francisco and San Diego. And so is the region of the Midwest centered on Chicago. Those areas are home to about a quarter of all Americans. In other words, we live in a big country, but a lot of it is relatively empty space.

The argument that the U.S. is too spread out is nonsense, according to Herman Wagter, one of the Netherlands' most prominent evangelists for next-generation broadband. He thinks there's something else going on in Verizon's and AT&T's opposition to competition at home: They're afraid of it.

Standing next to an Amsterdam canal, Wagter used a historical analogy: Those canals were built and operated by private firms, he says. When they were built, they helped Amsterdam become the world capital of commerce and finance. But after a hundred years or so, a new technology -- railroads -- was proving itself to be more efficient. The new transportation system was helping Holland's neighbor to the west, the UK, race ahead of the Netherlands. When Dutch entrepreneurs petitioned to build a train, the owners of the canals "were screaming murder".

"They were saying, 'Oh, we can accelerate the boats a little bit, and convey a little bit more if you need more capacity'," Wagter says. The canal owners said the new railroads would "take away their business, and it was absolutely forbidden, and government shouldn't interfere."

Wagter says it's fortunate that the Dutch government at the time didn't listen to those arguments. Whether or not U.S. officials will make the same decision when it comes to next-generation broadband, he says, is "a matter of political will."

Source: http://www.engadget.com/2011/06/28/w...-the-governme/