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.