The Sad State of U.S. Broadband

The U.S. has a dismal showing among nations in terms of broadband availability, with no easy solution to bridge the gap

by Catherine Holahan

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Although the Internet was started here, the U.S. can't seem to catch up with other developed nations when it comes to giving citizens access to high-speed connections.

For the second year running, the U.S. ranked 15th among the 30 members of the Organization for Economic Cooperation & Development in terms of broadband availability. Denmark ranked first again in the annual OECD survey, followed by a host of European and Asian nations. Indeed, while the number of Americans with access to broadband service rose 20% last year, to nearly 70 million people, the most in the OECD, that amounted to just 23 of every 100 residents. By contrast, the top five countries in the OECD ranking all sport per-capita penetration rates of better than 30%.

Why isn't the U.S. up to speed online? The U.S. Federal Communications Commission is quick to point out differences in population and geography that have made it more difficult for the nation to catch up with smaller countries. It is easier, after all, to deliver broadband in densely populated areas where the same cables can serve hundreds, if not thousands, of subscribers, giving phone and cable TV companies the financial incentive to upgrade their networks. The U.S. has rural areas where the revenue to be made from laying down fiber-optic cables to reach scattered households hasn't proven alluring to many providers. "It's easier to achieve a high penetration in Manhattan than Mississippi," said FCC Commissioner Deborah Taylor Tate in an Apr. 30 speech at the Broadband Properties Summit in Dallas.

Little Competition

But challenges of wiring remote communities don't tell the whole story. The OECD also found that U.S. broadband providers charge more than those in many developed nations. Broken down by megabit per second of download speed, U.S. rates ranged from $2.83 to $38.41 in late 2007. Rates in Japan started as low as 13¢ for one megabit per second, while France, Sweden, Korea, Finland, Australia, and others all start off at lower prices than the U.S. Furthermore, residents of European and Asian countries tend to have access to far speedier broadband options than Americans.

Consumer advocacy groups blame what they see as a market with little competition. They say the ability of major telephone and cable operators, such as Verizon Communications (VZ), AT&T (T), Time Warner Cable (TWX), and Comcast (CMCSA), to dominate their markets without sharing their lines with rivals has kept out new competition, enabling the companies to keep prices high and investments in faster technologies low. "All of these countries that are outpacing us have much more competitive broadband markets than we do," says S. Derek Turner, research director at Free Press, a media policy group. "You don't have the head-to-head competition like you do overseas where they have embraced open-access policies."

Turner and other consumer advocates are calling for the FCC to spur competition by requiring providers in certain regions to lease their high-speed lines at regulated prices to other providers. Otherwise, Turner says, would-be rivals will never enter the market, as they can't afford to tear up streets and run their own lines into households already wired long ago by cable and phone companies. Verizon, for example, is spending $23 billion to replace its copper wires with fiber-optic lines for its new high-speed FiOS broadband and TV services (BusinessWeek.com, 1/30/07). It hopes to have 7 million FiOS customers by 2010 in return for that hefty investment.

The FCC has rejected the argument that such measures are needed, saying Verizon and others would never invest that sort of money in network upgrades or in extending broadband to new communities if they were forced to then lease those lines to competitors. The government's role, says Commissioner Tate, is to have a "light regulatory touch," easing restrictions for broadband requirements to encourage competition and cracking down on acts that stifle competition, such as exclusive service deals between broadband providers and apartment building owners.