General

We’ll find out soon enough whether the U.S. soccer team can survive the World Cup’s “Group of Death” with two strong European competitors (England and Germany). But for broadband, it’s clear who’s winning:  the U.S.

It’s basic economics that if we as a society want less of something—for instance, smoking—we will impose a tax on it or restrict it by regulation, and consumption will fall. The opposite is also true: if we want more of something, deregulation and lower taxes will, by the operation of markets, lead to more of it.

The price, availability and quality of broadband follows the same rules. If we want more and faster broadband—and we do—then excessive and inappropriate regulation of broadband, such as some activists’ proposals for “Title II” common carrier regulation, is the wrong way to go. On top of all the legal and technological problems Title II would bring, we can confidently predict that it would sharply inhibit broadband investment.

A new paper from Christopher Yoo of Penn Law School’s Center for Technology Innovation and Competition takes a fresh look at the data and shows that the US is far ahead of Europe on virtually every relevant metric of broadband deployment. The reason, not surprisingly, is that the US regulates broadband lightly while European countries impose investment crippling wholesale unbundling requirements on broadband providers.

Res ipsa loquitur, the lawyers like to say, and Yoo says exactly that: “The data speak for themselves, and the empirical evidence confirms that the United States is performing much better than Europe in the high-speed broadband race[.]”

Look at the data from different angles (as CTIC’s interactive micro-site permits), and it tells the same story: access to next-generation networks (over 25 Mbps), the U.S. leads 82% to 54%; access to next-generation networks in rural areas, 48% to 12%; and LTE coverage, 86% to 27%.  Unsurprisingly given these figures, the U.S. (meaning U.S. network operators) invests more than twice as much per household as Europe does—$562 vs. $244.  Better service, with less packet loss in the U.S.. And entry-level broadband prices are lower here, too.

Why is the U.S. winning? It all comes down to fundamentally different models of regulation and the incentives each provides for investment: Europe relies on regulations that treat broadband as a public utility and foster competition among multiple leased access providers on incumbent provider platforms. New entrants lease incumbents’ facilities at wholesale cost (also known as unbundling). The U.S. regulatory light- touch has generally left buildout, maintenance, operation and modernization of Internet infrastructure to private companies and focuses on promoting facilities-based competition, in which new entrants are expected to construct their own networks.

The regulatory structure government chooses directly affects broadband availability, quality and price.

Focus on that investment statistic for a minute: there’s over twice as much investment per household in the U.S. as in Europe, which leads to more coverage.

We’ve already had a glimpse of what can happen if the U.S. government tries a different path, that of Title II regulation. When the FCC announced in 2010 that it was considering Title II reclassification of broadband as a possible approach to ensuring network neutrality, there was an immediate negative effect on the stock prices of the network operators who were deploying broadband across the country. On average, the market capitalization of the four largest ISPs in the United States lost a combined $18 billion and the market value of one of those entities dropped 15% overnight. The ability of these companies to acquire the financing necessary for aggressive broadband deployment diminishes as their value in the market declines. This was but one early sign of the kinds of problems that broadband providers will encounter in continuing their world leading broadband deployment performance if the FCC turns to Title II regulation.

So the light regulatory model of the U.S. brings greater adoption, more investment, and faster speeds, while due to the heavy-handed leased access regime on which Europe built its policies, the continent is now lagging far behind.

None of this is surprising to anyone who knows a bit of economics, but it’s a useful reminder as the FCC considers what sort of rules would best achieve our nation’s broadband goals. We can ill afford to neglect history and economics by imposing telephone-era, public utility regulation that will dampen investment at precisely the moment when carriers will have to undertake even greater expenditures to acquire spectrum in the upcoming incentive auction and then spend more to deploy facilities to bring wireless broadband to the entire US population at 4G levels. As Yoo writes, “we have a real-world basis for assessing the impact of imposing telephone-style regulation on the Internet[.] As regulators in the United States contemplate rules for next-generation networks, it would be wise to consider how going down the path of stiff telephone-era regulation has fared elsewhere.”

Because whatever happens in Brazil, the U.S. has already beaten Europe in the broadband competition for economic growth.