FCC Commissioner Weighs In On Broadband Deployment

Commissioner Robert McDowell has jumped into the broadband access debate neck deep today with a brilliant piece in the Wall Street Journal (subscription required, but I’ll post the highlights). McDowell’s op-ed challenges the entire basis for the “sky is falling” crowds constant hand wringing – the OECD numbers on broadband penetration.

The OECD’s methodology is seriously flawed, however. According to an analysis by the Phoenix Center, if all OECD countries including the U.S. enjoyed 100% broadband penetration — with all homes and businesses being connected — our rank would fall to 20th. The U.S. would be deemed a relative failure because the OECD methodology measures broadband connections per capita, putting countries with larger household sizes at a statistical disadvantage.

What’s that? If every man woman and child on the planet had broadband, we’d still be ranked 20th? How can that be? We’re currently 12th, and a segment of our population are constantly stressed out about it. What if we dropped to 20th? My god, the hospitals would overflow with heart attack patients.

The OECD also overlooks that the U.S. is the largest broadband market in the world, with over 65 million subscribers — more than twice the number of America’s closest competitor. We got there because of our superior household adoption rates. According to several recent surveys, the average percentage of U.S. households taking broadband is about 42%; the EU average is 23%.

Furthermore, the OECD does not weigh a country’s geographic size relative to its population density, which matters because more consumers may live farther from the pipes. Only one country above the U.S. on the OECD list (Canada) stretches from one end of a continent to another like we do. Only one country above us on this list is at least 75% rural, like the U.S. In fact, 13 of the 14 countries that the OECD ranks higher are significantly smaller than the U.S.

Well, that reflects something I have been pointing out for two years now – it costs much less to wire a population that lives in a very small area than to wire, oh… I don’t know, let’s say Montana.

And if we compare many of our states individually with some countries that are allegedly beating us in the broadband race, we are actually winning. Forty-three American states have a higher household broadband adoption rate than all but five EU countries. Even large rural western states such as Montana, Wyoming, Colorado and both Dakotas exhibit much stronger household broadband adoption rates than France or Britain. Even if we use the OECD’s flawed methodology, New Jersey has a higher penetration rate than fourth-ranked Korea. Alaska is more broadband-saturated than France.

So even Montana is better off? Hmm…

The OECD conclusions really unravel when we look at wireless services, especially Wi-Fi. One-third of the world’s Wi-Fi hot spots are in the U.S., but Wi-Fi is not included in the OECD study unless it is used in a so-called “fixed wireless” setting. I can’t recall ever seeing any fixed wireless users cemented into a coffee shop, airport or college campus. Most American Wi-Fi users do so with personal portable devices. It is difficult to determine how many wireless broadband users are online at any given moment, since they may not qualify as “subscribers” to anyone’s service.

In short, the OECD data do not include all of the ways Americans can make high-speed connections to the Internet, therefore omitting millions of American broadband users. Europe, with its more regulatory approach, may actually end up being the laggard because of latent weaknesses in its broadband market. It lacks adequate competition among alternative broadband platforms to spur the faster speeds that consumers and an ever-expanding Internet will require.

So we’re not even counting Wi-Fi when every street corner has a Starbuck’s and every Starbuck’s has a Wi-Fi hot spot? I can hook up via wi-fi for $30 a month throug Starbuck’s. Surely the problem must be the cable/telco duopoly, right? They’re holding us back, right? Hardly.

In the U.S., cable is available to 94% of all households. Also, the U.S. is home to the world’s fastest fiber-to-home market, with a 99% annual growth rate in subscribers compared with a relatively anemic 13% growth rate in Europe.

In fact, the European Competitive Telecommunications Association reported last fall that Europe is experiencing a significant slowdown in the annual growth rate of broadband subscriptions, falling to 14% from 23% annual growth. Growth stalled in a number of countries, including Denmark and Belgium (4% in each country). And France — a relative star — exhibited just 10% growth. Yet all of these nations are “ahead” of us on the much-talked-about OECD chart.

Here in the U.S., the country that is allegedly “falling behind,”

broadband adoption is accelerating. Government studies confirm that America’s broadband growth rate has jumped from 32% per year to 52%.

With new numbers expected shortly, we anticipate a continued positive trend. Criticisms of our definition of “broadband” being too lax are already irrelevant as over 50 million subscribers are in the 1.5 to 3.0 megabits-per-second “fast lane.”

So cable covers 94% of American households. Tack on the telephone companies and you’re covering 98%. With FTTH installs growing at 99% per year, and cable dramatically increasing speeds on their existing infrastructure, our problem isn’t deployment. It’s also not speed. Our problem is, simply put, one of adoption.

As hard as this is for the “enlightened” technologists to understand, some people just don’t see the advantage to having a high speed connection. For many, a night out at a movie with a family of four ($51 – $36 for tickets, and let’s say $15 for popcorn and cokes) is worth more than that high-speed connection ($40).

You can argue the relative value of the Internet in people’s lives, but unless the buyer sees the value, you’ll never make the sale.

I imagine when electricity was new – and a lot of people were wiring up their homes, and touting the great things you could do with lights on-demand – there were still some who didn’t get it. “Why spend the money on electricity?” they asked. “I have candles, why would I need to pay someone for electric lights?”

That mentality still exists. There will always be late adopters. There will always be hold-outs. However, empowering the federal government to solve yet another problem (Immigration reform? Hurricane Katrina? Waco? Ruby Ridge?) is never a good idea. Having them pick winners and losers in technology is a sure-fire way to be sure you end up with nothing but losers.

If government must get involved in trying to spur broadband adoption, they should give tax credits for broadband, or incentivize companies who provide broadband services to expand their offering or engage in R&D to find new, faster methods of connection.

Address the problem, not the hysteria.

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