Let’s learn from Europe’s broadband mistake

The world has changed because of COVID-19, but US download speeds are holding steady, according to Speedtest.net, despite more Americans spending their days at home, remotely working, learning, show-streaming and much more.

So far, the internet hasn’t broken in the US despite significant increases in traffic online – 13-51%, as USTelecom recently reported. The resilience of our networks sharply contrasts with what we’re seeing in Europe, where Netflix and YouTube have been forced to slow down streaming speeds, reducing video quality, in response to the flood of demand. The move is estimated to reduce Netflix traffic on European networks by 25% to offset the 17-35% increase.

The divergence is likely due to dissimilar regulatory models that have driven different levels of investment.

The Clinton administration’s light-touch approach fueled internet investment

For much of the past two decades, starting in 2002, European broadband regulation has been very different than the light-touch US approach that was first adopted during the Clinton Administration. European policy was based on two principles: treating broadband essentially as a public utility and requiring the leasing of incumbents’ facilities to competitors at cost. A feature of the European system is network unbundling, where competitors can use the pieces, they need of an incumbent’s network in order to offer services in competition with the incumbent. The U.S., on the other hand, has regulated broadband lightly to encourage investment and the building of new networks (“facilities-based competition”) rather than fostering competition through the mandated sharing of a single network.

It soon became clear how these differences in policy led to starkly different results in broadband deployments. A study comparing the US and Europe using 2011 and 2012 data showed that the US led substantially in virtually every category – citizen access to high-speed broadband, the number of providers serving homes, and investment per home. Fixed operators in the US invested four times as much capital as Europeans did in those years, and wireless operators invested twice as much. The study noted that in Europe, “where it was cheaper to buy wholesale services from an incumbent provider, there was little incentive to invest in new technology or networks. In the U.S., however, providers had to build their own networks,” and so consumers enjoyed the benefits of more plentiful, more robust and faster broadband. From 2014 to 2018, US broadband providers invested at a rate that was about 31% higher than that of their European counterparts ($387.2 billion compared to 253.1 billion euros or the equivalent of about $296.4 billion, respectively).

Rick Boucher

After regulating the internet like a utility, Europe is behind in broadband investment and not leading in 5G

As far back as 2011, some senior EU leaders wrote that “Europe is facing an investment challenge in the financing of high speed internet infrastructure. High amounts of investments are needed to achieve ubiquitous coverage of state-of-the-art competitive broadband networks.” They pointed to a harmful lack of private sector incentive to build networks arising from the EU’s wholesale pricing mechanisms. Some, such as the Swedish company Ericsson, argue that Europe today is lagging behind in 5G deployments, which will slow economic growth.

Apparently having learned from its mistakes, Europe is beginning to change its regulatory policies, recommending that national telecom regulators do not impose wholesale access pricing on new networks. Why? Because they know that private investment in Europe’s networks is needed and that, before investment will occur, companies need the assurance that when they build networks, they will not have to share them without profit with their competitors.

Americans are enjoying a better online experience than Europeans while social distancing

The impact of regulations is not minimal; it is profound, because it drives investment decisions. The U.S., which has long benefited from its light-touch regulatory approach, now leads in internet capacity. Our internet traffic is surging, but the pipes have yet to burst. In this unprecedented time when people are staying at home and staying online, our networks are up to the challenge, and as the Netflix example shows, clearly Europe’s are not.

Since the rise of the commercial internet – for all but a brief two-year period – a regulatory light-touch, bipartisan consensus has fueled US private-sector broadband investment. As a result, our communications networks have become the envy of the world.

It will take time for Europe to rectify its past mistakes. The effects of chronic broadband underinvestment in past years ripple today through the European economy – and the home offices and living rooms of hundreds of millions of Europeans. All this shows the importance of sticking with broadband policies that encourage build-out and modernization in the first place…something to ponder as you stream your favorite films from either continent tonight.