This week, NPR’s Planet Money released a podcast (0) on the basics of ISP regulation and how we have gotten to where we are today. While doing a great job of telling the story, unfortunately, their conclusions were a bit off.
In the early 2000s, the FCC was poised to decide whether or not the Internet was a phone. The answer to this question may seem obvious today, but getting it right was of monumental importance back in 2002. Back then, broadband over cable was truly starting to gain ground, and the FCC needed to make a decision on the basic regulatory framework for cable ISPs. Basically, the decision determined whether or not cable ISPs should be regulated in the same manner as phone companies. Phone companies are obligated to rent out their lines to anyone who wishes to offer telephone services. The big problem with this approach – often referred to as a “mandated access” model – is that it creates disincentives for investment. Incumbent firms who know they will be forced to give competitors access to their infrastructure are less inclined to invest in said infrastructure. Similarly, new entrants will not find it profitable to build infrastructure of their own when they can piggyback on incumbents. All told, investing in new and better networks is far less lucrative under a mandated access system. The FCC understood this, and decided that cable ISPs should not be regulated like phone companies.
The Planet Money team gets the history right, but their conclusions wrong. The reporters declare that the FCC’s 2002 decision was a mistake. According to them, the European strategy of mandated access must have been superior, since Londoners have more ISPs to choose among. Basing conclusions merely on anecdotal evidence is rarely a good idea, but the fundamental issue here is that the reporters are looking at the wrong metric. If the goal of the FCC’s 2002 decision was to promote investment in new and better infrastructure, shouldn’t investment be the metric by which we judge the success of the strategy? There exists plenty of information on capital expenditure (CAPEX) by ISPs in the US and Europe, and it tells a very clear story: the American strategy comes out on top.
The graph below shows CAPEX per capita for wireline service providers in the US and Europe. Clearly, investment by wireline Internet providers in the US is not falling behind – quite the contrary.
Back in 2002, the FCC hoped their decision would also spur investment in other technologies, including wireless, satellite, DSL, and fiber. The NPR team asserts that this has sadly not come to fruition. Again, they seem to base this conclusion more on hearsay than on data (which is uncharacteristic of the otherwise diligent Planet Money team). Looking at CAPEX per capita on wireless infrastructure, the discrepancy between the US and Europe becomes even greater. Clearly, American firms are investing heavily in new Internet access technologies that are ready and willing to compete with cable (1).
As has been pointed out by TechPolicyDaily’s own Roslyn Layton, access to next generation networks is far more widespread in the US than in the EU (2). Let’s take just a few examples. Access to LTE? 95 percent of Americans versus 26 percent in the EU. Fiber-to-the-home networks? 23 percent in the US versus 12 percent in the EU. Availability of broadband with download speeds of 100 Mbps or higher? 85 percent in the US versus a meager 30 percent in the EU.
The Planet Money team concludes their podcast by saying “if I have to choose between buying Internet in London or in New York, it’s an easy choice … I’ll go to London.” I would recommend taking a second look at the data before packing your bags and crossing the pond.