Is a lack of internet abundance holding North America back?

The availability of unlimited phone calls allowed the internet to manifest itself in the first place.

horn-of-plenty

If you’re looking for some good summer reading, check out a recently released report from the Organization for Economic Development and Co-operation titled “The Development of Fixed Broadband Networks.” It’s page-turning stuff that’s as addictive as any trashy novel. If you’re a nerd for telecom policy stuff, of course.

But seriously, the report is a fascinating read as it looks at the current state of broadband networks around the world and the different approaches being taken to meet future demand.

The part that jumped out at me was the section on “the economics of abundance” (p. 18), which deals with the question of how fast is too fast.

Whenever international comparisons of speeds and technologies are made and certain countries come out wanting – ahem, Canada and the United States – status quo defenders often wonder why anyone would want or need the sorts of ultra-fast fibre-based services being deployed by the likes of Japan and South Korea. Current networks and billing systems, they argue, are more than capable of delivering present and near-term capacity.

Time Warner Cable, one of the biggest U.S. internet providers and current Comcast takeover target, made exactly this point earlier this year in defending its decision to not roll out faster speeds in Kentucky. “Not everybody needs that type of capacity that a direct fiber network would provide, and that is what we are trying to balance out,” a spokesman said.

This is nothing new, according to the OECD report, which notes that “at every stage in the evolution of the internet, commenters were skeptical there was demand or need for higher speeds.”

The organization’s counter-argument, in regards to the economics of abundance, is quite weighty:

When a resource is scarce, participants in the marketplace expend energy trying to optimize use of that resource, whether through technical measures or business decisions. For example, given constraints on network throughput today, [over-the-top] video providers such as Netflix and YouTube employ variable bitrate encoding technology that downgrades the quality of the video stream gracefully when capacity is limited. This ensures that more users enjoy a reasonable quality experience, but it also involves trade-offs including processing overhead and lowering user expectations. Similarly, network operators can respond to bandwidth constraints with data caps or usage-based pricing, which create economic incentives for users to limit their consumption. While such mechanisms, if designed appropriately, can produce economically efficient results, they also tend to depress potential demand and innovation.

Then comes the difficult-to-refute part:

Historically, for example, those operators with unmetered local telephone calls, such as in Canada and the United States, had much higher usage not only of those services but also long distance services, which were metered. It also encouraged the first growth of services such as dial-up internet access in ways that were constrained in those countries with metered local calls.

This is indeed true. Both Canada and the United States were world leaders in internet adoption, both in its dial-up and early broadband days, yet both countries have since slipped to the middle-of-the-pack in terms of speeds and capacities.

The point is, the internet itself may not have manifested or might have taken much longer to come into being if North American consumers didn’t have an effective abundance of phone line usage at their disposal. Put another way, the internet wasn’t born in Europe because consumers there had to pay for every minute of their phone usage.

Today, the constraints on bandwidth abundance in some countries – which are there largely because shareholder returns generally take primacy at the big network-owning ISPs – are holding back further similar developments, which is a shame.

The future services that might arise from an abundance of speed and capacity are there for the imagining, but the financial effects are a little more concrete.

A 2013 study by Deloitte Access Economics of Australia’s massive, super-fast National Broadband Network found that almost all households in the country would see indirect benefits in the form of cost savings from telecommunication expenses, increased property values, economic development that would include firms’ decisions about where to locate, reduced travel expenses through use of telework and online communications tools and improved productivity:

The report estimated that the annual household benefits of the NBN would be worth around AUD 3,800 (USD 3,580) in 2020, in current dollars. Around two-thirds of these benefits (AUD 2,400/ USD 2,261) are financial benefits, the rest are the equivalent monetary value of consumer benefits such as savings in travel time and convenience of e-commerce.

Similar reports on other super-fast networks, including those in Sweden, Singapore and others, have resulted in similar findings. And yet, North American ISPs continue to play it slow and safe in rolling out next-generation fibre:

oecd-fiber

In reading the OECD report, I couldn’t help but think back to a recent post of mine in which I lamented having to regularly curtail my wireless data usage because of the monthly cap that I inevitably come close to exceeding.

The rule applies to both wireless and wired internet access, so it’s hard not to wonder about what opportunities are being missed. What new discoveries or ideas would emerge if those economics of abundance existed in North America?

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