The U.S. is falling behind in per-capita high-speed Internet subscriptions, fueling worries that American competitiveness will suffer
What do Internet users in Denmark, Holland, Iceland, Canada, and France have in common? They're more likely to be sending e-mail and surfing the Web over a high-speed link than just about anyone else in the world—including their counterparts in the U.S.
That's a key finding of an Apr. 23 study by an economic research group that ranks the U.S. No. 15 out of 30 countries in per-capita broadband subscriptions. And it's adding fuel to a debate about how far the U.S. should go to usher a wider swath of the population into the Digital Age. Those were among the topics slated for discussion at an Apr. 24 Senate committee hearing on broadband and American competitiveness.
The latest biannual broadband data from the Organization for Economic Cooperation & Development, a group of 30 industrialized countries that share economic statistics, don't paint a rosy picture of Internet access in the States. As of December, 2006, 19.6% of Americans subscribed to a broadband line—defined as a connection that enables at least 256 kilobits of data per second to be transferred in one direction.
Broadband leader Denmark, by comparison, boasted a 31.9% subscription rate, with the Netherlands coming in second with 31.8%. In Britain, 21.6% of citizens subscribed to high-speed lines, making it No. 11.
And the U.S. is slipping. It fell from the 12th-most-saturated broadband country six months ago; in 2001 it was fourth. Meanwhile, No. 21 Australia (at 19.2%) is threatening to bump the U.S. down further.
The findings have some consumer advocates up in arms. S. Derek Turner is research director of Free Press, a media policy and lobbying group that pushes for regulatory changes that would result in more competition among phone and cable companies. He says the poor U.S. showing reflects a recent change in law that hurts Internet service providers and could be crimping the country's productivity. He points to a 2005 rule change that means ISPs can no longer lease only the data portion of phone companies' wires into homes, saying the policy has squelched innovation and companies' ability to deliver new broadband-dependent services. "Ending local access was a bad decision," Turner says.
The policy keeps broadband prices high by concentrating delivery in the hands of a few phone and cable companies. For U.S. consumers, 3 megabits per second (Mbps) digital-subscriber-line (DSL) services cost about $32 per month, and cable modem service, which delivers 4 Mbps to 6 Mbps, runs between $38 and $45, he says. By comparison, in France (with a 20.3% broadband adoption rate), one ISP has bundled unlimited phone calls, 93 cable channels, and a super-fast 20-Mbps Internet connection all for the equivalent of $33 per month.
Other analysts disagree. Michael Cai, director of broadband and gaming at market researcher Parks Associates, estimates that 53 million U.S. households—about half—had broadband Internet access at the end of 2006. That's expected to grow 12% a year, to 82 million households, by 2010. "In the next few years, the problem for the U.S. is going to be less," says Cai. "The [computer] industry tends to be negative about the low ranking for the U.S., but I don't think we're seeing an adverse impact on other industries."
Broadband access is at the center of several policy debates and commercial initiatives in the U.S. Telephone companies such as Verizon (VZ) and AT&T (T) are racing to offer new services, including Internet protocol TV, that depend on high-speed connections. That's expected to drive demand for networking equipment and other tech products as they upgrade their networks, Charles Giancarlo, senior vice-president and chief development officer at Cisco Systems (CSCO), said in a recent interview.
Meantime, Internet companies such as Google (GOOG) and Yahoo! (YHOO) are pressing for rules that would bar cable and telephone companies from discriminatory bandwidth pricing (see BusinessWeek.com, 3/27/07, "FCC Probe: Net Neutrality Goose Chase?").
ISPs are changing their business models as a result of the 2005 rule changes. EarthLink (ELNK), for example, is building municipal Wi-Fi networks for cities including San Francisco and New Orleans (see BusinessWeek.com, 6/2/06, "EarthLink's Big Bet on Broadband"), and many other U.S. cities are pushing Wi-Fi initiatives as well. Even faster wireless connections for PC users could be in the offing as Intel (INTC) and wireless magnate Craig McCaw's Clearwire (CLWR) assemble a high-speed wireless network using WiMAX technology.
Making broadband more widely available at lower prices could create demand for new types of digital products, but first the warring corporate interests and the Federal Communications Commission, the nation's top telecommunications regulator, will need to agree on changes to ensure it happens.
Click here to see a slide show of the world's most connected countries.