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The story of America’s lacklustre broadband performance is relatively well known. Part of that story relates to its low broadband penetration levels when compared with other developed economies. In 2008 the US still languished around the middle of the OECD broadband penetration rankings (at around 15th) having slipped from near the top of the table (4th place) since 2001. Another aspect of the story relates to broadband speeds. For instance, although Japan and the US have similar broadband penetration rates, OECD data indicate that Japan has nearly ten times faster broadband speeds than the US, based on average advertised download speeds. Again, the US ranks around the middle of the OECD rankings (14th place) in terms of average broadband speeds. Thus, in terms of broadband technology levels, the USA still trails behind leading countries such as Japan and Korea, and some European countries such as France and Italy, by a full generation.

These and similar figures have been cited in repeated calls for a US national broadband policy to drive a major overhaul of US broadband markets. By the beginning of 2009 any such policy was still merely an aspiration. Indeed, the momentum behind broadband policy development may well have had the wind knocked out of it by the financial crisis. Thus it came as no surprise when, despite the broadband sector calling for government grants or tax credits in the order of tens and even hundreds of billions of dollars, a relatively modest $6 billion was earmarked for the broadband sector in the American Recovery and Reinvestment Bill 2009. This amount was less than 1% of the total fiscal stimulus package (which broadly comprised $275 billion in tax credits and $550 billion in government investment).

The $6 billion was earmarked for “broadband and wireless in underserved areas” which ostensibly goes some way to actioning Obama’s election pledge to bring broadband to the entire nation. The latest Senate revision of the Bill increases the amount of grants to $9 billion.

Apart from quantum, there are a number of important questions still to be answered before one can better anticipate what the broadband package will ultimately achieve.

For instance, to what extent will the open access requirement determine the likely participants? For example, will it deter some private participants because their current models are not open access and they may not want to set a workable precedent. In addition, when the initial draft of the package had the funding in the form of grants rather than tax credits, one expected as much or even greater participation by municipalities compared to the private sector. However the Senate’s revision to the package now also provides 10% tax credits which would naturally favour private investment. Furthermore the minimum speed requirement may preclude some technologies and participants that would otherwise be better suited to the target areas.

Perhaps the most contentious part of the Senate’s revision is the 20% tax cut to companies for bringing next-generation speeds (defined as 100Mbps/200Mbps) to underserved AND EXISTING areas. This would appear to go well beyond the scope of the initial package and would clearly be a massive windfall to Verizon Communications who is in the process of spending billions bringing FttH networks to their footprint. Verizon’s upcoming deployments to which it had already committed, in the order of an estimated $4 billion per year over the next two years, would automatically benefit from a tax break under the Senate’s version of the package – hardly a stimulus effect. On the other hand, to the extent that DOCSIS 3.0 would achieve speeds that qualify, the tax break could in fact stimulate cable to more quickly deploy these upgrades. Disappointingly, the Senate’s criteria for the tax credits do not include any network neutrality or network non-discrimination principles.

There is still much wrangling to come between the Senate and the House before the detail of the package is finalised. And the devil may well be in the detail. But one suspects that once the dust settles, the US will still be languishing in broadband penetration and speed levels. Only then perhaps will the Obama administration be pressed to turning to the bigger question of a national broadband policy, one that focuses on encouraging or indeed mandating open-networks (or at the very least network neutrality rules) which would drive competition and innovation in the much bigger sector, the digital economy. Only once the digital economy (e-health, e-education, e-commerce, digital media etc) is allowed to flourish would we expect a truly noticeable stimulus to the broader economy and to living standards.

For more information, see separate report:

USA – Broadband market – Fibre to the Home (FttH) – Overview, Statistics & Forecasts

Lawrence Baker

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This entry was posted on Friday, February 6th, 2009 at 9:19 am and is filed under From Paul's Desk. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.