US: Broadband Backwater

It’s been the fall follies in U.S. ISPs. Two major ISPS (Level3 and Cogent) depeered each other. SBC raises DSL prices and brags about how it’s going to charge companies that want to use its bandwith for fast applications:

How concerned are you about Internet upstarts like Google (GOOG ), MSN, Vonage, and others?

How do you think they’re going to get to customers? Through a broadband pipe. Cable companies have them. We have them. Now what they would like to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it. So there’s going to have to be some mechanism for these people who use these pipes to pay for the portion they’re using. Why should they be allowed to use my pipes?

The Internet can’t be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! (YHOO ) or Vonage or anybody to expect to use these pipes [for] free is nuts!
At SBC, It’s All About "Scale and Scope" CEO Edward Whitacre talks about the AT&T Wireless acquisition and how he’s moving to keep abreast of cable competitors, BusinessWeek, 7 November 2005

Meanwhile, back in Japan, NTT and others provide the pipes, and multiple application providers provide VoIP, video, and numerous other services on top of them. End-user speeds in Japan are typically 50 megabits per second over DSL, with 100 megabits per second available over fiber to the home (FTTH), both at prices less than what the average U.S. DSL customer pays. Why can Japan (and Korea) do it while the U.S. can’t?

Hint: the answer is not population density, nor government subsidies.

The Japanese and Korean governments did have a role, but it isn’t what most people seem to think:

What helped the rollout of broadband in Korea and Japan were not massive government subsidies, as some believe, but policies that allowed vigorous competition. In particular, those countries forced the incumbent phone companies to let startups use their networks at reasonable, government-set prices. Those startups, especially Hanaro in Korea and Yahoo! BB in Japan, waged fierce battles against giant rivals, driving prices down and speeds up. "Competition is the No. 1 [reason] why one country grows faster than another," says Sam Paltridge, the OECD’s telecom analyst.
Behind In Broadband, BusinessWeek, 6 September 2004

Further, while Tokyo does indeed have a higher population density than most places in the world, the fastest broadband speeds were first rolled out by NTT-W, which serves the western part of Japan, that is, the less densely populated part of the country.

In the early 1990s I used to give talks with maps of Internet hosts per capita per U.S. state. The least densely networked state was Arkansas, home of then-president Clinton. This always provoked some chuckles. And then I would show a map comparing U.S. states with countries. Japan came out lower than Arkansas in Internet hosts per capita. That would often provoke a distinctive hissing sound, of air sucked in sharply between pursed lips, if there were any Japanese people in the room.

There were many possible excuses for this: the U.S. was first into the Internet, it has a bigger market, it had all the major Internet hardware vendors, etc. Instead of making excuses, Japan proceeded to get moving.

I was in Tokyo in 1994, just after the Japanese government removed the legal restriction that had prevented anybody other than KDD from running a commercial international ISP connected to Japan. At the Interop show in the huge new Makuhare Messe conference center, the lines snaked all the way across the floor to get CDs with software to get on the Internet.

Since then, Japan has caught up and passed the U.S.

In 2000 the U.S. ranked third in broadband penetration among the nations in the Organization for Economic Cooperation & Development. Last year it dropped to 10th place. That’s behind recognized leaders such as Japan and Korea, as well as countries like Belgium and Canada. "It’s ridiculous that the U.S., of all places, is so far behind in this key measure of economic development," says Tim Johnson, publisher of London’s Point Topic, which analyzes world broadband trends.
Behind In Broadband,

And the last number I heard was 18th place for the U.S. in broadband penetration. Plus connected broadband users get speeds much faster than are available in the U.S. From multiple competing companies. At prices a tenth to a hundredth what the U.S. consumer pays. Yet I’m told that Japanese broadband access providers are profitable.

And Japanese Internet application providers are also competing to provide new applications to use all that bandwidth.

It seems very likely that the next major applications for fast broadband will come from Japan or Korea. They probably won’t come from the U.S., because U.S. consumers can’t get fast broadband. FTTH isn’t even available in the U.S.

Instead, some U.S. ISPs are indulging in protectionist tactics that do not benefit their customers. Perhaps they have forgotten that to the average Internet customer, their local ISP is responsible for the Internet. Of course, if the telcos can continue to lock down the first mile so that there is no competition there, there will be nowhere for the disgruntled customer to go.

Falling behind in broadband uptake, speed, price, and applications isn’t good for the U.S. Yet unless the U.S. stops making excuses and gets moving, that’s what’s going to continue to happen.

Having the country that still has more Internet users than any other become a broadband backwater isn’t good for the Internet, either. It would make a lot more sense to stop making excuses and playing silly protectionist games and spend that effort on growing the pie by producing real competition in broadband and applications.