The Research is Clear: The U.S. Invests More in Broadband Than Europe

by

Michael J. Horney

Introduction

On February 19, 2015, in advance of the Federal Communications Commission's (FCC) impending Open Internet decision, Free Press submitted a Notice of Ex Parte to the agency claiming that studies which lead to the conclusion that United States Internet Service Providers (ISPs) are investing in broadband infrastructure to a greater extent than European ISPs are "completely bogus."

In support of its claim, Free Press refers to FCC Commissioner Ajit Pai's statement on the Open Internet order when it was circulated for the Commissioners back in early February as well as to a February 2015 Internet Innovation Alliance report by Fred Campbell entitled "Impact of 'Title II' Regulation on Communications Investment: A Comparison Between the United States and the European Union." Free Press claims that Commissioner Pai's statement and Fred Campbell's report are "misleading with statistics."

However, Free Press did not cite a paper a written by Roslyn Layton and myself entitled "Innovation, Investment, and Competition in Broadband and the Impact on America's Digital Economy," nor did it refer to Free State Foundation Board of Academic Advisor member Christopher Yoo's paper entitled "U.S. vs. European Broadband Deployment: What Do the Data Say?" While I do not propose to defend the accuracy of every study that has been performed on this topic, the research is pretty clear: The United States is investing in broadband infrastructure at a significantly higher rate than Europe.

Throughout this paper, data from previous pieces of academic literature will be used to show that U.S. broadband infrastructure investment trumps that of Europe:  

• The U.S. invested more in broadband than Europe: as a percentage of global investment in 2013 (23% to 19%), on per capita terms in 2013 ($236 to $122), and per household in 2012 ($522 to $264).
• Since 2000, American ISPs have invested a yearly average of 26.3 percent of revenue into broadband infrastructure, while European ISPs have invested a yearly average of just 16.9 percent of revenue. Strong intermodal competition between broadband providers and technologies has encouraged $1.3 trillion in investment since 2000.
• Americans have enjoyed dynamic investment because the U.S. broadband market has scaled pricing, which incentivizes American ISPs to fulfill the demands of their consumers. (See the graph on page 4.)
• The consistency of strong investment from American ISPs has led to a greater amount of broadband availability and adoption in the United States than in Europe. (See the chart on page 6.)

And throughout its Notice of Ex Parte, Free Press continuously compared fixed broadband data between the United States and Europe because it fails to see mobile broadband as a substitute for fixed. Yet in a blog post, Free Press stated that mobile broadband providers should still be subjected to Title II reclassification because they act as gatekeepers. Clearly, mobile broadband providers cannot act as a complement to fixed broadband providers, while also acting as a gatekeeper for consumers. Had Free Press considered mobile broadband in its deployment metrics, there would be no debate. Mobile broadband in America is significantly superior to that of Europe.

Conclusion

Free Press may very well believe that Europe is on par with the U.S. in terms of broadband investment, but it failed to cite, and most likely ignored, relevant data and analysis that suggests the opposite. The United States is investing at a much greater rate than Europe because its broadband market has intermodal competition and scale-based pricing.

The FCC's recent Open Internet order may well adversely affect the incentives of American ISPs to invest in new broadband infrastructure because the costs to comply with Title II regulations will push competitors out of the market. But, for now, the E.U. still has a lot of catching up to do.

* Michael J. Horney is a Research Associate of the Free State Foundation, an independent, nonpartisan free market-oriented think tank located in Rockville, Maryland.