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Does the US Really Want Broadband?

The essence of contrarian thinking is to take a commonly held assumption, take the time to examine it in detail, figure out it is false, and act accordingly. I would have liked to have figured out Qwest’s “Internet traffic doubling every 9 months” statement wasn’t true. For me, it would have made the collapse of the telecom bubble a little more predictable and a lot more enjoyable.

One statement that has bothered me for some time is the fact (statement?) that the “US lags the rest of the world in broadband penetration and availability”. This statement is the foundation and explanation for a number of strong political opinions.

I’ve seen the data, and you probably have too. The ITU data is cited most often.
ITU 2005 Broadband Penetration

First we had the “Bomber Gap” then the “Missle Gap” and now we have the “Broadband Gap”. Smells political to me.

The funny thing is, when I look at “Broadband Gap” from a bottoms up perspective, it just doesn’t match. When I travel in France, Switzerland, Italy, Spain I have a hard time finding Internet access in hotels, particularly in small towns. Zero problems in the USA. Two weeks of cycling in Switzerland and another two weeks cycling in France yielded exactly zero internet conections. Folks in these areas are very, very friendly but were at a loss when I asked where I could find an internet connection.

Walk through Paris, London, Amsterdam, Copenhagen – just about any European city – and you’ll see many internet cafes. My non-scientific observation would indicate they are much more popular in Europe than the US. If broadband penetration is so high, why is it that there are so many more public places to get access outside the home? Maybe it is just the tourist effect… maybe not.

I suspect many people in the USA use their broadband at work or at a neighbors home. It doesn’t show up in the ITU numbers because they don’t subscribe at home.

I’ve tried massaging the ITU data by adjusting for household size, but nothing changes substantially. I can understand Korea, Japan, Taiwan – but Israel? Canada?

Rather than approaching the statistic from a ‘Digital Elite’s‘ perspective that ‘everyone should have broadband because I think it is neccesary’, it should be viewed from a pragmatic perspective. The metric that should be measured is the number of people who want broadband but cannot get it. Otherwise, you are measuring citizens propensity to want broadband rather than their abilty to subscribe to it. Each ‘problem’ has a very different solution.

Recent data indicates what this metric might look like. Just about anyone who wants dial-up internet access can get it, for virtually no cost. There are no barriers to acquiring basic connectivity. Yet 58% of all American dial up users could have broadband if they wanted it. I like this explanation from Broadband Issues:

Wouldn’t it be ironic if the lack of uptake of broadband by dial-up users wasn’t because of lack of availability, but because they just didn’t want it? It seems that most of these broadband penetration numbers and predictions are predicated on the belief that all dial-up or rural users with a broadband option would switch.

The new low-cost DSL pricing plans from AOL, Verizon, and AT&T should eliminate cost as a barrier, though cable continues to demand $45 a month. If 1/2 of the dial up customers converted over tomorow, the “Broadband Gap” would go away. Why don’t they? It may just be that surfing the net outside the home is all the connectivity they need.

Discussion

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  1. Andrew, since you were skeptical on Israel, here are some up-to-date figures — note that they are per-household, but with 7 million citizens, it works out to about 1/7, similar to figures above:

    http://www.globes.co.il/serveen/globes/docview.asp?did=1000068335&fid=1725

    Posted by Mick Weinstein | March 7, 2006, 9:36 AM
  2. I dove into the “broadband gap” numbers last night, and found some interesting stuff. For example, I think the actual broadband penetration rate in the US is 40.3% as opposed to 11.4% according the ITU. I basically took the average household size in the US, and multiplied that by the number of subscribers (I read that as discrete broadband accounts, IE, the person in the house who’s name is on the bill) and got a much more realistic number of users. I plan to try and calculate those numbers for other countries, to try and figure out the actual broadband penetration rate across the top 10-15 countries on the ITU list.

    It’s really interesting.

    Posted by Jason Powell | March 8, 2006, 9:46 AM
  3. Love this blog. However, it’s a bit ironic that in chatting about how one must challenge the perceived wisdom about one gap (non USA broadband subscribers vs USA broadband subscribers) you mention as a fait accompli another piece of conventional wisdom (that cable broadband is alot more expensive than dsl broadband). Yet other than Qwest, bell companies don’t offer naked DSL. So the price gap is really between cable broadband+voice vs bell broadband+voice, which isn’t nearly as large a gap. Although for me personally, Verizon is the best plan (just wish FiOS would deploy to me today!).

    Posted by Ranjit Mathoda | March 9, 2006, 3:57 AM
  4. You raise a valid point about naked DSL. Note that Comcast’s voice plan is exactly the same price as unlimited copper based voice from Verizon (Freedom package).

    Any way you look at it, Cable prices will need to drop to take market share.

    Posted by Andrew Schmitt | March 10, 2006, 3:34 PM
  5. Great point about changing perspective from “can they get it” to “who wants it, but can’t get it”.

    People who are negative about the America’s place in the broadband rankings should perhaps focus less on broadband availability and more on people’s attitude toward broadband. So rather than educate the ISP, educate the consumer?

    One of the reasons that rural areas have not had as much broadband is because they represent an older and less affluent population. Of course, there are availability issues and limited competition can keep prices high, but it’s clear that there are more reasons.

    Frank

    Posted by Frank Bulk | March 11, 2006, 12:53 PM
  6. Perhaps a better title to this post might be: “Does the US Really Have a Broadband Gap?”

    Its not an issue of whether people want braodband; they do. Its an issue of how much regulation reduction and/or taxpayer dollars will be subsidizing cable companies (regulation increasing max allowable rates or limiting competition) and the Bells (shared access lines, increases in infrastructure pass alongs).

    Everyone wants Broadband; Its an issue of who is going to pay for it.

    Posted by Barry Ritholtz | March 17, 2006, 6:11 AM
  7. People may not be upgrading from dial-up to broadband simply because they don’t have to. That is, for most people, there isn’t much they can do with broadband that they can’t do with dial-up, albeit more slowly. For most people, dial-up is fine for surfing, downloading music, Skype, etc.

    This could change if a web-based activity that absolutely requires broadband is introduced and quickly becomes hugely popular. It hasn’t happened yet, but one possibility is MMORPGs, i.e., Massively Multiplayer Online Role Playing Games. We’ve seen it happen in Korea, where MMORPGs are wildly popular and where the penetration rate for broadband is the highest in the world.

    In fact, it may be about to happen in the United States. Several companies are developing MMORPGs for the United States market. Perhaps the best among them is the Korean company Webzen (NASDAQ: WZEN), which currently has four major games for the US market in its pipeline — Soul of the Ultimate Nation (SUN), Huxley, All Points Bulletin and an as yet unnamed game being developed in partnership with Red 5 (the ex-Blizzard developers of Worlds of Warcraft). We’ll hear more about Webzen at the E3 Expo video game trade show, which will be held at the Los Angeles Convention Center from May 10 to 12, where they will show SUN in an open beta test.

    The MMORPG experience is awesome and the technology and game design is getting better and better. If it takes off in the United States, broadband will be required in every household with an adolescent, be they teenagers or baby boomers!

    Posted by Tim Lawson | March 21, 2006, 11:50 PM
  8. MMORPG’s are getting very popular. I’ve never checked one out myself, but the fact that World of Warcraft now has more players than the entire population of Ireland makes it a pretty amazing phenomena.

    What I have heard about MMORPGs, as well as online gaming in general, is latency is just as important as bandwidth. And a major law of network engineering is you solve latency issues by throwing bandwidth at the problem.

    So – MMORPGs may drive adoption of high-speed broadband, provided that the ISP’s make the back end pipes as fat as the front end pipes. Right now they are not doing that.

    They also need to find a way to market this as it looks like a major cash cow to me. ISP’s could sell low latency connections to 10M households for $5 more a month, that’s $600M in free revenue just by prioritizing certain peoples traffic.

    Oh, but wait, the Net Neutrality guys think someone paying for a better ping is a capital crime.

    Posted by Andrew Schmitt | March 23, 2006, 9:40 AM
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