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Broadband Gap = Economic Substitution

The OECD released updated broadband statistics yesterday. The US is ranked 12th. Included is some historical trend data that I think sheds some light on why a broadband ‘gap’ exists between the US and the rest of the world.

I don’t believe the broadband gap is a problem that needs to be solved. I think many folks are happy with dial-up in the US, and don’t subscribe to broadband because no incentive exists for them to switch.

In Europe, few people were happy with dial up. Unlike the USA, where local phone calls to the AOL modem pool were free, Europeans were charged per-minute fees. There was no such thing as a free local call. Europeans who spent hours on the phone with their ISP hated dial up not just for poor speeds but also high cost. This leads to a large proliferation of Internet cafes and initially, low internet use.

Let’s look at growth trends in Asia, North America, and the EU over the last few years.
Note – The EU-15 are comprised of Belgium, France, Germany, Italy, Luxembourg, The Netherlands, Denmark, Ireland, United Kingdom, Greece, Portugal, Spain, Austria, Finland, Sweden.

I think there is a pretty simple explanation at work here. Once broadband technology became available, Europeans rapidly ditched their dial up lines not just because of speed, but because of cost. European broadband exploded with a spectacular 73% CAGR while the USA grew at a slightly less rate of 39%. I don’t think the lack of government intervention in the broadband markets provides an explanation for the difference in growth rate. The government can’t make things grow that fast and there is only one thing that can – economic substitution. There was a huge economic incentive to move to the fixed rate connections offered by DSL.

In Korea and Japan, the government creates financial incentives in other ways to move people to broadband whether they want high speeds or not.

Now that $19.99 DSL is becoming widely available in the US, and AOL has increased prices for dial-up so that they are higher than their bundled DSL offering, I expect you will see the same movement here in the US, the broadband gap with Belgium, Canada, Iceland, and Japan will be closed, and global catastrophe averted.


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