It happens about every twelve months, maybe with more frequency recently. Another reporter writes about how the US is falling behind international rivals in the supply of broadband. I am growing very tired of this meme, and answering emails from friends wondering if it is so. There are serious issues to debate, but this standard meme takes attention away from them.
The latest version of this article came from the New York Times. It had the title “US Struggling to Keep Pace in Broadband Service,” and it brought out the usual concern that all US growth will fall behind if the US does not have the fastest broadband in the world. If you are curious, read this.
Why is this tiring? Let me count the ways.
First, while it is irritating to have slow service at home, US productivity does not depend much on that. Household broadband is less important for economic growth than the broadband to business. And what really matters for productivity? Speed to business. The number of minutes it takes a household to download Netflix is statistically irrelevant for productivity growth in comparison to the time it takes to download information to conduct business transactions with employees, suppliers, and customers. We get measures of broadband speed to homes because that is what we can easily measure, not because it really matters.
Is there any sense that US business Internet is too slow? Well, perhaps the speed of a household’s internet says something about the speed of business Internet, but I doubt it. In all the major cities of the US there is no crisis at all in the provision of broadband. Broadband speeds in downtown Manhattan are extraordinary, as well as in Wall Street. The Silicon Valley firms who need fast speeds can get them. Same with the firms in Seattle. Hey, the experiments with Google Fiber in Kansas City raise questions about whether entrepreneurship will follow the installation of super high speeds, but that is an open question. It is an interesting question too, but not a crisis.
These issues do arise, however, in some small and medium cities in the US, and a few rural areas where there is no broadband. In some places satellite is the best available, or some fixed wireless solutions are available too. These can be ok but not great for many business needs, but it can also limit what a business can do. These issues also have been present for a while, so most of the businesses that really needed the speed simply left the areas where speeds were slow. As a country we just let it happen a many years ago, and, frankly, it will be hard to reverse at this point. (It made me sad at the time; I even spent some time doing research on the topic for a while, though I have stopped in the last few years.) Again, this is an interesting question, but only a crisis in the places where it matters, not a national level.
Second, as for household speeds, many people simply don’t want them and do not want to pay for them. There is plenty of evidence that those high speed Korean lines did not get used right away, and lots of fiber goes to waste. Having said that, there are some interesting open questions here as well, namely, what type of speeds are people willing to pay for at their homes? Let’s not get panicked over supply if there is little demand, ok?
The last serious study of the willingness to pay for speed was done at the end of 2009, as part of the national broadband plan. The study was definitive at the time, that only a few households were willing to pay for high speeds. But, of course, that was a while ago. What has changed since then? Well, arguably, demand for data-intensive stuff has risen. That is not coming from the growth in torrent. Recent data are pretty clear about that. It is coming from Netflix, YouTube, and Facebook. Once again, that is a great open question, but panic about speed does nothing to focus on that question. Instead, let’s study demand and whether it goes unsatisfied.
Third, if we study demand, can we all acknowledge that demand is very skewed in the US? 10% of the users account for far more than 50% of the data to households, and 20% of the users get most systems to more than 80% of the data use. And it is growing at levels from median to highest part of the skew, so there is good reason to think demand for data is growing for all major users. Will there be capacity to handle those intensive users of data? The answer is unclear.
That hints at an open question that is worth debating. Not everyone pays the same price because flat rate pricing has been so common across the US. The top 10% of users pay very low prices per megabit. Even if total expenditure per month for the biggest users is twice as expensive in the US in comparison to other countries, it is still pretty cheap. Just to be clear, I am not saying it is too high or too low, nor am I am not making any comment about whether markets are competitive enough in the US. I am just saying that the international comparisons are flawed for big users in the US.
That hints at an even more challenging question. For better or worse, it is these high-intensity users, especially many with young adults or teenagers, who seem to be the early users of new services. So US entrepreneurial edge might actually be coming from the low prices and high speeds our biggest users have enjoyed all these years. Are we in danger of ending that? That is the provocative question to ask, and it is not about the general speed in the country. It is about the highest speeds to select users.
Finally, and my last problem with this meme: it’s old and tired and potentially irrelevant. Maybe this concern about wireline is all a tempest in a teapot. Many observers believe wireless is the new frontier for innovative applications. Maybe five years from now everybody will look back on this panic and just shake their heads. How can we have an entire article about broadband speeds to households and not a peep about the experience most people have on a daily level, which is determined by wireless speeds?
Just something to think about.