Reports from the Economic Front

a blog by Marty Hart-Landsberg

Going Slow In The Fast Lane

While U.S. cable and cell companies like to boast of the speed and affordability of their internet services, we are far from the top on either count.

According to the State of the Internet Report First Quarter 2013, which provides data on average and peak connectivity speeds throughout the world, the U.S. trails South Korea, Japan, Hong Kong, Switzerland, the Netherlands, Latvia, and Sweden.

The figure below shows that the U.S. leads in the Americas, with an average connection speed of 8.6 Mbps (megabites per second).

Americas

As we see next, South Korea, Japan, and Hong Kong have much faster average connection speeds.

Asia

And as the figure below shows, Switzerland, Netherlands, Latvia, and Sweden–although trailing the leading Asian countries–also have faster average connection speeds than the United States.

Europe

U.S. internet companies generally embrace these rankings, which come from Akamai–a content delivery network–despite the U.S. eighth place finish.  The reason is that the U.S. looks far worse in other rankings.

Susan Crawford, in her excellent critical review of U.S. cable and wireless companies, shares the following:

Pando Networks, another content delivery network (CDN), puts US high-speed Internet access speed at 26th worldwide, at about a quarter of the speed of world leader South Korea. According to PandoNetworks, Eastern European nations dominate the top of the list (Romania, Bulgaria, and Ukraine), with speeds that are about double or triple those in the US.

Ookla, which pulls its figures from Speedtest.net, a popular self-indexing site, and reports them on NetIndex.com, puts the US at 33rd, behind the EU average, and well behind the UK, the Nordic countries, most of Eastern Europe, and Japan and South Korea. Unlike Akamai, Ookla employs a method that aims at “filling the pipe” of a user initiating a test. (Akamai’s tests don’t measure the unused capacity of fast connections, and tend to collapse the differences between fast and super-fast connections.)

M-Lab also puts the US somewhere in the middle, slower than Belgium, Denmark, Finland, Germany, Hungary, Japan, Luxembourg, Netherlands, Norway, Sweden, and Switzerland.

If we look at just Netflix subscribers, and focus on just streaming video speed, the US sits just ahead of the UK and Ireland, well ahead of Mexico, but behind all of the Nordic countries. (Netflix reports on only these countries).

As for cost, as Betsy Isaacson explains, the pricing strategy of U.S. cable providers does little to encourage the spread of high-speed broadband in the United States:

Comcast, the nation’s largest cable provider, claims it’s capable of providing 3Gbps broadband — but its fastest service currently on the market is $320 a month for 305Mbps. Verizon, meanwhile, has just announced its fastest FiOS ever, 500Mbps for $310 a month. Compare that to Hong Kong, where consumers can get 500Mbps for $25 a month, or Seoul, where the same speed is priced at $30 a month.

The gap between the United States and the other leading countries continues to grow in large part because U.S. cable providers have been unwilling to invest in establishing and connecting U.S. households and businesses to ultra fast symmetrical fiber networks.  In the words of Crawford:

An American’s only choice when he or she wants to buy a high-capacity connection to the Internet, in most parts of the country, is his or her local cable monopolist.

The large cable distributors in America – who never compete directly with one another – have clearly become the nation’s monopoly suppliers of terrestrial wired connections, each in its own footprint. Their market power is unrestrained. They can charge whatever they want for whatever services they choose to provide. They have little incentive stemming from either market pressure or oversight to upgrade to symmetrical fiber, which is the world standard, or to charge reasonable prices for world-class access.

Meanwhile, our former telephone companies, Verizon and AT&T, have retreated almost entirely to wireless services – complementary, non-threatening to the cable guys, and highly lucrative. . . .

(T)he relevant market for everyone is (or should be) high-capacity, low-latency, symmetrical fiber connections to homes and businesses of at least 100Mbps. That’s what they have in South Korea, Japan, Sweden, and (soon) Australia and China. Right now, the vast majority of Americans are stuck with the cable guys’ product, which is very expensive (three or four times as expensive for the same download services as in other countries) and second-best (because it doesn’t provide symmetrical, or equal, upload capacity). It’s not fiber, and it’s under the complete price/service control of individual companies that, again, are subject to neither oversight nor competition and have no incentive to make the upgrade to fiber.

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