European Analysts Laud U.S. Broadband Plan, But Question Goals

LONDON, March 23, 2010 – European reaction to the new U.S. broadband plan has been mixed, ranging from high praise to dismissal as a flawed catch-up exercise.

The plan was hailed as bold by Tim Johnson, chief analyst at Point Topic, a London-based provider of online analysis and data about broadband markets. He suggested it strengthened the case for a similar government-led approach to broadband stimulation in Europe and elsewhere.

“Those of us on the ‘invest now’ side look at the case being made in the U.S. with great interest,” Johnson said. “The boldness of the U.S. plan will encourage all those who believe that we should bring forward investment in superband and other new communications technologies, subject to truly competitive tendering.”

Johnson also praised the plan for not being overly ambitious, which he said will make it more likely to succeed.

The plan seeks to meet a long-term goal for at least 100 million U.S. homes to have affordable high-speed access to 100 megabits per second service. The Federal Communications Commission plans to track that goal over the next decade.

The goal of 100 million homes is fewer than 87 percent of U.S. homes even today, Johnson noted, adding that the cost of reaching the last few percent of people increases exponentially, especially where it involves running fiber long distances to isolated homes. Johnson suggested that the goal could only be achieved through “self-help,” meaning Isolated communities would help dig their own trenches or run cables above ground, especially in rural areas. Ultimately, he said, the economics of the U.S. broadband proposal are realistic.

But Johnson also highlighted a concern shared by analysts that the FCC plan would fail once again to deliver a competitive broadband market in the United States.

He pointed out that the grand hopes of U.S. telecoms liberalization had been dashed by the success of a few powerful telecommunications firms in taking over the market, restricting competition and competitiveness. He pointed to this current state of affairs as the reason that the United States had fallen to 17th place in the world league for broadband access.

Analysts agree that government treatment of the rapid growth of mobile broadband is also a key ingredient to the plan’s success.

Currently, U.S. broadband users pay almost three times as much like-for-like as their counterparts in the United Kingdom and Australia, and suffer from a chronic lack of choice, according to international services comparison site Broadband Expert.

There is no reason at this stage to believe the U.S. broadband plan would address this lack of competitiveness in the U.S. telecoms market, said Johnson.

“If the broadband plan is captured by the same powerful lobbyists as got a stranglehold on liberalization then it could make things worse, not better,” he said. “Ensuring genuinely competitive markets which serve the public well will be a much tougher problem for the U.S. than technology or finance.”

The United States would do well to learn from foreign experience, according to Matt Davis, director for consumer and SMB multiplay services at international analyst group IDC.

For example, Australia has moved to create a wholesale-only fiber network with totally open access to stimulate competition.

Australia announced an aggressive plan in April of about $31 billion in fiber-based broadband designed to deliver more than 100 mbps to deliver high-speed Internet access to 90 percent of homes, schools and businesses by 2018.

Davis said the United States and other countries might well learn that it will be very difficult to achieve truly universal broadband at the ultra high speeds slated for the future.

“The world will learn basically how hard it will be to go from a sub 10 mbps reality, as we have for most people today, to even the 25 mbps mark. Let alone 50 mbps as planned by 2015” in the United States, he said.

The problem is not just rolling out the fiber infrastructure, but ensuring it really is possible to deliver 100 mbps to so many people almost simultaneously, as may be required at peak times given the anticipated changes in contention ratios, according to Davis.

These ratios will be driven up by growing use of broadband to deliver digital entertainment, including high definition and 3-D television. The question is whether that infrastructure can sustain high qualities of service at 100 mbps, and whether it will be competitively priced. The United States may still struggle to match smaller, more densely populated foreign nations, as it may over mobile service coverage.