Is "National Broadband Policy" Needed, or in Need of Adjustment?

U.S. broadband prices are not the lowest in the world, by any means, and some worry that neither speeds nor prices will improve much, in the future. That inevitably will lead to calls to “do something” about national broadband policy.

There are a couple issues there. The first is whether, under present fiscal circumstances, the federal government and U.S. States can do much of anything about direct investment of their own. Like it or not, the answer is that policy frameworks can be adjusted, but that there is precious little “investment” possible, from government quarters.

The more contentious issue is likely around what incentives properly can be provided for cable operators and telcos to voluntary boost their own investment, and how much those incentives matter, where it comes to investment decisions.

Some might say that almost no amount of incentives would convince a rational executive to invest “too much” in a business that cannot return a market rate of return, compared to all other alternatives that promise a higher return. It is not easy to balance end user welfare and industry incentives, under conditions of great uncertainty.

A new FCC study released in July 2012 does show that progress is being made. As always, the issue is whether the progress is fast enough.

Whether Google Fiber in Kansas City, Kan. and Kansas City, Mo. will have the intended effect of spurring more investment by telcos and cable operators remains to be seen. So some might say handwringing about the state of progress in the U.S. broadband market are overblown.

That is not to say issues exist. There clearly is an argument to be made that most telcos cannot outline a solid business rationale for aggressive fiber to the home upgrades, in many, if not most cases. In part the problem is that financial return is questionable. In other cases the argument is simply that alternative capital investments in mobile assets will drive a higher return.

Also, unlike the situation in many other markets, a powerful, facilities-based competitor with arguably better cost structure (both in terms of capital requirements for bandwidth upgrades, and workforce cost issues), competes head to head in virtually every market, with two powerful satellite contenders that reduce the potential gain from offering video entertainment services, a key element of the telco business case for deploying fiber to the home.

As far as the retail pricing, where the U.S. never ranks among the “best” providers, measured in terms of price per megabyte of access speed, one problem is simply that costs are higher in the U.S. market.

Population density might be the single most important factor determining the cost of any fiber to home network build. A related issue is average “loop length,” a metric that is roughly related to population density.

U.S. service providers have to supply service over much longer average loops than service providers in Europe, or in many “city states” that feature high-density housing. Basically, retail cost everywhere is related rather directly to network investment cost.

So Google Fiber’s $70 a month benchmark for symmetrical 1-Gbps access, along with a similar offering by Sonic.net, probably are best viewed as “stretch goals” for most U.S. telcos, arguably less a stretch for cable operators, and out of reach, for technical reasons, by satellite broadband providers.

Perhaps progress in the U.S. broadband market is not “the best of all possible worlds.” But options simply are not unlimited, or investment drivers very easy.