Broadband article from the Economist:
economist.com
“THE future is already here—it’s just unevenly distributed,” a science-fiction
writer, William Gibson, once joked. High-speed, or “broadband”, connections
to the Internet are a case in point. Although there is a widespread view that
broadband is the future of the Internet, figures compiled by the OECD reveal
an astonishing variation in the adoption of broadband across the rich world
(see chart). South Korea leads the table with 9.2 broadband connections per
100 inhabitants, compared with 2.25 in America and a measly 0.08 in Britain,
despite the popularity of the Internet in all three countries.
The irony is that, while the
world’s telecoms firms spend a
fortune building
third-generation mobile-phone
networks, even though they are
not sure that anybody wants
them, in many parts of the
world they seem unable or
unwilling to provide broadband
connections at reasonable
prices, even though customers
want them. Horror stories
abound of long waiting lists,
botched installations and
deliberate foot-dragging by
monopolistic incumbents. What
is going on?
There is plenty of demand for
broadband links, which come in
two main types: digital
subscriber-line (DSL)
connections and cable-modem
connections. DSL uses special
hardware to turn old-fashioned
telephone lines into high-speed
data links; cable modems
transmit data over the
fibre-optic and coaxial cables
used for television. Both
technologies are capable of
delivering data much faster
than dial-up modems, and both
offer the advantage of “always
on” connections.
The problem lies in the supply.
According to Merrill Lynch, an
investment bank, Deutsche
Telekom, Germany’s telecoms
incumbent, signed up 630,000
subscribers for DSL last year,
but managed to connect only
135,000 of them. In Britain, it
can take months to get a DSL connection, and cable modems are unavailable
in all but a handful of areas. In America, independent DSL providers such as
Covad and Rhythms are struggling; NorthPoint, another provider, went bust
in March.
So why is broadband more readily available in South Korea and Canada than
in other countries, even those with large numbers of Internet users?
According to Sam Paltridge, at the OECD, several overlapping factors affect
whether or not broadband takes off. The biggest is the degree of competition
in the market, which governments have generally encouraged by allowing the
construction of rival infrastructure to the telephone network, usually in the
form of cable networks.
But the existence of rival infrastructure is not enough. Ford Cavallari of
Adventis, a consultancy in Boston, points out that cable companies can make
more money selling high-margin services, such as premium TV channels, to
their subscribers than they can from offering cable modems. Meanwhile, the
telephone network is usually in the hands of a state-owned (or formerly
state-owned) monopoly that is reluctant to cannibalise corporate high-speed
Internet access revenues by offering cheaper broadband. The result can be
that nothing happens—as in Ireland, for example. In Scandinavia, says Mr
Paltridge, the cable infrastructure is often owned by incumbent telecoms
firms. The resulting lack of competition may explain why no Scandinavian
countries are in the top six for broadband penetration, despite having
unusually high rates of Internet usage.
To get things moving, regulators in most OECD countries realised that it was
necessary to “unbundle the local loop”—in plain English, to force incumbents
to give other firms access to the copper wires running into homes. New
entrants could then spring up to offer DSL over these wires, and so
encourage the cable companies to compete by offering cable modems.
Canada was one of the first OECD countries to unbundle its local loop; Britain
was one of the last. This is one reason for the vast discrepancy in the
availability of broadband between the two.
Yet unbundling is not sufficient to get broadband going either, since it is
dependent on the co-operation of the telecoms incumbent. In both Britain and
America, incumbents have hindered adoption of DSL by being deliberately
unhelpful towards new entrants, many of which have given up or gone under.
Regulators in America can impose only puny fines, which incumbents regard
as a price worth paying to keep the market to themselves; Britain’s telecoms
regulator, Oftel, has been criticised for failing to crack the whip over British
Telecom.
Another problem is a shortage of technicians to install DSL connections. Some
countries where the incumbent is keen on broadband, notably Belgium, have
got round this through the use of “plug-and-play” equipment that subscribers
can install themselves. This equipment is starting to become available in
other countries, too, including France and Germany. In South Korea, the
incumbent, Korea Telecom, took a different approach and trained an army of
2,500 technicians to install DSL. South Korea is a special case in other ways,
too. Its population is highly concentrated, which made the construction of
rival infrastructure cheap and easy. The result was fierce competition
between cable and DSL providers: over 2m new DSL connections were
installed during 2000 alone.
In short, the wide variation in the adoption of broadband is the result of
several overlapping political, regulatory and technical factors. There is no
simple way for governments to copy South Korea, much as they would like
to. All they can do is to unbundle the local loop and keep a close regulatory
eye on the behaviour of their telecoms incumbents, which can drive or delay
the adoption of broadband pretty much as they choose. And in Europe, says
Mr Paltridge, there is evidence that the old guard is finally yielding to change.
The OECD’s latest figures show that, in the first quarter of 2001, the number
of DSL lines grew by 73% in France, 90% in Britain and 113% in Germany.
The signs now point to a surge in growth—even if it is not on the scale of
South Korea last year. Could it be lift-off at last? |
