There is much discussion about how to create a healthy and competitive telecommunications market in Europe and how the EU can meet its 2020 broadband goals. Strand Consult has made a research note describing the differences between the American and European approach to broadband. The conclusion is clear: The EU’s broadband and telecom policy is not working. The gap between the EU and the US in investment, next generation access, and the digital economy is growing in America’s favor. While the EU Commission has made an attempt to address the imbalance with a Digital Single Market initiative, the effort relies on feel-good solutions such as roaming and the app economy without taking on the major issues that need fundamental reform, namely eliminating the failed managed access “ladder of investment” regime, removing barriers to consolidation, and reducing opportunities for tax arbitrage. Here are some of highlights from the report:
1. A decade ago, the EU accounted for one-third of the world’s communications capital investment. That number has plummeted to less than one-fifth today.
2. The US has maintained its investment level in broadband infrastructure at about one quarter of the world’s total, even through the financial crisis. Americans are just 4% of the world’s population but enjoy one-fourth of its broadband investment. Private American broadband providers invest at twice the rate of European, and the gap is growing.
3. While the US has certain advantages being a large country with a common language, it made a decision to support the policies that maximize broadband investment and innovation, namely a light-touch regulatory framework that allows broadband providers to get economies of scale, consolidate, earn profits, and invest.
4. The EU approach of managing competition through open access and price controls has not created incentives for investment in next generation broadband access. Some three-fourths of EU citizens rely on DSL for broadband, and the EU itself reports that next generation broadband access across the continent is only a patchwork.
5. The US is leading the EU on broadband measures such as the availability of broadband with download speeds of 100 Mbps or higher and the availability of cable broadband, LTE, and FTTH.
6. The US has leveraged its investment in broadband into creating the world’s leading digital economy, comprising about 5% of its GDP. Of the world’s top 25 internet companies, 15 come from the US, just 1 comes from the EU.
7. The US has further leveraged its broadband investment into the export of digital goods and services, some $356 billion annually in 2011, the country’s third largest category of exports. Two-thirds of those exports go to the EU, which means that Europeans use American-made search engines, social networks, and mobile apps, not European-made.
8. Ten years ago the EU expected to lead the world in mobile with the GSM standard and the six European phone manufacturers that accounted for half of the world’s phone. Today no European handset makers remain, and America has surpassed Europe with 4G/LTE.
9. There are some exceptional countries in the EU for broadband. The Netherlands has a favorable history and demographics for broadband. Other countries such as Denmark exhibit a per capita rate of investment that approaches the U.S. This has been achieved by allowing consolidation and credible facilities-based competition.
10. The European Commission has made an attempt to create a Digital Single Market, but the proposal falls woefully short of much-needed major reforms. Without reducing the EU’s 28 layers of telecom regulation and allowing consolidation, the EU can only expect to fall further behind the US.
Strand Consult has repeatedly described the challenges in the EU. See the research notes
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Strand Consult’s latest research note focuses on the advantages of the American approach to broadband and its results. American operators are allowed to get scale, and therefore they invest. As a result, American consumers and businesses contribute to and enjoy the fruits of the digital economy. Under the EU regime however, European operators have little reason to believe in the future, and therefore do not invest.
With the coming EU Parliamentary elections in May 2014, Europeans can vote on their leaders' performance.
Our report Failed Broadband Strategy: Why the EU is falling behind the US outlines a way forward. Request your copy of the report.