Myth #5: Faster broadband speed is inherently better.

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Myth

America is suffering because it’s not number #1 on Akamai’s State of the Internet report.

Possible Explanations

American society is obsessed with numbers. People have a fetish with ranking and focus on quantity at the expense of quality.

Facts

  • The U.S. is #8 in fastest internet broadband speeds and is moving faster than 9 of the top 10 nations (Akamai).
  • Some cities and states in US have faster speeds than some of the reported fastest countries.

Analysis

One of the problems with focusing on speeds is that it provides an artificial notion of scarcity.[i]  Many countries could all have the same speed, but it would not necessarily strengthen or diminish their economic position.

Economist Hal Singer, author of the new book The Need for Speed: A New Framework for Telecommunications Policy for the 21st Century, aptly observes that complaints about broadband speed is like quibbling over the top marathoner who clocks in at 4.43 minutes versus a steady runner who can hold a 6 minute mile.[ii]

If speeds were all that matter, then the internet should be dominated South Korea, Japan and Hong Kong. Why didn’t Google, Facebook, and Amazon not come from these countries, and as for their local variant, why weren’t they exported?

Why is #4 fastest Latvia not an economic powerhouse? It may have fast broadband speed, a showcase fiber investment from Telia, but that hasn’t transformed the economy.

To be sure, the country with the fastest broadband speeds has bragging rights. Making a broadband target of 100 Mbps is politically expedient, but not necessarily meaningful. It’s not the speed that matters, but in the way that you use it. In South Korea with a speed of 45 Mbps, the primary uses of broadband by far are still entertainment for consumers and video conferencing for businesses.

The problem with these two applications is that they drive little revenue versus the traffic they consume on the web.  Much of real time entertainment is piracy, and the money in games is largely in the hardware.  As for online gaming, less than 5% of players pay for games.  Video conferencing was thought to be a great revenue opportunity, but it is another bandwidth intensive service that can largely be enabled for free.  So these two endeavors don’t generate the cash flow that create jobs.

While broadband has enabled productivity in many industries and supported a marginal “Gangam Style” entertainment economy. My colleague Hans Peter Bech calculated that Psy made about $8 million from his famous song including the 1.6 billion YouTube views, the iTunes sales and so on.  But how many performers will achieve that success?  This is not a replicable business model.

Make no mistake: the real money in South Korea’s economy still comes from electronics, automobiles, shipbuilding, semiconductors, steel, and chemicals — the same growth engines from the pre-broadband days. Ditto for Japan and Sweden.

In South Korea the national broadband project has not yielded the jobs that were expected. Broadband has enabled entertainment but not employment. A new report by the Korea Information Society Development Institute, “A Study on the Impact of New ICT Service and Technology on Employment,” bemoans the situation of “jobless growth.” The government is also concerned about internet addiction, which afflicts some 10 percent of the country’s children aged between 10 and 19, who essentially function only for online gaming but not in other areas of society.

What people should care about is how broadband makes an economy and its workforce more productive.  The USA, even without having the fastest broadband speeds, has been able to create global internet companies. Plus the networks were built by private investment, so taxpayers were not on the hook. I would call that broadband bang for the buck. This has a lot to do with everyday Americans having broadband access and producing and consuming a range of goods and services via broadband.

Check out the slide from Mary Meeker at Kleiner Perkins of the world’s top internet

Top 25 Internet Companies, Mary Meeker, KPCB

Top 25 Internet Companies, Mary Meeker, KPCB

companies.  The US has the most, 14 of the top 25; China, 3; Japan, 2; South Korea, 2; Russia, 2; and the UK and Argentina, each with 1.

Indeed broadband speed in itself does not a strong economy make.  It’s broadband efficiently delivered and effectively applied.  Eric Clapton had it right:  It’s in the way that you use it.

Data

  • Akamai State of the Internet Report http://www.akamai.com/stateoftheinternet/
  • OECD Internet Economy Outlook, 2012. http://www.keepeek.com/oecd/media/science-and-technology/oecd-internet-economy-outlook-2012_9789264086463-en

Reality

It’s not the speed that matters; it’s in the way that you use it.


[i] http://www2.itif.org/2013-whole-picture-america-broadband-networks.pdf

[ii] http://www.forbes.com/sites/halsinger/2013/02/26/is-the-u-s-losing-the-broadband-race-as-it-turns-out-we-look-a-lot-like-danica-patrick/