Myth #9: The government should invest in internet infrastructure.

Myth

Internet infrastructure is far too important to be left to the private sector.  The government should invest in internet infrastructure.

Where this myth comes from

There is an ideological view that certain industries and services should be under government control.

Analysis

Let’s say for argument sake that we ensure that every last mile of rural America has high speed broadband.  We would still not be assured that everyone will use the internet. Why?  Because we can’t be assured that people will get online. Deployment and adoption are two different things.

Deployment is how a network provider builds and delivers infrastructure and services to end users. Adoption is how end users consume network services. They may require purchasing of equipment such as computers, laptops, smartphone or tablets, as well as a subscription. This also requires that end users have a minimum level of income, education, literacy and interest to subscribe.

Here are five reasons we should not support government investment in internet infrastructure and instead allow the private sector to do its job

1. The private sector does a good job.

Carriers in infrastructure to provide consumers with internet service.  They may go to capital markets for financing and they may also use revenues to fund expansion. In the US, carriers invest some $70 billion annually in internet infrastructure.  The USA accounts for a quarter of the world’s internet infrastructure investment.[1]  This is an impressive figure when one considers that America’s share of internet users are just a fraction of the total. This means Americans are getting best in class infrastructure.

2. Evidence from other countries shows that the private sector also works.

Even in a country such as Denmark where there is a high tax rate and a heavily funded public sector for health, education and transportation, the internet infrastructure is nearly 100% privately funded[2]. Denmark is known to have high internet speeds, wide deployment, and wide  adoption. What is also interesting to note is that 65% of homes are is passed by a speed of 100 Mbps or higher, but only 0.7% subscribe[3].  This is clearly not an industry that needs government subsidy, and the low uptake from consumers actually shows that there is an oversupply of broadband.

3. Public investment in infrastructure is an unfair tax on a large portion of the population who don’t use the internet.

This is an issue of fairness. Many Americans see no value in the internet and don’t subscribe.  With nearly two-thirds of internet traffic in the USA going just for real time entertainment[4], it is defendable position to decline public investment of a resource that supports private companies.  While some may want to stream Netflix on five televisions in their home, they are welcome, as long as I am not footing the bill for it.

4. Governments at all levels are in deficit.

Governments in the US and in other countries, have overextended themselves on on financial commitments and responsibilities. People are loath to pay more taxes.  Should we cut health care for poor and elderly to pay for internet infrastructure? It does not seem like a good idea.

5. Government provision of infrastructure does not  address end users’ adoption, the important demand-side of the equation.

While government should not be responsible to investment in internet infrastructure, it can be play a important role in education and in job training, ensuring that students and professionals have the skills to be part of the broadband-enabled world.  A major study by the U.S. Chamber of Commerce found that many American schools have the requisite level of broadband, but the bottleneck is teachers who are not up to speed on technology.[5] Thus, public funds may be better spent on digital literacy and teacher training than on internet infrastructure.

 

Reality

The government should invest in education and digital literacy.



[1] “Service Provider Capex, Revenue, and Capex by Equipment Type Biannual Worldwide and Regional Market Size and Forecasts: 1st Edition”. Infonetics Research, 2012.

[2] Danish Finance Ministry, 2012.

[3] http://www.cmi.aau.dk/News/Show+news//broadband-bandwidths-in-a-2020-perspective.cid87641

[4] http://www.sandvine.com/news/global_broadband_trends.asp

[5] http://www.uschamber.com/sites/default/files/about/US_Chamber_Paper_on_Broadband_and_Education.pdf