Critics of the US private sector broadband system often claim that it is lower than European prices, coverage, speed and competitive offerings. US policymakers should therefore adopt similar regulations, such as forcing incumbent providers to unbundle their services. But a report by the Information Technology and Innovation Foundation (ITIF), the science and technology policy think tank, concludes that US and European vendors face radically different cost structures, rendering the comparison invalid.
ITIF analysis suggests that it costs broadband providers 53% more to provide wireless and wired broadband services in the US than in Europe. Moreover, the profits of European broadband providers are slightly higher than those of American providers, even though wireline speeds in the United States are faster than those of all European countries except Denmark.
“The idea that Europe has a better broadband system has always been a favorite of critics who call for a strong government role instead of relying primarily on the private sector. But that turns out to be a false comparison, and when you break it down, the US system actually offers better value for money,” said ITIF Founder and President Dr. Robert D. Atkinson, co- author of the new report. “The main thing that critics overlook is the structural cost of providing broadband in the US compared to Europe. US providers pay more for labor, more to build larger physical networks, more for spectrum, more for advertising, and more for taxes with less subsidy. When you take these factors into account, the rest of the critics’ argument falls apart.
ITIF has built a model to analyze the cost differential between US and European broadband markets by calculating what US broadband prices would be with European costs.
The analysis shows that by all accounts, players in the U.S. telecommunications market need to invest a higher percentage of their revenues in capital expenditure, employee salaries and taxes, while European providers receive more government subsidies. generous. The report finds that in areas such as the cost of spectrum licenses, US companies pay nearly double what European companies pay.
Differential cost structures between the U.S. and European markets result in higher costs for U.S. providers that must be borne, at least in part, by consumers, although U.S. carriers maintain operating margins slightly below those of European companies. In other words, the argument that US broadband providers are making excessive profits does not hold water against Europe.
“When you look at the broadband industries in the United States and Europe, you find that it’s basically apples and oranges,” said Jessica Dine, ITIF research assistant, co-author of the report: “They are made up of markedly different labor markets. They serve customers in very different geographies. And they are subject to different taxes and subsidies. As a result, they allocate different proportions of their income to different costs in order to stay competitive Ignoring these differences and jumping to the conclusion that the European regulatory system has “succeeded” and the US system has “failed” creates a completely false impression.