September 30, 2005

US Broadband Use May or May Not Be Peaking, But It Lags Other Developed Countries

Filed under: Business Moves,Economy,Taxes & Government — Tom @ 10:51 am

This looks like a bigger paradox (Forbes.com article probably requires subscription) than I can explain, and I’m surprised it hasn’t been discussed more:

Broadband Growth Narrows In U.S.

NEW YORK – After years of double-digit growth, the rate at which Americans are switching to high-speed broadband Internet connections is slowing considerably and could slow further. That the U.S. is a laggard in broadband penetration–the country ranks 12th globally–could have implications for America’s social and economic standing in the world.

Lack of growth may also hamper efforts by content owners (music, movies, television and videogames) to digitally distribute their product.

….. In May 2005, 53% of home Internet users had high-speed connections, up from 50% in December 2004. It’s an increase that Pew deems “small” and “statistically insignificant” and one that “compares unfavorably” with the double-digit growth rates of previous years.

Worse, there is less pent-up demand for broadband among dial-up users, and the potential pool of high-speed subscribers is either holding steady or declining. Indeed, this scenario is evidenced by new-subscriber growth statistics among some companies. Comcast, the largest cable operator in the U.S., reported 297,000 new broadband subscribers for the quarter ended June 30, down from 327,000 new subscribers a year earlier.

In its second quarter ended in June, Verizon Communications added 278,000 high-speed digital subscriber line (DSL) subscribers, down from 280,000 new adds last year.

According to Pew, 32% of American adults don’t use the Internet, a figure that has held steady in the first half of 2005. Just 23% of new Internet users who have come online in the last year have done so via broadband.

Price may be just one of many factors. The average monthly cost of a high-speed connection, according to Pew, is $39, compared with $38 three years ago. In an attempt to lure the millions of high-speed holdouts, Verizon and SBC Communications last month announced $14.95 monthly DSL plans.

Their services technically qualify as broadband under U.S. Federal Communications Commission standards, but the speed, 768 kilobits per second, is much slower than standard DSL or cable service.

Horrigan says a bigger hurdle to overcome is user apathy and a lack of involvement with the Internet. “A big issue is that dial-up users today are less-ardent Web users than they were three years ago,” says Horrigan. He says dial-up users are experimenting less, doing less online and spending less time online than they did three years ago, so they don’t see the benefit of higher-speed connections.

“The profile of experienced Internet users is different because they’re not as fervent in their Internet use, [which] explains why further growth in the broadband population is likely to slow down,” Horrigan says.

Today’s dial-up users are also less educated, older and have lower incomes than dial-up users surveyed several years ago.

….. in contrast with some countries, in the U.S. broadband access is not subsidized by federal, state or local governments. This will likely become a more controversial point as activists and politicians assess the economic and social costs of being disconnected.

For politicians, championing subsidized high-speed access (whether wireless or wired) may be a way to court constituents and turn Internet access into a sort of public utility. But they will likely butt heads with free-market proponents who dislike using taxpayer funds for such things, while noting an inequity: The private sector lacks access to cheap capital like municipal bonds.

All this is not to say that broadband hasn’t enjoyed a steep adoption curve. Uptake in the U.S. has been faster than that for color televisions and cell phones. Today, 66 million Americans use broadband, up from 5 million in 2000.

But Horrigan notes that the slowdown in growth is not going to rectify itself, and that “policy experimentation,” perhaps in the form of a tweaking of the Telecommunications Act of 1996, may be necessary to kick-start growth.

My gut reaction is that there are bottlenecks in the Telecommunications Act that are preventing the market, especially the phone companies that still have one foot in the highly-regulated arena, from functioning as one would expect to bring prices down as volume increases. It may also be that the 2x-3x dial-up speeds of NetZero, basic AOL, and others are fast enough for many users, though I don’t see how anyone who spends more than a little time on the Net every day would be willing to put up with anything less than broadband. I also have to confess surprise that almost one-third of the country doesn’t use the Internet at all.

Other countries have adopted broadband to a much greater extent. Some Examples: Korea has by far the largest number of broadband subscribers per 100 residents (25); The Netherlands is next at 20; Canada is at 18; Japan 15; The US is at 13. Laggards include France and The UK, both at about 10.5.

One big unanswered question is how much personal broadband usage occurs at work, and whether having the broadband access at work justifies not having it at home (or perhaps not having any Intenet access at home).

On balance, though, it looks like we are laggards, and, as noted in the article, I would think it does not bode well for our long-term economic competitiveness.
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UPDATE: On the other hand, this AP report claims home broadband usage is growing nicely:

NEW YORK (AP) – More than 60 percent of Americans who use the Internet at home now do so with a high-speed connection, a new study finds.

That’s a jump from 51 percent a year ago. Nielsen/NetRatings says 86 million Internet users surfed the Web on home broadband connections in August.

Broadband use has grown steadily in the United States as prices fall and more video and other bandwidth-intent materials are available online.

“This continuing increase in broadband use is an essential step in a maturing Internet industry,” said Charles Buchwalter, the research firm’s vice president of client analytics. Broadband users tend to spend more time and money online, he said.

I don’t think the 60% AP vs. 53% Forbes difference is enough to move our standing the world standings by much, or the overall conclusion that we are still laggards.

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