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Ill-founded international comparisons can lend themselves to out-of-date telecom policiesHANNIBAL HANSCHKE/Reuters

The United States and Canada occupy places somewhere in regulatory purgatory for having - respectively - scrapped the requirement that phone companies share their lines with broadband competitors, or supposedly pursuing such policies only half-heartedly. Conventional wisdom has it that they have consequently fallen behind the rest of the developed world, and this belief seems to be backed up by an abundance of comparative data, combined with calls for re-regulation. Yet many of the voguish comparisons between North America and Europe (which is often held up as a pacesetter) are really comparisons between apples and oranges. Economists with extensive practical experience of telecommunications regulation have already rebutted the Berkman Center report that harshly assessed Canadian broadband performance, but it is also worth pointing out how much room for interpretation there is in broadband comparisons.

The standard take is that Canada is 10th and the United States is 15th among 30 OECD countries in broadband penetration. The OECD measures broadband penetration as the number of broadband lines per 100 persons, and mixes business and residential connections. Residential broadband subscriptions, however, are taken at the household level, not at the individual level. And big businesses often connect several hundred employees with one "line." The United States and Canada have 2.6 individuals per household, compared with 2.2 in Germany and some other European countries. Thus, if North American household sizes fell to German levels, and all households subscribed to broadband, the United Statse and Canada would have an additional seven lines per 100 persons.

Moreover, large businesses account for a larger share of employment in North America than in Europe. In Canada, firms with 500 or more employees account for 43 per cent of total employment, while in Europe, firms with more than 250 workers employ just 33 per cent. Thus there could well be more employees "connected" in North America, although there might be fewer connections. If all large businesses were magically split into two, the number of business broadband lines could be doubled in a fell swoop. The "lines per 100 persons" measure is misleading and less conceptually solid than measures based on household and business adoption rates. Indeed, both business and household adoption rates should be measured separately and in different ways.

TRUE PENETRATION RATE

Canada has a true broadband penetration rate of close to 70 per cent of households. And North Americans use the Internet somewhat more intensively than do Europeans, according to Cisco Systems data on Internet traffic. Further, business Internet traffic in North America appears to be at levels substantially higher than elsewhere in the world. Sadly, there is little systematic effort by international agencies to measure the intensity of Internet usage.

Instead, we see comparisons of advertised speeds and "price per advertised megabit," which are especially misleading. Advertised broadband speeds vary from actual speeds. In North America, this is largely a result of "network overhead," and is quite modest. In Europe, however, the variation is often dramatic.

Real-world speed testing efforts, while not perfect, tell a dramatically different story from comparisons of advertised speeds. Using real-world data on the amount of time taken to deliver files to end users from its global network of servers, Akamai Technologies reports that the average download speed for Canada was 4.2 megabits a second, against 3.2 Mbps for France, whereas the OECD finds that the average advertised speed from French ISPs was a staggering 51 Mbps. Akamai data ranked the United States and Canada ahead of all the larger European countries, though they trailed an elite group of smaller northern European and East Asian countries. Similarly, Cisco Systems, Oxford University and the University of Oviedo in Spain, put the United States and Canada ahead of France, Germany, Britain, Spain and Italy, and behind only Japan and Korea among the larger countries, in a study measuring broadband quality and leadership.

NOT ALWAYS AS ADVERTISED

Fifty-Mbps speeds (and their prices) are representative of user experience only where advanced fibre and cable networks are widely on offer. Although parts of France have developed impressively in this regard, such networks are accessible to at most 25 per cent of households, and the take-up of high-speed services is very low. Canada is likely soon to have a proportion substantially higher than France's of homes served by advanced fibre and cable networks that can deliver such speeds, thanks in part to the ubiquity of cable networks that are less costly to upgrade. Advertised speeds and price comparisons are apt to be remarkably inconsistent with broadband realities, even when they seem fairly straightforward. In any case, household and business adoption rates and usage levels are good evidence of affordability and availability, and are at least somewhat easier to compare.

Hard data on investment levels and deployment of advanced networks similarly speak for themselves, but don't often figure in blogosphere discussions. Robert Crandall from the Brookings Institution has shown that in recent years, the capital intensity of the wireline operations of the incumbent North American phone companies has significantly exceeded that of their European counterparts. In 2008, Telus's wireline capital expenditures were about 25 per cent of its corresponding revenue, nearly double the ratio for many European incumbents. Likewise, the Wireless Intelligence database shows that between 2004 and 2009, the capital intensity of wireless operators has been 50 per cent higher in North America than in Western Europe.

So it is that in Canada, Rogers, Shaw and Videotron all offer 50- or 100-Mbps services, while Novus (using its own fibre) offers 200 Mbps in Vancouver. Bell Aliant has rolled out an ambitious fibre deployment in parts of its territory. Bell Canada has offered fibre-to-the-node technology since 2005, and has recently stepped up its deployment efforts. On the wireless front, Canada now has three of the most modern "3.5G" (third-and-a-half-generation) networks in the world and has a fourth such network (from Vidéotron) coming online in 2010. Lower adoption rates of wireless and 3G technologies - coupled with a significant distortion in the measurement of wireless penetration - have affected Canada's standing in international comparisons in the past, but accurate measurement combined with dramatic progress in Canadian network deployment will correct this in the coming years.

Canada and the United States share the benefits of having robust cable and telephone networks across the country. As for wireless space, Canada is likely to see four or even five national competitors, where most similarly sized countries have only three consequential competitors. Thus the prospects for competition among cable, telephone and wireless firms in Canada are remarkably good.

Where the Canadian picture looks less favourable, however, is in the mixed signals that the CRTC is still sending on prolonging and extending regulatory policies that may, at best, have made sense in the days when we could not see beyond the old copper-wire telephone network. In present Canadian circumstances of competing land-line and wireless networks all across the country, at a time when the technology is advancing rapidly, such regulations are likely to pose a significant impediment to progress.

If public policy does not stand in the way, Canada can see yet stronger deployment of fibre networks by incumbent telephone companies and responsive investment by the cable companies, echoing developments in the United States.

The U.S. Department of Justice recently filed some comments on the American National Broadband Plan that deserve attention in Canada. These comments point out that the market for broadband services cannot ever resemble a textbook "perfectly competitive" market with multitudes of suppliers. They acknowledge that something approaching an oligopoly of a few suppliers is always of concern in this market, but they are acutely conscious of the limits of market engineering by way of ambitious regulatory solutions. The "chief architect" of the U.S. National Broadband Plan, Blair Levin, has also observed in recent interviews that the circumstances of the North American market are in any case different from those in Europe and Asia, making alleged solutions from those markets particularly difficult to export. Although they are concerned by the reports of a "broadband gap," it appears that U.S. authorities will take measured steps to deal with the genuine problems of low-income and rural residents, rather than performing radical surgery that would rip the heart out of a generally healthy broadband market.

THE NEXT GENERATION

In fact, Europe as a whole trails the United States severely in the deployment of next-generation broadband infrastructures. This performance gap is far less ambiguous, far more dramatic, far more accurately measured and far more meaningful than most of the measures of penetration rates, speeds, prices, Wi-Fi hotspots, etc. that are doing the rounds. Yet North America's broadband cognoscenti often look upon European regulation with admiring eyes.

International comparisons almost always suffer from limited data and limited comparability, particularly comparisons of prices and speeds. This is why great humility and caution are required in drawing policy conclusions from such comparative data. Regulation curtails economic freedom, which is why a very high standard of evidence is required to justify regulation. It would be quite a novelty if further regulation of broadband services were imposed on the basis of selective international comparisons with countries that by many other measures are doing less well.

Leonard Waverman is dean of the Haskayne School of Business at the University of Calgary. Kalyan Dasgupta is a managing consultant at LECG in London.

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