Monday, December 13, 2010

Broadband: availability does not equal affordability

I remember way back in the 11th grade, my history teacher Mr. Ellenberger uttered some awesome words that stuck with me. He said that statistics were like a bikini: they reveal a lot, but they also hide what's most important.

These days he'd probably have harassment complaints filed against him for using what could be construed as a sexist metaphor, or some such, but the fact remains that it's clearly the one lesson from high school that I remember best. The point being, of course, that statistics can be used to show just about anything you want but they can't be relied on to tell the whole story. It's only when you marry numbers with experience that you start to get closer to the truth.

Such is the case with broadband internet, and more importantly, its relevance to a country's economic competitiveness. I've been paying close attention to broadband statistics for about five years, with my interest starting when I moved to New Zealand. It didn't take long for me to figure out how horrible the country's "high-speed" broadband internet was - the connection I signed up for at home was incredibly slow and expensive compared to what the service cost.

In that case, the numbers bore out the experience. The Organization for Economic Co-operation and Development, the Paris-based group devoted to promoting and advancement the economies of developed countries, ranked New Zealand quite poorly against its peer nations when it came to broadband. The country was actually near the bottom of the 30-country organization in terms of how many people subscribed to broadband at home. This was important because the OECD rankings were a snapshot of how well positioned member nations were with the infrastructure of the future. How many people felt broadband was good enough and cheap enough to actually pay for was a good indicator of the country's future prospects.

New Zealand's government eventually stepped in and took action against the main culprit behind the poor showing, Telecom New Zealand, the phone and internet monopoly. It's funny because while I lived there and covered the situation, I looked on at Canada and its top-ten ranking in envy.

When I moved home, though, things changed. With a better understanding and appreciation of how important cutting-edge broadband connectivity is, it didn't take long to come to the conclusion that Canada was headed in the wrong direction. While the New Zealand government was taking steps to improve its position by getting serious about broadband, Canada has seen its former world leadership - we were at the top of the rankings a decade ago - evaporate and squandered. The latest OECD rankings show we've fallen out of the top 10.

People who understand how important broadband is, like our recently appointed Governor General, have lamented this slippage and have urged the government to do something about it. So far, their pleas have fallen on deaf ears.

In both Canada and the United States, the telecom companies and their lobbyists have tried to muddy the waters by arguing there's no problem despite the fact that a good portion of the population doesn't have broadband. When they haven't been trying to point out flaws with measurement methodology, they've actually been trying to turn the argument around by suggesting that high-speed internet is available to almost everyone, but for whatever reason people aren't going for it. The obvious answer, they say, is there's something wrong with the people - they must be suffering from digital illiteracy, where they don't have broadband because they don't understand it, or computers for that matter.

There's probably some truth to that rationale, but it also seems the companies and their lobbyists are missing the obvious - that broadband is simply too expensive. To put it another way: just because broadband is available to everyone doesn't mean that everyone feels it's affordable.

Case in point: most Canadians complain that their cellphone bills are too high. This is because many of us grew up with home phones, which generally ran between $20 and $30 a month for unlimited local calling. With the advent of Skype and internet calling, the cost of a phone call went down to zero, yet a cellphone bill could still easily amount to closer than $100. Over the past year, we've had several new providers start up in many of our big cities and they have brought bills down dramatically, which means the complaints about cellphone bills will soon start dying down. For my part, I recently switched to Mobilicity and now pay $40 for unlimited calls, texts and data. You'll never hear another peep out of me that my cellphone bill is too high because that amount just feels right.

The average person, whether they can vocalize it or not, know when they are paying a fair price for a good or service. They instinctively know the value of what they're getting and that the company selling them is making a fair profit. Similarly, people know when they're being gouged. After writing about broadband for years, I'd say this is a far more likelier reason for why there are still so many holdouts in North America. Broadband may be available, but the price just isn't right.

The proof isn't very hard to find. Canadian cable companies offer some of the most cutting-edge broadband speeds available in the world. In the West, Shaw offers 100-megabit speeds while in Quebec, Videotron has 120 megabits, which is among the fastest I've seen anywhere. But let's look at the prices - each of those services cost $150 a month. Does that feel right? Of course it doesn't, especially when compared to what's available elsewhere. Virgin Media in the UK is selling 100-megabit broadband for less than half the price while in Japan, a 160-megabit connection can be had for about $60.

Why is there this huge price discrepancy? There are actually a few reasons. In the case of the UK, regulators stepped in years ago to create an open-access system that encourages strong competition between providers. Market participants therefore have a huge incentive to offer better and better speeds at affordable prices. And guess what? They generally make a tidy profit too. As for Japan, the New York Times had a nice explanatory piece a few years back. In a nutshell: Japanese companies (and government) are generally more willing to invest in long-term profits over the quick-term fix, which is unfortunately what North American companies and their shareholders are addicted to.

There's another reason for the big difference in price, and that is Canadian internet companies don't really want anyone to subscribe to those higher-speed plans - they're simply being offered as PR moves. With experts such as the Governor General finding our internet services wanting, the heat is starting to come on phone and cable companies. The government and regulators are aware of the situation and there's always the threat of intervention. By offering faster speeds, phone and cable companies are trying to make themselves look better in at least some measures, thereby taking some of that heat off.

But, going back to the bikini analogy, things get transparent quickly when you look beyond the headline figures. Bell Canada's recently launched "super-fast" wireless internet stick is the perfect example. The company advertises the stick having a top-speed of 42 megabits per second, which would be very fast indeed for a wireless device. Too bad Bell's own fine print acknowledges that speeds closer to 7 or 14 megabits are more likely. Pricing-wise, using 1 gigabyte per month will run you $40 while 5 GB is $85. Thus, for a good chunk of change each month, you can get a wireless service that is inferior to a wired service that is unlikely to ever live up to its advertised speed.

Why is Bell even bothering selling such a service? Well, the timing seems pretty obvious. Our regulator, the CRTC, recently ordered phone companies to roll out broadband services to rural Canadians using money that had been saved for years in something called deferral accounts. Bell, wanting to take the cheap way out, argued that it could most effectively do so with wireless services. The CRTC correctly rejected that argument by saying that wireless internet will never be as good as a wired connection, so that's the technology Bell must use. Lo and behold, shortly thereafter the company debuts its "super high-speed" wireless internet device. If that's not a PR move, then I don't know what is.

So, despite what the companies and lobbyists say, the reason many people in North America aren't subscribing to broadband isn't a demand problem, it's a supply problem. There simply isn't enough meaningful competition - and that means competition on providing people actual value on the dollar rather than advertised speeds - to attract the holdouts. And just as with wireless here in Canada, that competition isn't likely to materialize without government or regulatory intervention.

UPDATE: I must have missed the CRTC actually reversing its decision on not allowing Bell to use wireless technology for rural customers. Bell appealed and got the reversal in late October, arguing that it wasn't up to the regulator to dictate which technology to use. The CRTC went along with Bell's argument, which really is too bad for people in rural areas. I'm not sure in which way the speed and pricing on that "super-fast" wireless stick is equal or superior to what we get in cities, so it looks like the regulator has taken an initially good decision and made it bad.


Post a Comment