The European Commission pulled an intriguing reversal last week with its decision not to lower the fees that telecom incumbents charge smaller internet service providers for using their older copper networks. While Neelie Kroes, the EC’s vice-president in charge of digital issues, criticized network operators last year for getting fat and under-investing in next-generation fiber networks, she’s now singing a different tune.
The original idea was that lower access fees for smaller ISPs would result in correspondingly lower profits for the incumbents, so they would then have to build out new networks that could ultimately prove to be more lucrative. This would have been good for European economies and consumers alike, since the prices they pay on lower-speed internet connections would likely have gone down as well.
The companies argued, like they have everywhere in the world, that they couldn’t afford to build new networks if smaller competitors were given more regulatory breaks. The EC, worried that Asian companies are jumping far ahead with super-fast fiber networks, has obviously decided that a carrot rather than a stick is needed to get the incumbents to build. It’s a very North American approach.
The only problem is, there’s no guarantee that the new plan will work. As one telecom analyst noted, “We do not think it will lead to any major fiber builds, and instead will improve the returns on incremental build.”
Indeed, if Canada’s own fiber rollout – or rather, almost total lack thereof – is an indication, it’s the totally wrong direction for the EU to go.
According to the OECD’s 2011 broadband report (table 1l), only 0.5% of the internet connections in Canada were via fiber. That’s slightly better than a few European countries, including Germany and Switzerland, but a far cry from the likes of Japan and South Korea, who boasted percentages of 60 and 56, respectively.
Aside from those two mega-fiber countries, who else is doing a relatively good job? Yup, they’re all in Europe. The Slovak Republic, Sweden, Norway, Denmark, Iceland, Hungary and the Czech Republic all count between 10 and 30% of their internet connections as coming through fiber.
Rather than taking a North American approach – which is clearly not working for North America – the EC should be figuring out what Asian, Scandinavian and Eastern European countries are doing right. As The New York Times noted a few years ago, the answer is actually simple: “broadband deployment in those countries was spurred by a combination of heavy government involvement, subsidies and lower corporate profits.”