Opinion

Why Netflix and YouTube Aren’t Breaking the Internet in the United States

By Alec Stapp
April 10, 2020 at 5:00 am ET

As broadband networks around the world start to creak under the weight of work from home and other social distancing practices, it is a bit surprising that one country has been left out of the headlines: the United States. We’ve been told for years that our broadband infrastructure is poor and that we pay too much for too little service. Look to Europe, they said. Maintain Title II regulation (“net neutrality”) or it will be the end of the internet as we know it, they said.

But it’s been more than two years since the Federal Communications Commission voted to repeal Title II and re-classified broadband as a Title I service. In the intervening period, the internet has not been destroyed. You don’t have to pay for individual Google searches, as some predicted. Broadband speeds are faster than ever. And we have yet to see headlines about increased usage forcing companies to throttle their video streaming services.

Yes, prices are lower in Europe – but so is investment, because forcing broadband providers to share their infrastructure with competitors gives them less economic incentive to improve that infrastructure. Over time, that lower investment has led to lower-quality services — a reality brought into stark relief when Europe asked YouTube, Netflix, and other streaming services to downgrade their content to prevent the internet from breaking. How did it come to this?

Title I vs. Title II Classification

In the United States, broadband providers invest so much in infrastructure because the system policymakers set up incentivizes them to do so. The 1996 Telecommunications Act was passed on a bipartisan basis and was premised on a light-touch regulatory model.

Some believe maintaining neutrality is impossible without classifying the internet as a Title II “common carrier service.” This is an incorrect assumption. Congress could easily write it into law a neutrality rule without resorting to Title II, which opens the door to heavy-handed government regulations such as rate regulation (dictating how much providers can charge) and line-sharing (being forced to let competitors access proprietary networks). After the FCC officially declared broadband to be a Title II service in 2015, investment in broadband infrastructure dropped. But in 2017, when the FCC voted to switch the internet back to Title I classification, investment returned to its upward trajectory.

Facility-Based Competition vs. Service-Based Competition

The United States has explicitly followed a facility-based competition model, which is where the same service is offered by different technological platforms. There are five common types of broadband platforms: cable, fiber, DSL, satellite and wireless.

By contrast, Europe has primarily followed a service-based competition model, which forces incumbents to allow competitors to access their network infrastructure at a rate set by the government. This model can lead to lower short-term prices for consumers but ultimately disincentivizes investment in the next generation of technology. In the long run, as the legacy infrastructure degrades, consumers are worse off.

Investment

In the almost 25 years since Congress chose a light-touch approach to regulate the internet, the United States has seen more than $1.7 trillion in risk-based, private sector investment — including wireline, wireless and cable providers. According to data from the Organisation for Economic Co-operation and Development, the United States regularly invests almost 80 percent more per capita in telecommunications than Europe.

Some advocates for the European approach to broadband regulation claim that the gap in investment can be explained by differences in population density.

But according to the most recent data from the World Bank, the rural share of total population in the European Union was 24 percent. In the United States, the comparable figure was 18 percent. It seems that geography and population distribution cannot so easily explain away the differences in European and American broadband investment over the last quarter century.

Investment by U.S. broadband companies is also massive relative to other industries. The annual Progressive Policy Institute’s Investment Heroes report finds broadband providers as four of the top 10 U.S. capital investors in the U.S. economy, spending a total of more than $54 billion last year.

Capacity & Usage

All that investment over the last 25 years is now paying off. For fixed broadband speeds, the United States ranks eighth in the world. Eighty percent of American households have access to gigabit internet speeds – and that percentage is increasing. A recent Facebook-commissioned analysis found the United States ranks third in the world for the most inclusive internet in both cost and availability.

For mobile broadband, while the United States may not have the fastest speeds, it does offer consumers the greatest value for service. A recent study of 1,554 retail plans from 213 mobile carriers in 36 nations — controlling for data usage, speed, population density, 4G coverage, etc. —  concluded that the “US leads the OECD countries with its mobile wireless value proposition.” And according to crowdsourced data from OpenSignal, an independent mobile analytics company, the US ranks fifth in the world in terms of 4G LTE network availability (a proxy for network quality), ahead of every European country except Norway.

Networks are built to accommodate peak demand, which is usually in the evening when most people are home streaming video. As parents move to work from home and children switch to distance learning, the peak capacity telecom companies have built for the evening internet traffic becomes critical for managing increased daytime traffic.

Fortunately, the U.S. system is accustomed to handling large amounts of traffic, with the average person consuming 120 gigabytes of data per month. That’s nearly three times as much as Western Europe and seven times the global average.

So why are Netflix and YouTube not being forced to downrate their video streams in the United States when European regulators are asking them to do so across the pond? Because decades of pro-innovation United States policy — facility-based competition and Title I classification — have created the right incentives for private companies to invest in building out infrastructure that can handle exponentially increasing internet traffic.

Stay home and keep enjoying your HD video, America.

Alec Stapp is the director of technology policy at the Progressive Policy Institute.

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