By Katie Collins
Some of the prices for fixed broadband in Europe are low enough to make the average internet-addicted American swoon. Think gigabit fiber for less than $10 per month. No strings or income restrictions.
Thanks to COVID-19, the effects of the digital divide are more pronounced than ever. With broadband affordability high on the agenda, it could, at first glance, seem that Europe has all the answers. This is decidedly not the case.
Europe, too, has its own struggles with digital divide, and it hasn’t cracked the affordability problem across the board. Cheap prices do not always equal broad availability or high bandwidth, and every European country comes with its own baggage and struggles. But look closely at Europe’s success stories and you’ll see there are potential takeaways for the US, which is amid a debate over how to close the digital divide.
Despite the pressures of the pandemic, broadband affordability improved everywhere in the world this past year except in North America, according to the Inclusive Internet Index, which is commissioned by Facebook and developed annually by the Economist Intelligence Unit. Overall, the US tends to rank well in affordability lists (which are an inexact science and use sources tricky to verify), but it doesn’t want to be standing still while the world marches forward.
Within the EU, member states are working toward ensuring every household can be connected to gigabit fiber by 2030, and there are a number of financing initiatives they’re able to take advantage of to keep costs down. Speaking to the European Parliament in October, European Commission President Ursula von der Leyen emphasized that no one should be deprived of broadband for economic or social reasons.
“Greater connectivity is not a luxury — it is a necessity,” she said. “And it is a right for everyone in the EU. Every citizen should have access to an affordable fixed data connection. It is a universal service — like receiving post or electricity.”
Europe’s enviable competitive streak
Europe has been able to spur more affordable prices thanks to a regulated market environment that promotes competition.
In the US, competition among internet providers has historically happened at the infrastructure level, meaning your choice is between DSL, cable, fiber or 5G satellite. With so few competitive options available to consumers, companies don’t feel the need to jostle for customers by lowering prices, Vinhcent Le, legal counsel for technology equity at the Greenlining Institute, said in an interview.
Meanwhile in Europe, open access infrastructure — which in the case of broadband means a physical network that different service providers can all make use of — has allowed multiple companies to compete for customers at a service level, forcing them to offer more competitive prices. By contrast, the major telcos often foot the bill for building out their networks. The government does offer subsidies to encourage service providers to expand into sparsely populated areas, but even that process is filled with problems.
The UK and Sweden are particularly good examples of an open access environment, said Teddy Woodhouse, research manager for access and affordability at the Web Foundation. “Both countries have high fixed coverage (including even at higher speeds within Sweden) and a high number of fixed connections provided by non-incumbent operators, which is a good sign of market competition,” he said over email.
Not everyone agrees that more competition is the best strategy for making internet more affordable in the US — including the nonpartisan think tank the Information Technology and Innovation Foundation, which argues that the affordability problem in the US is overblown and that making the system more competitive won’t help heal the country’s digital divide.
But generally, competition has resulted in lower prices. In its 2019 Affordability Index, the Alliance for Affordable Internet highlighted the fact that markets with more operators had lower prices. “Poor broadband policy that fails to foster a healthy, competitive market costs users an estimated $3.42 per GB,” it said.
Meanwhile, the Inclusive Internet Index (which takes into account fixed and mobile broadband) noted that while the US was still ranked fifth overall in the world for affordability, it had experienced a decline in the past year “owing to a deterioration in the competitive environment,” likely a reference to the combination of T-Mobile and Sprint.
Attempts to regulate in favor of more open access infrastructure in the US has elicited pushback from the powerful telecoms lobby, which has a vested interest in keeping competition minimal to ensure prices stay high.
“We just lack that coordination that a lot of other countries have,” Le said. “That’s a lot by the design of the incumbents — they’ve sued in a lot of states to prevent utilities from expanding their networks outside the city limits.”
A Swedish model for California?
Sweden is the model that Le believes could be ideal for a state like California to follow to improve broadband affordability. The regions are comparable in terms of rural-urban divide and therefore make for a good point of comparison, he said.
In Sweden, the government gave support to cities to build infrastructure that is fully open access, taking the rollout of fiber to homes out of the affordability equation and allowing multiple providers the opportunity to compete for customers with well-priced services while guaranteeing good performance.
“Sweden’s open-access model, paired with its early advantage of investment through municipal networks, is a key point in the story of that country’s market,” said Woodhouse.
In the past, California has been “hamstrung” by not allowing any broadband regulation, said Le. But now, he said, things are beginning to change, as the state is making it easier and committing money to building open-access networks and middle-mile fiber, which connects local networks to major service providers.
“The prices aren’t ever going to go down to what it should be, which is, in my head, $30 to $40 for fiber internet, 1000Mbps” he said. “But unless we have these open access rules, just given how these networks were developed, I don’t see the political will in the United States to kind of force that to happen.”
Political will is an important component in making the internet affordable, but promises about connectivity alone aren’t enough to get the job done. “The United States creates these political goals, but they don’t actually do anything about it,” said Le.
Conversely in Europe, political will to create affordable broadband for residents has then been supported through policy development and heavy investment to achieve these goals. This can be seen in Sweden, but also in Baltic countries such as Latvia and Lithuania, which both rank high for fiber penetration, and Romania, where EU funding has been instrumental in trying to expand access to the high-speed broadband enjoyed in urban centers out to more rural areas.
Where affordable fiber thrives
“Today, people living in Bucharest, Romania, have access to much faster Internet than most of the US,” tweeted Sen. Bernie Sanders in 2016. “That’s unacceptable and must change.”
Five years on, Sanders may be disappointed to hear that little has changed. Not only do people living in Romania have faster internet than in the US, but, dollar to gigabyte, it’s cheaper too. It’s regularly listed in surveys as one of the top countries in the world for the most affordable high-speed broadband.
According to Digi, Romania’s largest broadband provider, the country’s success in making internet cheap and fast is largely because it didn’t need to upgrade its legacy infrastructure while rolling out a more modern fiber-optic network.
Along with other former Soviet states in Central and Eastern Europe, when the time came to get serious about building broadband, Romania didn’t have a strong existing DSL network or telecom regulation to govern it due to lack of investment from its time behind the Iron Curtain. So while it was often cheaper to maintain and upgrade existing copper wire networks for the US and Western Europe, these other countries were busy leapfrogging straight to fiber and writing their own rules as they went.
Romania started rolling out fiber to the home as early as 2004, and the technology is used by the majority of Digi’s subscribers, who now enjoy packages starting at 6 euros ($7.20) per month, or 8 euros ($9.60) for gigabit services. The narrow gap in price between lower and higher speeds is something other countries — the US included — have failed to offer customers. For instance, Verizon’s gigabit service starts at $80 a month, double the cost of its entry-level offering.
“Over the last few years, mainly Digi, but also our competitors, have invested several billions of euros in FTTH infrastructure, without any financial support from the state or other similar sources,” said a spokeswoman for the company in a statement. “The highly competitive environment has determined an efficient cost base allowing for an affordable pricing on the end consumers.”
Affordability: It’s all relative
Putting too much focus on prices, however, also has the potential to obscure the bigger picture. A direct dollars-for-dollars comparison with monthly US costs for broadband packages doesn’t take into account the disparity in average income between countries.
Europe as a region boasts the lowest fixed broadband prices (as a percentage of gross national income) compared with other regions as there are better income levels in a number of countries, said Eleanor Sarpong, deputy director and policy lead at the Alliance for Affordable Internet. But, she added, this isn’t the case across the board.
In some parts of Europe, especially in former Soviet Union states that aren’t part of the EU, but also in parts of countries such as Romania, extremely low incomes mean broadband is still a luxury many can’t afford. The divide between broadband access in rural and urban areas can also be stark, Sarpong added.
In fact, when you compare Romania’s prices against those paid in the US, broadband in both countries costs the same percentage (just 0.8%) of gross national income, according to the ITU.
But even when adjusting for income levels, Europeans on average pay a lower proportion of their salary than people living in other regions. In a 2020 policy brief published by the International Telecommunications Union, Europe was listed as the only region in the world where consumers spend less than 2% of their income on fixed broadband. This still doesn’t necessarily mean internet in these regions is affordable for all, especially when you bear in mind this doesn’t begin to take into account mobile data prices.
Price also doesn’t necessarily reflect quality. Some of the cheapest countries in the world for fixed broadband include Syria, Bhutan and Kyrgyzstan, but the speeds they offer are among the slowest.
Likewise some of the highest speeds in Europe can be found in small municipalities such as Liechtenstein and Andorra, which are smaller than individual US states, and don’t rank high on any lists of affordable broadband. The dense population of these small areas means that just like in Singapore and Hong Kong — both leaders in fast, affordable broadband — bringing good-quality fiber to these areas is far easier than building out a network across a sprawling country like the US.
In fact, Europe on the whole is more densely populated than the US, which potentially distorts affordability statistics. The knock-on impact of the population being more spread out is that the average cost of connecting each household is much higher, and prices are likely to reflect this.
So exaggerated are the demographic differences between the two regions that Recon Analytics analyst Roger Entner said in his newsletter earlier this month it was “unremarkable that US prices might exceed European prices as it costs substantially more to deploy these networks.”
What stops broadband being affordable can’t be understood simply by looking at the price per gigabyte in dollars alone. Instead there’s a tapestry of problems including speed, rural access, income disparity and regulations that are inextricably linked with price that keep people disconnected.
In the US alone, historic baggage comes in the form of legacy infrastructure, huge expanses of sparsely populated land and a mindset that keeps everyone comfortably settled on the status quo.
A big concern in the US is that providers will retrofit affordable broadband packages into the existing systems, creating a second-class tier of internet for low-income users. But it doesn’t have to be this way. Romania, for example, has shown that gigabit speeds don’t have to be drastically higher to subsidize entry-level packages.
In Sweden and the UK, open access has allowed competition to thrive and push prices down in a way that hasn’t so far been possible in the US, but could be.
Le, for one is hopeful things will change. He can see it beginning to happen already, he said, even if it is coming “20 years too late.”