Keeping Up With the Rest of the World

One of my readers sent me an article that announced a fiber-to-the-home expansion in Nepal. The ISP for the country is Vianet Communications P. Ltd, which uses Nokia GPON technology. The company built the first FTTH in the country in 2011 and already serves 10 of the 75 districts. The current expansion will bring fiber to an additional 4 districts, with another district already scheduled after that. Vianet is a commercial ISP and began as a dial-up ISP in the capital of Kathmandu is now expanding across the country with fiber. By the end of the year the ISP will have 200,000 customers on fiber, providing a minimum customer speed of 100 Mbps.

You don’t have to look hard to see similar stories around the world. Romania now has the fastest broadband in Europe and is ranked as having the sixth fastest overall broadband in the world. Romania’s broadband success story is unique since the fiber networks have largely been built by small neighborhood ISPs that have strung up fiber. There are local news articles that joke about the country having fiber-to-the-tree. The country had almost no telecom infrastructure at the end of the cold war and local entrepreneurs and neighborhood groups have tackled the task of bringing the needed fiber infrastructure.

I’ve often heard it said that one of the reasons the rest of the world has more fiber than us is because the governments in those countries build the infrastructure. However, when you look closer at a lot of countries like Nepal and Romania, it’s commercial ISPs that are building fiber, not the government. Singapore has had the fastest broadband in the world for years and their fiber was built by three ISPs. There are similar stories everywhere you look.

If ISPs are able to build fiber in Nepal and Romania, why are they having such a hard time doing so here? There are a few key reasons.

Big ISPs in the US are driven by quarterly earnings expected by Wall Street. They get crucified for not maximizing profits and none of them can undertake any major expansion that would earn infrastructure returns of 7% – 12%. It doesn’t matter that the ISP business is a cash cow and spins off piles of cash once the business is mature – the big ISPs are structured such that they really can’t consider undertaking building fiber to residents.

Years ago Verizon took a hit for tackling FiOS, and even then the company was very disciplined and only built where construction costs were low. People are praising AT&T currently for passing over 10 million homes and businesses with fiber – but their network is the very definition of cherry picking where they serve a few homes here and few homes there, nearby to their existing fiber nodes.

There are plenty of smaller US ISPs that would love to build more fiber, but they have a hard time raising the money. Fifty years ago banks were the primary source of infrastructure lending, but over time for various reasons they no longer want to make the long term loans necessary to support a fiber network.  The big banks are also Wall Street driven, and banks make a significantly higher return on equity by churning shorter-term notes compared to tying up money for 20 – 30 years.

One only has to visit a FISPA convention, the association for fiber overbuilders, to find numerous companies that would gladly tackle more fiber projects if they could borrow the money. Just about every member of FISPA will tell you that borrowing money is their biggest challenge.

The countries building fiber have found ways to overcome these issues. The ISPs there are able to borrow money to expand fiber networks. Their banks love the guaranteed long-term steady returns from broadband. The countries I’ve mentioned have one natural advantages over many parts of the US since they have a higher population density. Nepal has 29 million people and is about the same size as Michigan. Romania is a little smaller than Oregon with a population of 19 million. However, they have other challenges. As you can see from the map accompanying this blog, Nepal has some of the most challenging topography in the world. Both countries are far poorer than the US and yet they are finding ways to get fiber built – because like everywhere, there is a big demand for broadband.

I’ve said many times in this blog that we need government help to build fiber in the rural parts of the country. That’s due simply due to the cost of a fiber network calculated per household, and the numbers don’t work in most rural places. However, I’ve created hundreds of fiber business plans and it generally looks feasible to build fiber in most other places in the country, and yet there is no flood of ISPs building fiber in our towns, cities and suburbs. Detractors of municipal fiber always say that our broadband problems ought to be solved by the private sector – but I look around, and in 95% of America the private sector hasn’t showed up.

Rising Broadband Speeds

For the second year in a row the coalition M-Lab measured broadband speeds in 200 countries. This coalition includes New America’s Open Technology Institute, Google Open Source Research, Princeton University’s PlanetLab and others, compiled by Cable of the UK. The statistics are based upon over 163 million speed tests. The results are available in a spreadsheet and are worth looking at for those that love numbers.

Because the results use speed tests, the vagaries of those tests must be factored into the results. Hopefully all of the reading use the same speed test, because each speed test on the market uses a different algorithm to calculate speed. For example, the algorithm for operated by Ookla discards the fastest 10% and the slowest 30% of the results obtained. Speed tests are overinflated in many instances when ISPs use a burst technology that provides a faster broadband speed for the first minute or two or any web connection. The results are also lowered due to any network issues at a customer such as an underperforming WiFi network. The bottom line is that any given speed test number must be taken with a grain of salt, but comparing millions of speed test results ought to make a valid relative comparison.

Overall the tests show a worldwide increase in broadband speeds in just one year of 23%. However, to put that in perspective that’s an increase worldwide going only from 7.4 Mbps to 9.1 Mbps. It’s more interesting to look at the results from the countries with the fastest and slowest broadband. The top 25 fastest broadband countries on the list increased speeds by 28.9% while the bottom 25 only increased by 7.4%.

The US moved up one slot, from number 21 to number 20 to this year – increasing average speeds from 25.0 Mbps to 25.9 Mbps. This is a substantial increase that I think can be attributed to three factors. The most significant is probably that several large cable companies have unilaterally increased base speeds due to the introduction of DOCSIS 3.1. Average speeds also continue to climb as several million customers per year migrate from DSL to cable modems. Finally, we are slowly building fiber to residences and probably added a few million fiber passings last year.

The worldwide broadband leader is Singapore with an average speed of 60.4 Mbps. They are followed by Sweden, Denmark, Norway, Romania, Belgium and the Netherlands. Romania is interesting because they rose 13 places with a jump in speed from 21.3 Mbps to 38.6 Mbps – they obviously have been implementing a lot of fiber. The biggest drop on the chart is Hong Kong that fell 10 places on the list as their broadband speeds dropped slightly from 27.2 Mbps to 26.5 Mbps. It wasn’t too many years ago when Hong Kong was way ahead of the US, but that gap has completely closed.

One of the more important things this research shows is that good broadband can be found in North America, most of Europe and some of southeast Asia. Broadband speeds everywhere else are far behind. The gap between the haves and have-nots is growing. The increase in average speeds for the top 100 countries on the list was 5.4 Mbps in one year while the increase for the bottom countries was only 0.4 Mbps.

It’s also worth remembering that speeds differ within each country. In this country we still have millions of rural homes that have no Internet access or access at third world speeds. The same is likely true around the world with better broadband in urban areas compared to rural areas. It’s also worth remembering that only about 4.1 billion people, or 54% of the population of the world have access to broadband.

These kinds of statistics are useful because they probably act as a goad to governments that are far down the list to find ways to improve broadband. We know that good Internet brings a huge number of economic and other advantages, and countries with good broadband are implementing new technologies that aren’t going to be available in countries with slow broadband networks.

There is hope for those areas with little or now broadband. Several groups are proposing satellites that can bring broadband everywhere. Endeavors like Google’s Loon are looking at bringing broadband to rural areas across the globe. Hopefully we will see speeds in the third world increasing significantly over the next decade. While only in the second year, the work being done by M-Lab is another good measuring stick for governments to measure their progress.