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Superhighway skid

10 February 2006  

It probably did not cost him the presidency - Floridas hanging chads saw to that - but Al Gores 1999 claim that he "took the initiative in creating the Internet" certainly cost him some credibility. Six years on it is not the Democrat but his nemesis, George Bush, who faces some tricky questions on the subject of the Internet and the USs commitment to encouraging its widespread adoption.

It probably did not cost him the presidency - Florida's hanging chads saw to that - but Al Gore's 1999 claim that he "took the initiative in creating the Internet" certainly cost him some credibility.

Six years on it is not the Democrat but his nemesis, George Bush, who faces some tricky questions on the subject of the Internet and the US's commitment to encouraging its widespread adoption.

Over the last four years, the US has plummeted from third to tenth in the world rankings of broadband penetration, a drop which dramatically reverses the trend of the preceding eight Clinton years. If the economists are right, the impact of this will, sooner or later, damage the US economy; and in the land which first built the Internet (as a military network), and first commercialised it, this is seen as something of a disaster. As a recent issue of Business Week lamented, the US has even fallen behind Canada and Belgium.

The reasons, according to Business Week, are weak leadership from Bush, "botched public policy" from the Federal Communications Commission and timid competition between the cosy duopoly of the Baby Bells (local phone companies) and cable TV companies.

Perhaps the Bush administration should be looking across the Atlantic to the much-admired (at least by US citizens) Tony Blair. By coincidence, in the same week The Economist also featured an article on the adoption of broadband - this time about Britain. Putting aside three years of scepticism, it concluded that the UK has reversed an early sluggishness and is now on target to become a global leader in broadband availability. By 2005, boasts BT, only four out of every thousand phone lines will be incapable of supporting a high speed interconnection.

This looks like great news for the UK: According to the theory, higher broadband availability means more online shopping, online banking and an increase in home working. In this way, inefficiencies are eliminated, while businesses are able to scale up more rapidly and become ever more productive.

The situation is drawing comment from influential circles: Sam Paltridge of the Organisation for Economic Cooperation and Development (OECD) recently observed: "Other countries are looking to the UK to see what happened, how it happened and why they are doing it?"

Anyone who does start looking, however, won't find any simple answers. In fact, they may well end up concluding the optimism surrounding the UK, and the pessimism surrounding the US, are unwarranted. The truth of the matter is that when it comes to building their e-economies, both have similar structural and ideological problems that they are struggling to overcome.

A starting point in the analysis is to understand what is being measured. In the UK, for example, broadband availability is good, but that only measures the ability of a consumer to buy a connection. Actual take up is still lower than in the US, lower than the European average, and even lower than the OECD average. In fact, in terms of the proportion of people with broadband, the UK comes in at around number 20.

But that is not all: the UK also lags behind many countries in terms of speed of connection and certainly price, where it is among the most expensive. In fact, UK consumers pay around £19 ($35) a month for a 512 kbps connection, while in the US, that will secure a 1.5 megabit connection. In Japan or Korea, speeds are far higher and prices even lower.

There are many reasons for this, but for simplicity, many analysts would say it is simply down to one company's attitude to broadband: BT. For many years, BT did little to roll out broadband - and only in the past two, under the new management led by Ben Verwaayen, has it actually rolled out a limited service, ADSL, nationwide.

But even now, the service is expensive and relatively slow. There are frequent complaints about pricing and co-operation from smaller rivals who depend on BT's circuits to offer their own services.

If the analysts are right, this is bad for the UK. Truly high-speed, mass market connections (say, more than one megabit per second, at less than £16 a month) could drive a wave of productivity that in turn enhances innovation.

All is not lost, however. A few companies believe that real competition in broadband will soon be driven by new technologies, such as ultra wideband wireless services, mesh networking and superfast VDSL (very high rate DSL). These companies are investing heavily to deliver very fast services. Unfortunately for UK consumers and businesses, BT is not one of them.


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