competition fail

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Twenty-five years ago, America was seized with fear that Japan would overtake the U.S. Those fears proved false. Japan has suffered a recession for more than two decades, and today we welcome Japan’s participation in America’s economy.

In the last decade, both Japan and the U.S. made significant investments in fixed and mobile broadband, each investing tens of billions annually with per capita expenditures for both countries well above $200 per person, some of the highest rates in the world, even exceeding South Korea. But Japan has peaked in broadband investment; the U.S. is still investing. In just the last three years, wired and wireless providers have invested more than $250 billion into America’s infrastructure.

Unlike the U.S., Japan, for all its broadband investment, has not managed to capture significant value in the Internet industry. The U.S. has some 15 Internet giants, but Japan has only two: Yahoo Japan (a joint venture between SoftBank and Yahoo) and Rakuten, a Japanese e-commerce website. Indeed, almost all Japanese companies and households still use fax machines — 1.7 million units were bought in 2012.

Just like the unfounded fears of Japan taking over America, a new bogeyman has been invented — an argument that America is allegedly falling behind Japan and other regions in broadband. This scare tactic has been employed opportunistically both by those who advocate government intervention in broadband and by companies with a regulatory objective.

While certain critics love to conjure a European broadband utopia, as an American academic at a Danish university, I am hard-pressed to find a European who would subscribe to such a notion. Indeed, European Commissioner for the Digital Agenda Neelie Kroes observes that Verizon LTE reaches more than 90 percent of Americans; no European carrier can claim the same for Europeans.

This week, SoftBank CEO Masayoshi Son, Japan’s richest man, who turned SoftBank into the country’s most profitable operator, spoke to the U.S. Chamber of Commerce in Washington, D.C.

Son likes a challenge, and sees turnaround potential in Sprint, an operator plagued by bad technology decisions and poor management. In rather contradictory remarks, he praised the U.S. for being the best country in the world with the greatest Internet economy (and an Internet GDP bigger than the total GDPs of Switzerland, Sweden, Ireland or Israel), but conjured the bogeyman with the hope to win regulatory approval for a possible attempt of Sprint to acquire T-Mobile. He made false provocations about America not being competitive, while forgetting that Japan has greater market concentration than the U.S., and a government-owned incumbent.

Son described the mobile Internet as the “most important infrastructure for the 21st century,” but mischaracterized America’s leadership, citing OpenSignal’s flawed study of 16 random countries, which ranked the U.S. 15th in LTE speed. A far more reliable measure of broadband speeds across major networks is Akamai’s quarterly report, which shows a consistent gain for the U.S. from 2009 to today. According to Akamai, five states and Washington, D.C., if ranked globally, make the Top 10 for average connection speeds. Akamai also found that U.S. peak mobile speed doubled — from 7.5 megabits per second to 15 Mbps — between 3Q12 and 3Q13, and average peak broadband speed rose from 29.6 Mbps to 37 Mbps.

The U.S. can’t be falling behind in speeds if the most reliable measure shows gains year after year, and it’s not possible for the U.S. to be world’s biggest Internet economy while having subpar broadband networks.

Son knows that competition in the mobile industry comes from technology, not the number of competitors. This fact is evident in Son’s jettisoning Sprint’s Kansas headquarters to set up command central in Silicon Valley — next to Google and Apple, companies about which he grumbled at the 2011 Mobile World Congress, “take all the upside while the mobile providers become dumb pipes.”

Complaining that the industry is not competitive is a frequent ploy by the third or fourth competitor to compensate in sympathy for what it lacks in business practice. But AT&T and Verizon are not to blame for their competitors’ mistakes. Son knows that at the end of the day he has to make results, not rely on an imaginary bogeyman that America is allegedly falling behind.

Roslyn Layton is a doctoral fellow in the Center for Communication, Media and Information Studies at Aalborg University in Copenhagen, Denmark. She is also a vice-president of Strand Consult, an independent consultancy for mobile operators, and a visiting fellow at the American Enterprise Institute. Reach her @RoslynLayton.



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