Vital Signs

Much of recent scholarly research in the field of broadband development has taken a limited approach to analysing the broadband internet ecosystem, such as by focusing on several performance metrics that represent only one of its important aspects – broadband networks (and often even more narrowly, on fixed broadband networks for residential users).

Comparisons of fixed broadband deployment to these users (although not including actual adoption data), broadband network speeds (whether actual or merely advertised), and broadband pricing (regardless of discounts that may be offered through bundling of telephony and video services into a ‘triple play’) have been advanced by some policy advocates as the critical points of comparison to evaluate broadband internet development. Policy discussion in the US and many other countries has become narrowly focused on raising these metrics nationally.

This approach is flawed at many levels. First, although it might compare countries, which is the most useful unit of analysis, it often does so by mixing and matching data that measure different things (actual vs advertised broadband network speeds, for example). This can skew upward the perception that some countries are substantially outperforming other countries. These comparisons also may reflect data that are five or more years old – a generation ago in internet time.

Comparisons of this type also typically result in numerical rankings, which is a popular yet deceptive way to illustrate how far ahead or far behind a particular country might be in broadband network development on a global comparative basis. Meaningful distinctions among countries with virtually comparable broadband network metrics are also difficult to assess solely through a numerical ranking system.

These analytic approaches, to their credit, have reflected a fuller set of measures that capture a more complete and accurate picture of the broadband internet ecosystem. But virtually all of them usually don’t compare countries on an ‘apples-to-apples’ basis. Instead, the comparative lens creates a softer focus on regions, with the US and European Union (EU) often articulated as the points of comparison (even though, as a threshold matter, one represents a single nation and the other 28 nations).

a new index

My goal in devising the Net Vitality Index is to assemble more timely, reliable and comprehensive data reflecting the broadband internet ecosystem – encompassing applications and content, devices and networks – along with relevant macroeconomic forces that help shape it. It represents the first quantitative and qualitative composite analysis of broadband development that uses country comparisons of the entire ecosystem (the full version is published by The Media Institute’s Global Internet Freedom Program).

All data used in developing the index were published on a non-proprietary basis within the past five years. Whenever possible, the most recent version of a particular index was used rather than an older predecessor. The sources chosen were those with a high degree of global recognition; these include the ITU, UN, World Economic Forum, World Intellectual Property Organization, the World Wide Web Foundation, AT Kearney, Boston Consulting Group, Economist Intelligence Unit, and Gartner.

An initial top tier of global broadband leaders has been identified for future benchmarking. It is a group of five countries that stand apart as the most significant global leaders in broadband internet development – the US, South Korea, Japan, the UK and France. Countries are not presented in rank order, however, since this has not been established. Additionally, given that some countries may not achieve a ranking in a particular index, the end result is not intended to represent a precise mathematical calculation that itself may be reduced to yet another numerical ranking.

“The global leaders in broadband internet are the US, South Korea, Japan, the UK and France.”

What makes these top-tier global broadband internet leaders so outstanding? It’s useful to note, as Harvard Business School’s Michael Porter has, that their “competitive advantage is created and sustained through a highly localised process. Differences in national values, culture, economic structures, institutions and histories all contribute to their competitive success. There are striking differences in the patterns of competitiveness in every country. No nation can or will be competitive in every, or even in most industries.”

Consequently, a significant set of indigenous factors contribute to, or deter, progress in individual countries, regardless of what affirmative steps are taken. A number of localised characteristics favour broadband development independent of concerted actions. For example, geography and demographics can make development tasks easier or harder as a function of nation size, population density, per capita income, percentage of high-rise housing, and size of households.

Nations of small geographic size,with little rugged terrain and high incomes are better positioned to achieve ubiquitous broadband network access on a timely and efficient basis, perhaps even without having to create a sizeable fund for subsidising service to rural and low-income residents. Additionally, with a population skewed to youthful, urban apartment dwellers, telecoms carriers can more easily deploy services and achieve comparatively higher penetration rates than others. So although comparative analysis is worthwhile as an analytic tool, it also has its practical limits.

The context of broadband ecosystem development in a particular country is often unique to that country’s physical, economic, political, cultural, and social environment. Attempting to generalise from even the best countries is unlikely to yield meaningful policy outcomes, and this study, unlike others, is careful not to develop generalised inferences that are based on a top-tier broadband internet leader’s particular circumstances.

innovation – a common force

The five global broadband leaders of the Net Vitality Index, however, have a powerful common driving force – innovation. Innovation is the result of unusual effort. “Once a company achieves competitive advantage through innovation,” according to Porter, “it can sustain it only through relentless improvement. Competitors will eventually and inevitably overtake any company that stops improving and innovating.” This powerful lesson of the centrality of innovation is directly applicable to the desired goal of promoting continuous ‘net vitality’. Innovation makes competition thrive and must come first.

The goals of national institutions and both individual and corporate values also help contribute to national competitive advantage. Each of the five Net Vitality Index countries that comprise the top tier attaches prestige to its role in information and communication technologies (ICT) generally, and to the internet specifically.

These countries guide the flow of capital and human resources to enhance this positioning, which in turn directly affects the competitive performance of companies that comprise the broadband ecosystem. Although it may be difficult at times to determine cause and effect, it is clear that these top-tier leaders have made the attainment of international internet success a priority. In doing so, the internet sector is also more prestigious for those within the country seeking education, investment or employment.

The top-tier leaders’ strategies, viewed as a whole, have also included a range of government roles:

• Developing a vision and strategy
• Promoting digital literacy, ie. the ability to use digital technologies to pursue information, communications and entertainment interests
• Investing in infrastructure, aggregating demand, and serving as an anchor tenant
• Fostering facilities-based competition
• Creating incentives for private investment
• Offering e-government activities – healthcare, education, access to information, and licensing
• Promoting universal services through subsidies and grants
• Reforming governmental safeguards to promote a high level of trust and consumer protection in ICT services, including e-commerce.

Successful incubation appears to require government involvement, albeit with a light hand that stimulates and rewards investment, reduces regulatory underbrush, and promotes global marketplace attractiveness.

So the top-tier global broadband internet leaders clearly recognise that government has a critical role to play in shaping the goals of ‘net vitality’ through forward-looking policymaking. This has included various mechanisms to regulate competition.

The leaders exemplify an ability to set a course that favours competitive time over political time. This policy preference reflects an understanding that it often takes at least a decade, if not more, for an industry to create competitive advantage. This is because it takes years to upgrade human skills, invest in products and processes, build interdependent clusters (eg. the broadband internet ecosystem), and penetrate foreign markets.

As fast as internet growth has been in recent years, it still is in the process of building up competitive advantage on a national basis. Developing a regulatory regime too early may be well-intentioned, even politically palatable. But it also poses a real potential barrier to the US and other top-tier leaders as they continue to build up their own competitive advantages.

Synchronising the competitive time for companies, which represents a long time arc, with the shorter political time represented by two- and four-year election cycles, is a policy challenge that all the broadband leaders are facing. They understand the importance of a long-term view, and in varying degrees, have exhibited greater patience than the political system may be advocating at a particular moment in time. As Michael Porter has also commented: “Policies that unconsciously undermine innovation and dynamism represents the most common and most profound error” [in government policymaking]. The broadband leaders would be well advised to pay greater attention to this concern as they attempt to balance the interests of competitive and political time.

Such approaches reflect an understanding that companies in the broadband internet ecosystem benefit from domestic rivals that put pressure on them to innovate dynamically and to improve. Additionally, unlike rivalries with foreign firms, domestic rivalries often extend well beyond pure economic or business competition. They compete for market share, but are also in constant competition for people, technical superiority, and even a more ephemeral achievement – ‘bragging rights’. Regulation of domestic competition, though well intended, thus may be conceived too narrowly when considered as a means to promote national competitive advantage in the larger global context.

Domestic rivalry also pressures these domestic companies to explore expansion into global markets, taking advantage of economies of scale that can capture greater efficiency and higher profitability outside the home country.

So it seems that top-tier broadband leaders have benefited most when government is a catalyst and challenger. By encouraging companies to raise their aspirations and move to higher levels of competitive performance, governments of the five leading Net Vitality Index countries have been able to capitalise best on the favourable attributes that each country has in place.

Japan and South Korea are useful countries to explore in detail for how they have played a catalytic role. They also have demonstrated sufficient agility to shift the government’s role to reflect the progress of their economies. They have made mistakes, as well, particularly by attempting to manage industry structure and yielding to political pressure to put in place protectionist measures that are not market based.

It is not enough to set the policy bar to achieve an open internet. As a fuller understanding of the broadband internet ecosystem reveals, the goal should be a wide open internet, within each country and around the world. The idea of net vitality should become an important element of the policy discussion in the US and elsewhere, further supporting the innovation and investment that has brought us so far to date.

Innovation and investment promise even greater impact for all users as ‘internet time’ continues to speed up. They are the most important building blocks for government policymakers to take into account to maximise the global broadband internet ecosystem in the future.