Study finds U.S., European BSPs face radically different cost structures

July 11, 2022
A new report from the Information Technology and Innovation Foundation (ITIF) notes that U.S. broadband service providers face 53% higher costs, earn lower profit, and offer faster wired service than in Europe.

Science and technology policy think tank, the Information Technology and Innovation Foundation (ITIF) notes that critics of America’s private-sector broadband system often argue it underperforms European prices, coverage, speed, and competitive offerings, ergo U.S. policymakers should adopt similar regulations, such as making incumbent providers unbundle their services.

But a new ITIF report concludes that U.S. and European providers face radically different cost structures, rendering the comparison invalid.

ITIF’s analysis suggests it costs broadband providers 53 percent more to provide wireless and wireline broadband services in the United States than it does in Europe. Moreover, European broadband providers’ profits are shown to be slightly higher than U.S. providers’ even though U.S. wired speeds are faster than every European nation’s except Denmark’s.

“The idea that Europe has a better broadband system has been a perennial favorite for critics angling for a strong government role instead of relying principally on the private sector. But it turns out to be a false comparison, and when you break it down, the U.S. system actually provides better value for the money,” says ITIF founder and president Dr. Robert D. Atkinson, who co-authored the new report.

Atkinson continues, “The key thing critics overlook is the structural cost of providing broadband in the United States versus Europe. American providers pay more for labor, more to build bigger physical networks, more for spectrum, more on advertising, and more on taxes with fewer subsidies. When you account for those factors, the rest of the critics’ argument falls apart.”

U.S. telecom market participants have to invest more

For the new research, ITIF constructed a model to analyze the cost differential between U.S. and European broadband markets by calculating what United States broadband prices would be with European costs.

The analysis shows that in every regard, U.S. telecom market participants have to invest a higher percentage of their revenues in capital expenditures, employee wages, and taxes, while European providers receive more generous government subsidies.

The report also finds that in areas such as the cost of spectrum licenses, U.S. companies pay nearly twice what European companies pay.

Further, ITIF says its research shows that differential cost structures between the U.S. and European markets lead to higher costs for U.S. providers that must be assumed, at least in part, by consumers—although, U.S. telecommunications companies maintain slightly lower operating margins than European companies. In other words, the argument that U.S. broadband providers earn excess profits does not hold up when comparing to Europe.

“When you examine the U.S. and European broadband industries, you find they are essentially apples and oranges,” concludes ITIF research assistant Jessica Dine, who co-authored the report: “They are composed of markedly different labor markets. They serve customers in very different geographies. And they are subject to differing taxes and subsidies. As a result, they allocate different proportions of their revenues to various costs in order to stay competitive. Ignoring those differences and leaping to the conclusion that Europe’s regulatory system has ‘succeeded’ and the U.S. system has ‘failed’ creates an entirely false impression.”

Read the report.