Tales of two continents and the Internet During COVID-19

A few weeks ago, EU Commissioner Thierry Breton made headlines when he asked Netflix, Google’s YouTube and Disney to voluntarily reduce their video quality from High Definition to Standard Definition in order to “secure Internet access for all.” Is this an EU bureaucrat detached from reality gone wild or is there something more behind it? What most headlines did not report is that Thierry Breton is the former CEO of France Telecom now Orange, the 10th largest telecommunications provider in the world. By moving from HD to SD the data speeds needed to support streaming video declines by 80% from roughly 5 Mbit/s to 1 Mbit/s. To quote the eternal wisdom of Depeche Mode: Everything counts in large amounts. Especially when you multiply the reduction by 200 million households. If at the peak hour, half of the EU, roughly 100 million households, are watching streaming video and all of them are using SD instead of HD, then peak edge network load goes down by 400 million Mbit/sec or 400 TBit/second.

Europe’s largest internet exchange, DE-CIX is publishing its usage and performance data in real time for all its internet exchange points. Below is the 5-year traffic graph for Frankfurt from April 21, 2020s, the world’s largest internet exchange point:

On one hand, the impact of the Covid-19 quarantine is quite visible at the right. Peak usage went up by 50% from around 5.8 Tbit/s to 9.1 Tbit/s which is quite an increase that could cause alarm until you know that peak capacity is 58.4 Tbit/s. The concerns of Commissioner Breton cannot be in regard to the core internet backbone being in danger of potential breakdown. It has to be the edge network, since the core network is holding up well.

We know from the experience in the United States that the fiber and cable networks providing tens up to 1000 Mbit/s speeds are holding up well as traffic has increased. The problem arises at DSL networks, a technology that allows several Mbit/s data connections over copper wires, that often can only support 15 Mbit/s or less over short distances from a central office. Next generation VDSL can provide up to 200 Mbit/s over distances of less than 200 yards from a central office. The problem is that central offices are generally further apart than 200 yards and speeds fall off dramatically.

American telecommunications providers have invested heavily in moving beyond DSL and continue to invest heavily to expand their broadband offers. Congress and the Federal Communications Commission have dedicated billions more to improve access for every American at every point in the network, from last mile to the radio access network. This has not been the case in Europe.

A good proxy of how fast and developed a country’s broadband infrastructure is how much money the carriers have invested in the technologies and networks on a cumulative basis.

The OCED identified $944 billion was invested the EU telecommunications networks from 2002 to 2018 improving the connectivity of the EU’s 527 million citizens. Over the same time period, the OECD reports that the US invested $1.323 trillion in US telecom networks, covering 320 million Americans. Of these 320 million, 90% have access to fixed broadband internet service. From 2002 to 2018, the US accounted for 42% of global telecom investment among all 37 OECD states.

Picture 2

Source: OECD and UN Population Estimates, 2020 (https://www.oecd.org/sti/broadband/9b.Investment.xls)

When looking at the telecom investment per person in the US and EUR, the difference between the investment per person is stark.

Consistently, more than $200 per person is invested to connect people in the United States. In 2017 and 2018, the two most recent years available, American telecom companies have invested $291 and $290 per person, respectively. The average for the EU4 (Germany, France, Italy and Spain) was $150, about half of what is spent in the U.S. The spend in countries other than the big four has been even less.

In the Czech Republic, only $69 per person is invested in telecommunication infrastructure, in Estonia $70 and Portugal $73. Thus, Commissioner Breton called Netflix, Google, and Disney to ask them to throttle their traffic to ensure the maximum number of EU citizens could have access to the Internet; however, due to the US’ spectrum policy, efforts to speed deployment of mobile and fixed infrastructure and a more evolved, and light touch regulatory framework has produced a far superior broadband infrastructure in the US than compared to EU.