As I am listening to Swedish radio streamed over the Internet in my mid-Missouri home, I am reminded of the (comparatively) terrible state of American telecommunications. My first real culture shock as a Swede moving to the United States, after realizing the American people is genuinely and unbelievably generous (especially compared to their government and other peoples around the world), was the cost and quality of cellular phones and internet connections. The former (cost) is high, while the latter (quality) is low. I was used to the very opposite in the faraway land in the north, socialist Sweden.
Indeed, the radio commercial offers wireless internet (4G connection for your laptop) at 32 Mbps with unlimited data at less than $15/mo. Granted, it is only for the first six months, after which the price increases to the regular $32. But it includes the gargantuan Swedish sales tax (VAT, really) of 25%. At the same time, I can get the same kind of service but with slower speeds and much worse coverage from Sprint – for $49.99 plus several taxes and fees.
To top it off, my parents enjoy 100 Mbps broadband (that’s 100 Mbps both up and down, folks) in their house in the semi-rural outskirts of Stockholm and, obviously, they get their phone service, cable tv, and everything else through this awesome connection. I can of course listen to streaming radio on my 12 Mbps connection (12 down, only 1 up) here in urban mid-Missouri, but the market does not offer 100 Mbps (or even half the speed) connections. And I have several friends in the area with only dial-up connections of 56 kbps (!), which is unheard of in Sweden unless you live on a mountain top a hundred miles from your closest neighbor, perhaps.
Someone might think that “surely” the Swedish carriers and service providers are subsidized somehow. For internet service providers this may be the case, since there are plenty of municipal fiber optic networks. But there are plenty of those in the United States as well. America is much further from a market society than most of us would like to admit. What about cell phone carriers? No, not really – at least not more than any other corporation. They pay absurd annual “fees” to the authorities for permission to use radio frequencies. The better solution is, of course, to privatize the airwaves, but that is not likely to happen in any country I know of.
So are low-cost, high-quality telecommunications in Sweden due to the country being “not so sparsely populated as the US,” as someone claimed? No, that is definitely the case. Sweden is slightly larger than California with a population of only nine million. And those nine million are the only ones in the world speaking the proud Swedish language, which is hardly a cost-saving fact for businesses. Furthermore, your Swedish cell phone is usable almost everywhere in the country (except, perhaps, on mountain tops in the far northwest), including subways and on forest highways – using your own carrier. At the same time, I can drive only 30 minutes down one of the highways in Missouri for my cell phone to exclaim that there is “no signal detected” – from any carrier.
No matter what excuses we may think of, the telecommunications market in socialist Sweden arguably provides more value to consumers at (much) lower prices than any of the American carriers. So we must conclude that there is something severely wrong with the American telecommunications market. My guess? There is less of a market for wireless telecommunication in the U.S. than even in socialist Sweden…
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That’s very true. I called up to AT&T to ask about the UVerse service which has, for the US at least, decent download speeds for an internet service. They informed me that while the service was in my region, it wasn’t available in my immediate area, something about their technology is set up to service neighborhoods, not smaller residential areas like mine. I wondered aloud if Verizon’s FiOS had the same limitations and the person over the phone proudly stated, “The State of Florida granted us the market for your area, Verizon can’t legally operate there.” Sure enough, it was true. Verizon was given a different part of the state and I’m stuck with either my current 6 mbps DSL line or the equally poor cable service offered by my other State-protected monopoly Comcast. I sit here and wonder why the FTC doesn’t take it’s anti-trust hammer to this racket, but then I remember, the FTC likes government monopolies, it only hates those it can whittle down into ridiculously narrow markets.
Same thing back in 1999. I lived in a house that had a dedicated fiber line, in Tennessee in the middle of a cotton field of all places, to the door and was wired in the house to each room, but it was dark. The reason being was the owner of the fiber put it there before the 1996 Telecom Act lumped fiber in with telephone lines, giving AT&T the exclusive monopoly over fiber so the company that laid it couldn’t operate it. The company went out of business and the fiber sat there idle.
I agree with this. The state of telecommunications in the country that basically invented it is in awful shape. There’s just too much rent seeking going on by the major players for there to ever be any kind of competitive improvements.
It started with the poor television reception in rural areas in the late 70′s and such.
Regional governments handed monopoly status to cable television networks because they were convinced that unless the cable operator was not granted monopoly over a region then they would not be willing to provide services.
Since then it grew.
Another big hit was when the government limited the speeds on modems to 56k. This killed the ability for the massive number of small ISPs to provide competitive services. They could of kept bumping the speeds up and making profits until DSL or other technologies could get up to speed. The FCC regulation on line radiation prevented speeds to exceed 53K, actually. Once you got faster then that then it violated the law.
Anyways the telephone companies, being highly regulated and only required by law to provide certain data transmission quality. They were only obligated to keep 28.8K baud and no customer or business could demand better service then that. I worked for a ISP at that time and when customer complained about poor speeds we could only shrug our shoulders and say if you get 28.8 baud connection rates then that is all we can possibly do.
This gave cable companies a huge advantage. They were not limited by the FCC in the same manner and they already had regional monopoly status due to the markets handed over to them due to poor signal strength allowed from broadcast TV.
Nowadays I try to argue this stuff online and people are trained to say something along these lines:
“Cable networks are a natural monopoly. You wouldn’t want a bunch of different companies digging up your back yard, right?”
All I can do is shake my head.
It’s impossible to argue with these people because this reality is all they know. They don’t understand how it could ever be different, much less better.
In their eyes the only solution is giving FCC more control over the cable companies.
I thought the modem speeds were limited by physics. Sound travels too slow to allow data transfers faster than 56k. The big change was going from sound (the modulate/demodulate part) to voltage changes that travel much faster over transmission wires, first marketed as ISDN then DSL.
Then there is the “last mile” problem. The variation between wiring standards to different homes and areas presents a serious challenge to offering high speed data transfer. I live in a 56-year-old house that had telephone installed sometime after it was built. The wire runs along the floorboard and consists of three separate strands of two wires. It was barely adequate for low-level DSL. If I wanted to upgrade I would have needed to install CAT5 network cable in the house. I opted for wireless internet because it’s cheaper (and somewhat faster) than AT&T DSL. I live in a medium sized city on the east coast.
Also, AT&T didn’t always have a monopoly. When phone service was first offered, it was installed by different companies with different technologies. There was no standardization as we know it today. A major impediment to upgrades has been the unwillingness on the part of individuals, businesses, governments, and communications companies to install new hardware. It’s a testament to technological ingenuity that we have been able to make so many technologies work over so many different standards. People making it work despite government.
Unless you’re thinking of something else, sound isn’t transmitted, electrical impulses are. Sound is converted to an electric signal and translated back on the other end. Modems simply skipped the conversion to sound process, though they did include a speaker to indicate dialing and whether or not you connected. The key reason behind the limited data transfer rate of a modem was they were utilizing the analog channel instead of the digital channel DSL occupies. Analog is less effective at transmitting large volumes of data.
Yep, the phone lines themselves run at 64kbps or so, so it’s physically impossible to get a higher rate than that without using a different signaling method (which is what DSL is). It’s not just a matter of what’s on the end, but the equipment between you and the central office. Factor in various losses and equipment not being able to handle the modulation required to get the full theoretical rate, and you get 56k. Even getting a 54666 connection (if I remember the rate properly) was very rare, since you needed a pristine line. I think you’re off in attributing this to statist intervention in this case.
Gosh. One might be tempted to say that a nation with low population density and a market-dominant supermajority related by distant ancestry and a shared history over hundreds of years just might … work.
But then I get that noise in my head and those evil thoughts dissipate.
Why don’t you write up a longer article of what the Swedes do differently?
What led to this poor state of affairs in the US? How can we be sure?
It’s a combination of:
FCC regulations
regional monopolies for cable companies
patents that gave AT&T near monopoly status for decades.
Understanding the technology, look at history, and then see who stopped the technology from being effective. Also understanding how the current crop of large telecommunication companies got so big by doing such a bad job.
The easiest way to understand any market is to look at 2 areas concerning that market.
1) The technology that undergirds the product.
2) The laws which restrict/regulate its trade.
On a side note: an easy way to look at how messed up a market is is to examine the number of laws which govern it. The more there are, the crappier the market will tend to be.
Yep. I live in Missouri, too. I’m about 35 minutes outside of St Louis, and dial-up is still the best service available at my residence. We can get satellite, but they only offer 1gB data transfer per month for about five times the price. It’s the same story with cell-phone based cards. There’s something very wrong with these markets.
Much of the difference is to do with different population density. See:
http://robertthorpeconsulting.com/wordpress/?p=52
The lower population density of US suburbs mean more towers are needed to cover them. That there is less spectrum for cellphones in the US doesn’t help either.
@Current: I mentioned the population density argument in the body of the post. It is a bogus argument, and it is easy to explain why. The population density of the United States is approximately 87 persons per square mile–Sweden’s population density is approximately 53 persons per square mile (see Wikipedia). It should thus be *easier* to provide national cell phone service in the United States than in Sweden.
However, I believe the population density argument is phony (no pun intended) for another reason: what matters is not the *cost* of building or upgrading the infrastructure–what is important is the ROI for such a project. In other words, even if we assumed that the United States and Sweden had the same population density (which is clearly not true–Sweden’s density is only about 60% of that of the US) and distribution, we need to consider the fact that the US market has well over 300 million consumers whereas the Swedish market is just about nine million. The numbers show clearly that Sweden’s cell phone market should be worse of than that in the US. But this is not the case.
In addition, we have several technical difficulties (at least using earlier technological standards) in Sweden that are not applicable in the US, e.g. due to Swedish having three letters that do not exist in the Roman/English alphabet: Å, Ä, and Ö…
Per,
You might turn out to be right that the population density argument is bogus, but I don’t think the density figures you’ve stated so far make for a strong argument.
Imagine if every single American outside of New York City suddenly dropped dead (note to eavesdropping NSA types: this is purely hypothetical!). The entire population of the United States would drop to, what, maybe 10 million people, but the geographic area of the country would remain unchanged. This would drastically lower the population density, maybe by a factor of 30. But it would make it enormously easier to serve the entire population with a high quality telco network, because the geographic size of the area you must cover is relatively tiny. The ROI is thus much higher. If someone came along and made the argument that population density could not explain why Americans had access to better telco networks than Swedes, because the population densities are 3/sq. mile for America and 53/sq. mile for Sweden, that would seem like a very odd argument indeed. The variance matters!
So, I think the question is not “What is the population density of the US compared to Sweden”. The relevant question is more like “For a given level of geographic penetration, how much of the population can you reach?”
Again, I do not make the argument that population density explains the problem. In fact I have no idea if it does or doesn’t. I only claim that your arguments made against that claim are not compelling, IMHO.
The article is not clear — are telecommunications services in Sweden provided by private companies, is it anything like a free market, is it through the government, what?
Part of the problem may be that Swedes are left with relatively little disposable cash left after taxes, so the wireless providers must either offer prices that their customers can afford, or not have any customers at all. The US on the other hand has been a land of high disposable incomes and relatively low taxes. Historically this was because of greater US productivity and smaller government, then in recent decades the higher disposable incomes were due to money printing (inflating salaries and reducing borrowing costs) and vastly expanded government borrowing (allowing for low tax rates despite the massive growth of government). The US providers charged more because they could get more.
Part of the problem is the great variation in density, and the great distances. The “average density” masks great differences between Manhattan and the vast empty stretches of Nebraska. Another part is the degree to which local and state regulators chop the market into tiny piece; as one commentator mentioned, Verizon is not permitted to offer FIOS in some neighborhoods, by law; I’m sure ATT and Comcast and other companies are similarly restricted by force, not by natural market pressures.Europeans often think that the US of A is a great free-market paradise; in reality, we may carry greater regulatory burdens in many areas, especially telecommunications. Even our politicians don’t actually believe their free-market rhetoric; they deploy it because the rhetoric still wins votes, but freedom doesn’t attract campaign contributions half so well as regulations do.
Sweden is a strange country. Everyone in European administration is referring to it as a proof that high taxes IS a blessing. Of course, you can always argue that Ingmar Bergman did exile himself to Munich, Germany after the tax administration tried to get too much cash out of him (perhaps they just didn’t like his movies). Now haven’t Sweden politics just recently turned conservative?
How about mindless competition and inability to grasp the “Network Effect”?
My memory is a bit hazy here and I don’t have access to my books … so this is a “just so” story.
The discussion is also influenced on whether we are talking about 2G mobile telephony [I suppose, GSM in Sweden], 3G mobile telephony [probably UMTS in Sweden] or something else entirely (like WiMax)
Now, in the mid to late 90s, US telecom providers were consistently unable to standardize on an interoperable 2G telephony system. Walled gardens and lock in of customers were the norm [regional monopolies did not help]. Hardware constructors [Qualcomm comes to mind] were pumping out kit that could not interoperate with anything and was protected by patents. See also: “2G technologies” at http://en.wikipedia.org/wiki/2G. Europe standardized on GSM technology in the early 90s (I would think that some kind of ‘patent pool’ must have been created), which may have been due to the fact that mobile telephony was regarded as pretty fancy tech with not a lot of market chances by the staid PTT organizations, I don’t really know. Anyway, when the market took off and the telecom market was liberalized, there was a level playing field both for consumers (who could choose their mobile and their provider) and for providers (who could choose the infrastructure company for their network). High volume output of the mobiles certainly helped in pushing down prices.
Then came 3G, and again Europe standardized early on UMTS (there was some serious shark jumping during the 3G auctions, I don’t know how that ended, but it nearly dragged down a few operators), while the US operators were bickering. See also “Detailed breakdown of 3G systems”: http://en.wikipedia.org/wiki/3G
For the general atmosphere back then, check out for example:
“US cellular outfits forge alliance – But aimed at whom?”
http://www.theregister.co.uk/1998/09/24/us_cellular_outfits_forge_alliance/
“US-EU wireless trade war: TDMA group joins in and ETSI responds with a haughty snort…”
http://www.theregister.co.uk/1999/07/12/useu_wireless_trade_war_tdma/
In short, standardization was still not seen as advantageous, and the result seems to be lower quality and higher cost. Not to mention horrendous customer service. The travails of the marriage between Apple & AT&T seem to indicate that much.
Yep, clearly mindless competition.
The fact that the FCC waited for decades before even legalizing commercial cable service clearly had nothing to do with it.
Nor the artificial scarcity they generated in creating a top-down centrally planned wireless allocation mechanism instead of trade-able rights based on homesteading.
Nor did the various local government monopoly restrictions based off a fundamentally incorrect understanding of what monopolies are and how they come to be (hint: they are not creations of the market).
It amazes me that people can blame markets where none genuinely exist.
The direct & indirect Swedish government subsidies, plus heavy government mandates for implementation … are strongly underestimated.
Sweden built one of the fastest and most widely deployed broadband networks in Europe because its government granted big tax breaks for infrastructure investments, directly subsidized rural deployment — and ordered state-owned municipal utilities to create local mainline networks, sharply reducing the nominal cost for local telecommunications companies to provide consumer service.
Wikipedia might explain why: http://en.wikipedia.org/wiki/Telecommunications_in_Sweden
“Sweden liberalized its telecommunication industry starting in 1980s and being formally liberalized in 1993.[1] This was three years ahead of USA and five years before the European common policy introduced in January 1998 allowed for an open and competitive telecommunication market.”
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