Broadband gap looms as Net loss for U.S. economy

02/20/2006

The Minnesotans who deal in knowledge are learning that the speed of Internet connections is critical to competing globally.

John Reinan, Star Tribune
Last update: February 20, 2006 – 12:03 AM

When knee surgeons need precision tools, they turn to John Bozich. His firm, Ultra Machining Co. of Monticello, has invested millions in computers and robots to design and make parts for surgical devices.

But when Bozich gets on the Internet, he goes backward in time. Although his company has the best Internet connection available for a business of its size, it’s still too slow to e-mail complex product designs to clients. Instead, he burns them on a compact disc and sends them by courier.

Meanwhile, speedier broadband is so common on other continents that teenagers in Tokyo are playing online video games with Internet connections 50 times faster than the one Ultra Machining has.

The United States is facing a “broadband gap,” as countries in Asia and Europe roll out Internet connections cheaper and faster than anything available here.

Once the leader in Internet technology, America is falling behind, experts say. The cost: a potential loss of $1 trillion in economic productivity over the next decade, as well as more than 1.2 million jobs that could be created by better broadband, according to a study by the Brookings Institution, a Washington, D.C., think tank.

The broadband gap is already affecting Minnesota businesses such as Ultra Machining. Although the company has its own internal fiber-optic network for high-speed communication, its interaction with the outside world is limited by a broadband bottleneck.

“In our day and age, time is what really counts,” Bozich said. “It’s not so much even days now—it can really be literally hours. The way the medical-device companies compete right now, the biggest thing is who’s first to market.”

In a knowledge economy, the speed of communication is a critical competitive issue, said Milda Hedblom, a broadband consultant and professor of information technology at the University of Minnesota.

“There will be an increasing umbilical cord between broadband capacity and economic growth,” Hedblom said. “It’s only a question of when the shoe will pinch—and pinch harder and harder.”

In the United States, the typical broadband connection speed is between 1 and 4 megabits per second (Mbps). In countries such as Japan, South Korea and China, Internet speeds of 100 Mbps are common; in Europe, speeds of 20 Mbps are widely available.

Internet service is cheaper in other countries, too. Many South Koreans pay only $20 a month for their 100-Mbps connections, while Twin Cities residents pay about $45 a month for Time Warner’s standard Road Runner service, which connects at less than 4 Mbps—a level that Hedblom dismisses as “baby broadband.”

Public investment is key

How did the broadband gap develop? In part, because foreign governments have invested heavily in fiber-optic networks and other communications infrastructure, said state Sen. Steve Kelley, DFL-Hopkins, chairman of a subcommittee on telecommunications.

“There’s an attitude about investing in infrastructure,” he said. “We have not made the same investments in our telecommunications systems.”

American taxpayers might not be willing to foot the bill for faster Internet service, said Maribel Lopez, vice president of Forrester Research, a Massachusetts-based technology research firm.

“It’s an issue of what quality of service you want and what you’re willing to pay,” she said. “Look at Asia—those builds cost billions of dollars. You might not want your tax dollars building broadband in rural areas of the country.”

Population density is another reason why Asia and Europe have bypassed the United States, said Mike Martin, executive director of the Minnesota Cable Communications Association.

“In Tokyo, there are 10,000 people in a building,” he said. “You can do some pretty amazing stuff with that kind of density and that kind of demand.”

Many Americans are satisfied with their Internet connection, said Joseph Konstan, a professor of computer science and engineering at the University of Minnesota. Even the slowest broadband service is about 10 times faster than dial-up modems, he said, and works fine for many users.

But if Americans want to tap into true on-demand services—for example, watching full-length movies on their computer screens via the Internet—then they’ll start to agitate for faster connections, he said.

Hedblom said it will take more than that to get the full benefit of the Internet.

“Movies are not where you’re going to grow the economy,” she said. “You’re going to grow the economy with the increasing use of broadband for home-based businesses and small to medium businesses that find it hard to buy this bandwidth as long as we price it as we do.”