Internet Policy in Europe:  Lessons for the US

One of the (many) problems with attempting to analyze the effects of a proposed policy is the debate about how to measure and compare its effectiveness.  In other sciences, it’s […]

One of the (many) problems with attempting to analyze the effects of a proposed policy is the debate about how to measure and compare its effectiveness.  In other sciences, it’s easy to set up an experiment to test a hypothesis in a well-controlled environment.  If, for example, scientists want to test whether a new drug will help control the Ebola virus from spreading, they can do so in a laboratory with a control group, ensuring no one gets hurt (excluding an Outbreak-style pin prick).  The results from such a well-designed true experiment can provide reasonably sound support of one’s conclusions.  But, in the world of policy, including Internet-related policies, it’s not only difficult to design a similarly effective real-world study, it’s often pretty unethical (FYI, it is now frowned upon to lock people in a laboratory while we perform experiments on them).

Researchers therefore, have to settle for what are called “natural” or “quasi“ experiments.  In a natural experiment, a group of unsuspecting civilians are “treated” to a naturally occurring or unplanned event, who are then compared to a similar group that did not receive the similar treatment.  For example, researchers have studied the impacts that a new reservation casino (the treatment) have had on local children’s mental health.  Sounds strange, but considering the link between poverty and mental health problems, researchers wanted to learn how much benefit the reduction in poverty would have on these poor kids.  Although the Casino itself was planned, the unintended consequences are what researchers looked to study and found a natural experiment within which they could.

More often, however, researchers in the policy world set out to study “quasi” experiments, in which the policy variable is planned to have some intended outcome.  Once the policy is in place, one can feasibly compare the treatment group before and after its implementation, and cross compare to other, similar groups that did not implement the policy, in order to evaluate its effectiveness.  This is the closest most policy researchers ever get to a real experiment.

In the U.S., the debate about how best to protect and maintain a free and open internet and its tremendous benefit to our economic and social welfare, has had the unfortunate problem of lacking supporting evidence for various policy considerations.  More specifically, the net neutrality debate has but economic theorists’ suppositions on both sides of the FCC’s recently proposed Title II reclassification.  Neither proponents nor critics have enough conclusive evidence from within the U.S. to clearly demonstrate how such a policy would impact the economy.

However, due to policies enacted over the last decade or so in Europe, there is now an opportunity to conduct a quasi-experiment, which compares the economic impact on the EU’s internet sector from Title II-type policies to the same sector in the U.S., where similar policies have yet to take hold.  Much research has been produced on the topic, including that of Dr. Roslyn Layton of Aalbord University in Denmark, who has become one of the go-to experts on tech policy in the EU.  Even more recently, however, a new report released this week provides a focused comparison of the disparate outcomes between the U.S. and EU’s broadband internet sectors.

What is perhaps most surprising is how much investment, broadband proliferation, and competition has diverged between the two generally analogous economies (the EU and the U.S. have similarly sized GDPs).  Compared to the EU, capital investment in broadband networks in the U.S. was more than five times higher as a percentage of total industry revenues in 2011 and 2012.  The environment in the U.S. is also much more competitive, where the great majority of Americans (76 percent) live in areas with three or more broadband providers to choose from, compared to only 50 percent in the EU.  Not only is there more access to high speed broadband in the U.S. (82 percent in U.S. compared to 63 percent in EU), but Americans also have much greater access to the highest speed mobile broadband, known as LTE networks, with 79 percent of Americans having the option versus 30 percent in Europe.

In any broad economic study, it can be difficult to make direct comparisons between any two countries, states, or even adjacent neighborhoods.  There are any number of factors that may have contributed to the disparities between the euro zone and U.S. markets, including cultural differences, other regulations such as tax policy, and other dynamic internal and external forces.  Yet, in the world of research, the two economies are certainly similar enough to make a reasonable comparison, even to conduct a quasi-experiment.  Comparing the control group (the U.S.) to the treatment group (the EU), it seems clear that the policies (similar to those now proposed by the FCC) that Europe effected had a negative impact on internet provider markets (both consumers and providers), while the markets in the U.S. without similar policies have relatively flourished.

Justin Vélez-Hagan is an economic policy researcher at the University of Maryland-Baltimore County, the founder of The National Puerto Rican Chamber of Commerce, and author of the upcoming book, The Common Sense behind Basic Economics (2015). @JVelezHagan