The optimal broadband speed

A German version of this article can be found here.

Nokia and the telecom provider Starman plan to roll out Europe’s first 10Gbps residential Internet services in Estonia. That of course sounds unbelievably cool and will strengthen the country’s already stellar reputation as digital frontrunner.

However, from my personal experience, I have to conclude that as an individual Internet user, the benefits of ultra-broadband are currently rather small. Ultra-fast broadband is mainly great for impressing friends and colleagues and to feel like an innovation-friendly early adopter.

Recently I decided to upgrade my already pretty speedy 250 Mbps (upstream 10 Mbps) broadband plan to one with “up to 500 Mbps” (50 Mbps upstream). In Stockholm, where I live, ultra-fast broadband is rather common and quite affordable. The speed increase costs me only about 15 Euro extra per month.

Broadband

Once the technical upgrade was performed, watching the speed test show high numbers felt pretty awesome (even though I “only” managed to reach 380 Mbps). But the excitement wore off quickly, and after that no other benefits remained. Ok, other than the ones mentioned in the previous paragraph. Even from the perspective of a heavy user like me, the experience is as good as it was before. I live with my girl friend so at max we are using 3-4 devices simultaneously, and none of us is a gamer. Maybe I’d come to a different conclusion if I’d share a 5 room apartment with many others who all use data-heavy applications and games at once. Nevertheless, I am confident that for the majority of people, 500 Mpbs is as good as 250 Mbps, and likely even as good as 100 Mbps.

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This realization leads me to an analogy: The effects of increases in Internet speed follow similar laws as those related to annual income. Studies have shown that individual well-being and happiness correlate with a higher annual salary only until a certain amount, which is said to be around 60.000 Euro or 70.000 USD (of course it varies depending on the costs of living in a specific country). After that, no significant improvements to life satisfaction are experienced. So while an increase of the annual income from 15.000 to 40.000 Euro leads to massively improved happiness, the same cannot be said about an increase from 150.000 Euro to 400.000 Euro. At least that’s what the research suggests.

The same dynamic can be observed when it comes to Internet speed. I still remember how I perceived my first ADSL Internet connection with 1 Mbps back in 2000 as a total game changer compared to the ISDN connection I used before. A whole new world opened up. Today, upgrading from a very slow broadband connection (maybe 1 Mbps or 5 Mbps) to something like 50 Mbps or even 100 Mbps must feel similarly ground-breaking for the individual digital life. But for everything higher than 100 Mbps, the experienced improvements in quality and speed drop. Essentially, those 100 Mbps are today’s equivalent to the 60.000 Euro annual salary; the optimal speed, so to speak. Those who have higher capacity can brag about it to their friends, but that’s about it. One can clearly see how this is the reverse 80:20 principle: With 20 percent of the technically possible broadband speed, you can accomplish 80 percent of the use cases. In fact, the ratio is closer to 10:90 or so.

Here is where the analogy ends though: The “inflation” of required Internet speeds is much higher than today’s monetary inflation. If the relative data transfer power of a broadband connection from the year 2000 with 1 Mbps for downloads and an upload speed of 128 Kbps in the year 2000 corresponds to 50 Mbps (down) and 10 or 20 Mbps (up) in 2016, then we are looking at a yearly “speed inflation” rate in the high two digits. That’s why it is crucial to follow ambition goals for broadband expansion. 10 Gbps or 1 Gbps will be adequate even in 10 years, and it will have positive effects on innovation and entrepreneurial investing. 50 Mbps, which for example is the near-term domestic goal set by the German government, for sure will be below the optimal speed (the equivalent of the 60.000 Euro yearly income) in 2026.

But as desirable and favorable ultra-fast broadband might be as a location factor, one should keep in mind that it’s more important to ensure that as many people as possible have access to the optimal broadband speed. The speed which guarantees that 80 or even 90 percent of all  digital activities that are technically possible can be performed.

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