The federal government wants everybody to have high-speed, affordable broadband service. And the government is banking on competition to make it happen.
President Bush announced last year that he’s “talking about broadband technology to every corner of our country by the year 2007 with competition shortly thereafter.” NTIA Administrator Michael Gallagher is pushing to reach this objective: “We’re going to drive hard to meet that goal [by] removing the regulatory underbrush so that a competitive environment will deliver on the President’s goal.”
If the government’s plan is to rely on the marketplace to bring affordable, high-speed broadband to every corner of America, then many low-income and rural consumers may find themselves on the wrong side of the “digital divide.”
The government’s broadband strategy appears to hinge on encouraging “intermodal” competition (cable companies against regional Bells, for example) while also discarding policies that promote “intramodal” competition (regional Bells against competitive local exchange carriers, for example). MCI’s Richard Severy argues that recent FCC decisions substantially restrict intramodal competition. “They’ve essentially bet the country on intermodal competition.”
The government argues that cable competing against the regional Bells’ DSL services is sufficient to deploy affordable, high speed broadband. The government is also counting on market entry by fixed wireless, satellite, and fiber services, and by broadband over power lines. Meanwhile, the “regulatory underbrush” (mainly rules enabling competitive LECs and others to provide broadband by requiring access to incumbent carriers’ facilities at regulated prices), must be removed because it distorts the market and dampens incumbent carriers’ investment in broadband infrastructure. The government also opposes promoting intramodal competition by requiring cable companies to give other Internet service providers non-discriminatory use of their broadband pipes.
How are the government’s policies doing so far? Not so great.
According to International Telecommunications Union data for 2004, the U.S. ranks sixteenth on the broadband penetration chart (with a rate of 11.4 subscribers per 100 population). Business Week criticizes the FCC for creating “a cozy duopoly of broadband providers: the Bells and the cable-TV companies,” and recently reported that about 20 percent of Americans have no way to get broadband, and another five to 10 percent have only one choice, their local cable company.
The picture doesn’t get any better when you look at speed and price. FCC Commissioner Michael Copps, who says that broadband is “the most central infrastructure challenge facing the country,” notes that Japanese consumers get 8 Mbps for $10 per month. Most Americans must pay $30 to $40 per month for 1.5 to 2 Mbps. According to Commissioner Copps, South Korean consumers get 10 Mbps for the same price US consumers pay for 1.5 Mbps. South Korea, incidentally, tops the broadband penetration chart at 24.9 subscribers per 100 population.
SBC’s recently announced DSL price cuts suggest the picture could change. SBC will offer 1.5 Mbps for $15 per month, and 3.0 Mbps for $25. But Broadcasting & Cable reports there are catches. Subscribers must take service for at least one year and also subscribe to SBC’s phone service. After the first year, DSL rates go up to $50 per month for 1.5 Mbps and $60 for 3.0 Mbps.
Everyone agrees that broadband is a powerful engine. Mark Cooper of the Consumer Federation of America says broadband is critical because the Internet is “a technological revolution that promises to enhance productivity… and increase the standard of living for all those who use it.” Former Congressman David McIntosh says the U.S. could create more than one million high-tech jobs through universal deployment of broadband. But many Americans are missing the Internet’s full potential because of steep broadband prices and lagging broadband deployment in less populated areas.
The government has set the right goal in aiming for universally available and affordable broadband. But are we following the best path toward that goal? The problem with depending on intermodal competition as the driver for deployment of cheap, fast broadband service is that a market dominated by two players — cable and the regional Bells — may not produce the best results. The current picture underscores this concern.
Other countries are outpacing the U.S. in delivering inexpensive, high-speed broadband. If we want to move up the broadband chart, then the FCC and NTIA should reexamine the policies needed to achieve the government’s goals.
One place to look is Japan. Ikeda Nobuo, a Japanese economist who has studied government efforts to promote DSL broadband in Japan and the US, reaches these conclusions. First, unbundling and co-location requirements may not be enough, but they are essential prerequisites to making DSL widely available and affordable. Second, the requirements must be vigorously enforced to encourage entry and counter the obstructionist tendencies of incumbents.
Third, based on Japan’s experience, if unbundling and co-location requirements are adequately enforced, these policies will not only encourage entry but will also promote investment by incumbent carriers. Finally, the deregulatory, market-based approach taken by the U.S. may be problematic. “The FCC’s new policy to put an end to unbundling,” Mr. Nobuo says, “is likely to make things even worse.”
Time will tell whether President Bush’s broadband goals are met by 2007. But there’s a risk that the regulatory underbrush now being cleared away by government agencies could have been a fertile seed-bed for achieving these goals. IT
John Cimko served for fifteen years at the FCC, and currently practices law at Greenberg Traurig LLP in Washington, D.C. The views expressed are solely those of the author and should not be attributed to his firm or its clients. For additional information, visit the firm’s Web site at www.gtlaw.com.