TCS Daily

Competition Cure-All

By James K. Glassman - July 5, 2002 12:00 AM

Not long ago, I'll admit that I was one of the people worried about a broadband "crisis" - not enough Americans with high-speed connections to the Internet. But over the past year and a half, broadband has boomed. I would like to see it boom even more, and I have ideas on how to make that happen.

But let's not panic. First, look at the facts.

Today, four out of five U.S. families have access to broadband, and about 15 percent of families currently subscribe - at an average cost of $50 a month, a significant outlay. Still, Americans are adopting broadband faster than they adopted color TV or compact discs. In the latest quarter, BellSouth boosted subscribership 140 percent compared to a year earlier. In Connecticut, where I live, the greater Hartford area now has 366,000 broadband subscribers - an increase of 198 percent in 12 months.

While bureaucrats, legislators and judges at the federal level have been trying to find a quick fix through new laws and regulations, the states and the telecom companies themselves have quietly and effectively been applying their own market-based remedies. Washington already has done the important work - establishing the blueprint for deregulation of local service in the Telecommunications Act of 1996. The key to expanding broadband is opening up the local loop - the last mile. The four mega-Bell companies still control 95 percent of residential lines, but in states like New York, things are changing, thanks to the kind of reasonable pricing that the Telecom Act requires.

Still, some folks can't leave well enough alone. Sen. Joseph Lieberman, D-Conn., recently issued a 61-page report calling for a grandiose national broadband policy - read: "industrial policy" - comparing his program to President Kennedy's challenge to "land a man on the moon" before 1970.

But broadband has more in common with television than it does with moon shots. For any new technology to succeed, it needs to be: 1) available, 2) inexpensive, and 3) compelling in its content.

Broadband has met the first test. It's still too expensive, and the only remedy is intense competition. Bills like Tauzin-Dingell, passed by the House earlier this year, or equivalent ideas now kicking around the FCC, would have the opposite effect. The four Bells would be left alone as telecom monopolists, and monopolists, as any economist will tell you, limit supply and raise prices. The inevitable outcome would be re-regulation of the telecom monopoly, and we'd be back where we started before the break up of the original AT&T.

As for content: Here's where the feds can play a constructive role, and the Bush administration, to its great credit, is doing so. Through tax incentives (a moratorium on Internet taxes and accelerated depreciation), changes in intellectual-property law and a more aggressive presence of government as a purchaser of broadband services (a la the Kennedy moon shot), Washington can help private firms improve content on the Web. Right now, for most Americans, there's no killer application, no compelling reason to pay $600 a year for faster connections. Content will improve, however, and more people will sign up for broadband. But who is to say what the "right" level of broadband use at this stage should be? Only the market.

On June 13, President Bush said, "This country must be aggressive about the expansion of broadband." I agree. The United States should aggressively remove barriers to broadband progress - and that means ending the Bells' grip on the last mile. The Telecom Act of 1996 sets out guidelines for doing just that, and it is happening, slowly but surely, and mainly because of smart action at the state level.

But being aggressive does not mean destroying the competition and giving the Bells a clear field. It means encouraging competition by enforcing the Telecom Act. If the FCC wants to play a constructive role, it should tell the states flat out: "Adopt the kind of reasonable pricing for unbundled elements of the local loop that will foster a slam-bang battle among firms." That's what happened in long distance, and it needs to happen as well in local service and in broadband.

Trust the monopolists? No thanks. Instead, trust competition.



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