Paving the Way for Broadband Communications

As Christmas quickly fades into last year, grateful recipients are learning how to use their new high-tech gifts, from wireless handheld PDAs to flat screen plasma televisions. Indeed, the array of products now available is staggering. Technology is truly pushing the frontiers of a wired nation. Unfortunately, regulators have a hard time keeping pace, and regulations created at a time when many of today’s products did not even exist continue to hinder access to these new technologies.

When it comes to telephones, talking is archaic; the real competition is mobile communications with services such as instant messaging, digital cameras, and email. For homes and offices, communication is more about acquiring and distributing information than it is about conversation. Less than 10 years ago, the telecommunications market was 90 percent voice, 5 percent wireless, and 5 percent data. Today the market is only 40 percent voice, 30 percent wireless, and 30 percent data. This transformation is straining the limits of today’s communications networks. The future lies with broadband technologies that can move vast amounts of information for households and businesses. Newer technologies, such as Internet telephony and real-time video broadcasting will only increase the demand for bandwidth.

In today’s market, broadband access is provided primarily by telephone companies and cable companies, with cable providers dominating the broadband market by a 2-to-1 margin. Other players may enter the market in the future, such as power companies who have lines going to virtually every home in the country. But broadband has a way to go before it becomes the standard for online access—80 percent of America’s Internet users still use dial-up access. As content becomes more bandwidth intensive and new services are offered—ranging from online pc gaming and entertainment to telemedicine and distance learning—consumers will shift towards the broadband access these programs require.

Despite the potential offered by broadband, regulatory uncertainties continue to plague the broadband market, hampering investment and delaying deployment. The 1996 Telecommunications Act endorsed the notion of broadband deployment and sought to establish a competitive telecommunications market, yet, in practice, many components of the legislation have hindered rather than facilitated competition. In particular, regulatory mandates that force incumbents to provide their competitors access to components of their networks at below-cost prices have been a disincentive to invest in upgrades. There are indications, however, that federal regulators are attempting to shield broadband markets from these policies.

The most promising sign has been the recent Triennial Review by the Federal Communications Commission, which removed many of the questions surrounding broadband deployment in favor of competitive markets. At the same time, however, the FCC strengthened the role of state regulators, which raises questions as to how states will implement the findings of the Triennial Review. Hopefully, both state and federal regulators will promote broadband deployment in an open and competitive market by clarifying the rules in ways that attract the capital necessary to build next generation networks.

Not only will broadband deployment provide consumers access to new services online, it will also go far in reinvigorating the high-tech sector, which has lost $2 trillion in market capitalization and more than 500,000 jobs in the wake of the technology bubble. Two recent studies, one by Telenomic Research and one by Criterion Economics, found that widespread broadband deployment could generate more than 1.2 million jobs nationwide.

Drawing on the findings of the Criterion Economics study, the CSE Freedom Works Foundation produced a study that examined job gains at the state level. The study found that all states gain from broadband deployment. Not surprisingly, gains are greatest in those states with larger technology and communications sectors. California and New York would gain 170,000 and 90,000 jobs, respectively. Texas would gain 80,000 jobs, Florida 70,000 and Pennsylvania and Illinois would gain more than 50,000 each. The remaining states gain total of 239,000 jobs.

With the potential economic benefits associated with broadband, it is important that regulatory policies do not impede progress. New technologies and faster networks have the potential to bring consumers a wide array of new products and services. Building and deploying a network that provides consumers high speed access to the Internet not only brings the next generation of technology to homes across the nation, but it also generates employment opportunities while facilitating economic growth. With the economy slowly strengthening, policy makers should not ignore the potential economic gains from sensible broadband policies that promote free and open competition.