Ending the Broadband Rip-off

This article originally appeared on cnet.com.

Despite encouraging signs of economic recovery, the telecommunications and high-tech sectors cannot seem to pull out of the downward spiral that cost Americans more than 300,000 jobs last year.

Alarmed, politicians are beginning to embrace a solution that economists have long preached at high volume: the conviction that rapid deployment of high-speed Internet service, or broadband, should be our first domestic priority. They believe that broadband will jump-start high-tech and telecommunications–core industries that powered the U.S. boom in the 1990s–supercharging the U.S. economy for the early 21st century.

The White House is widely rumored to be preparing a major initiative to clear the regulatory obstacles that hold back the unveiling of broadband. The Federal Communications Commission has just announced that it sees broadband implementation as the “central communications policy issue of the day,” and that it, too, wants to remove regulatory obstacles. The U.S. House of Representatives, by a commanding majority of 273-157, opted to clear the way for the broadband build-out. This leaves just one hurdle. So where does the U.S. Senate stand on broadband?

Sen. Ernest “Fritz” Hollings, D-S.C., chairman of the Senate Committee on Commerce, Science and Transportation, has a succinct view of proposals for regulatory reform. He calls them “blasphemy.” That might be a better term for a U.S. Senate that prevents the broadband era from applying a broad stimulus to the economy that, some experts believe, could well be worth $500 billion a year.

One hopes that Hollings’ colleagues will follow the example of the House, which shrugged off a well-funded, withering attack on reform led by the nation’s cable companies. These cable companies–unencumbered by the federal regulations that entangle their telecommunications competitors–control 70 percent of the broadband market.

Still, cable may be able to block progress. AT&T–eager to consummate its proposed $72 billion merger with Comcast to create the nation’s largest cable company–promises to lead the charge to kill off the bill in the Senate, preserving cable’s dominant position in the high-stakes, high-speed access market.

With surprising tenacity, opponents of a broadband access bill continue to make two claims: that it undoes key provisions of the 1996 Telecommunications Act, and that it hurts local phone competition. Neither charge holds up under scrutiny.

Under the Telecom Act, the regional Baby Bell companies were forced to open their networks to competitors at rates set by the federal government. To encourage competition, the Bells were offered an inducement: Open your local networks, and you’ll be allowed into the long-distance market.

The act worked, and six years later, local phone competition is thriving. According to the FCC, competitors more than doubled their share of the local telephone market in 2000; in the first half of 2001, their share shot up another 16 percent. A recent Time magazine report indicates that there are now 2,040 local phone companies in the United States. Not bad for an industry that didn’t exist just a few years ago.

All of which raises a simple question: Why won’t the same system work for broadband? Answer: because the rules for local phone service were appropriate for opening old networks that were built when the phone system was a monopoly; they were never meant to apply to dynamic new markets like broadband, which require billions of dollars of investment before the first customer signs up. Apply those old, monopoly-based rules to an emerging market, and the only thing you’ll break up is the business incentive to invest in broadband in the first place.

Upgrading telephone lines to provide broadband service is a massive undertaking–one that requires the Baby Bell companies to shoulder enormous financial and technological risks. Billions must be spent installing new fiber-optic lines and implementing switching hardware. Even today, after tens of billions of dollars in investments, only about half of one industry leader’s 60 million phone lines are ready for broadband. And unlike investments to update the old monopoly telephone service, those billions are being spent with no guaranteed customers–and no guaranteed return.

Clearly, broadband is a new market, with regulatory needs that don’t fit the old monopoly telephone service. The difference in regulatory logic is simple: old wires, old rules; new wires, new rules.

The House got the message; now it’s the Senate’s turn. Leveling the regulatory playing field between the phone companies and the cable industry will encourage investment in the broadband network and speed the delivery of high-speed Internet access to American homes and businesses. Accelerating the installation of broadband would generate that $500 billion a year in economic benefits, as businesses could take full advantage of the productivity-enhancing tools of the Internet.

Coupled with the FCC’s announcement, the House vote suggests the beginnings of a Washington consensus on the need to ease a regulatory regime that’s holding back our high-tech economy.

The heat’s now on the Senate to act. That’s not blasphemy. It’s a sacrosanct responsibility.

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