The Flawed Focus of Universal Broadband

This month, the Federal Communications Commission begins drafting a national broadband plan as part of the 2009 stimulus package. This is not the first government attempt at broadband ubiquity, so the FCC can learn from past failures.

The commissioners have less than eight months to “ensure that all people of the United States have access to broadband capability,” as well as provide additional guidelines for using existing high-speed Internet infrastructure to support more than a dozen socioeconomic and political objectives.

Officials can sift through more than 1,700 suggestions from a gamut of activist groups, lobbyists and interested consumers. Many of them see the answer in some form of social and economic engineering by government bureaucrats, price controls, wealth redistribution, or other regulatory mandates. Nothing could be further from the truth. Now, as in the past, the FCC should reject proposals that are hostile to market forces.

Top-Down Strategies Fail
A new public fund to subsidize Internet access for poor and rural residents is not likely to be effective. Consider the case of E-Rate, a US$2.25 billion FCC fund created in 1997 to connect all children to the Information Age by underwriting up to 90 percent of the costs of hard-wiring classrooms and libraries. Since its conception, however, E-Rate has been a bust. Public and private reports detail the regulatory loopholes, rubber-stamped “gold plated” networks, and criminal abuse.

After disbursing more than $20 billion in funds — collected, ironically, from fees that raise the cost of monthly phone bills — the FCC has still failed to establish basic accountability measures for E-Rate, and according to the Government Accountability Office (GAO) this March, excessive rules and paperwork keep thousands of schools from seeking reimbursements for legitimate costs. If the FCC is too inept to structure and manage our broadband funds properly today, what will make tomorrow any different?

A better way to solve the broadband question is through reducing the regulatory and taxation burden on the entire communications sector, and creating incentives to stimulate private broadband investment. The alternative of increasing government broadband management is a top-down strategy that makes for feel-good committee meetings but ignores important market realities. Consider the implosion of municipal wireless networks, or “muni WiFi,” which never worked as a sustainable business model because it glossed over the importance of profits and capital reinvestments.

EarthLink’s (Nasdaq: ELNK) joint bid with Google (Nasdaq: GOOG) for a muni WiFi franchise in San Francisco was hailed as innovative in 2006, but things quickly soured after government officials and politicians added onerous service standards and technical requirements, the likes of which ultimately led to EarthLink’s bankruptcy the following year. From requiring open network access to competitors, to setting the “free service speed” and even mandating an outdoor penetration rate of 95 percent, City Hall created a regulatory straightjacket that left little room for the companies to cover operating costs or meet fluctuating consumer demands.

Directing corporate decision-making from Capitol Hill isn’t likely to help broadband service providers (BSPs), which continue to invest billions of dollars each year in infrastructure improvements and service upgrades at the behest of the true high-speed authority — the American consumer.

Market-Based Choice Works
Today, approximately 63 percent of adult Americans have home high-speed Internet connections, according to an April 2009 national survey from the Pew Internet & American Life Project. That may not be every household, but the U.S. has seen an average of 19 percent year-to-year growth in home broadband subscriptions since 2005.

BSPs have made significant investments to meet this incredible surge in demand. For example, AT&T (NYSE: T) has invested $38 billion in the last two years on its wireline and wireless networks, but it has also stated that future large capital investments “will be dependent in significant part on the policy choices endorsed” in the FCC’s plan.

So what should a proper plan look like? To lower consumer prices, the FCC should reduce regulatory and taxation barriers that stymie choice. It’s clear that market-based choice works — Pew survey respondents who had four or more BSPs serving their neighborhood had monthly service bills that were 17 percent less than the national average.

FCC officials would also be remiss to believe that money and access are the only factors keeping the 37 percent of non-broadband Americans at bay. Of the reasons dial-up and non-Internet respondents gave for not having a broadband connection at home, only 19 percent cited cost concerns, and 17 percent stated availability issues.

The high-speed Internet market today wasn’t built at the behest of a government plan, and consumers will continue to drive the industry. Consumers and telecom industry officials are rightfully leery of any federal fiat to convert technology into social policy. Given the government failures that litter the historical record, the FCC should be wary as well.

Sonia Arrison, a TechNewsWorld columnist, is senior fellow in technology studies at the California-based Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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