Online Newsroom Investment - 2006 Annual Report

There has been an ongoing debate about how to boost overall broadband penetration in the United States. Canada’s broadband penetration, for example, is higher than that of the U.S, according to December 2004 data from the Organization for Economic Co-operation and Development (OECD).

The debate centers on whether or not to change the current U.S. policy for broadband providers. Currently, it makes it difficult for new organizations to enter the market place. One group argues that the U.S. should maintain existing policies while the other calls for the lifting of perceived barriers to entry and a more activist role for the federal government in subsidizing new services.

The arguments are roughly as follows:

1. Maintain existing policy which the proponents say would ultimately create the incentive for current industry leaders to further invest in faster broadband:

2. Remove barriers to entry and encourage the federal government to work more closely with the private sector through subsidies and others forms of direct investment.

Both camps ground their arguments in the broadband policies of other countries. The first argument is essentially that although U.S. regulations favor those with existing access to the broadband networks, codifying them in regulatory law would create more of an incentive to invest in these networks. Supporters of this position point out that broadband penetration is higher in Canada than in the United States and argue that the primary difference between the two countries is “Canada has less onerous unbundling requirements for local telephone companies and virtually no network sharing for competitive broadband suppliers.” Freeing broadband providers from mandates that require them to share their networks, so the argument goes, would encourage them to invest in broadband networks, lower costs and increase overall broadband access rates.43

The other side argues that the barriers need to be lifted to stimulate more competition, and also contends that broadband penetration will not increase materially unless the government adopts a more activist role. The example that is often held up as a successful contrast to the United States is Japan.

Perhaps the most famous advocate of this position is Thomas Bleha, who is currently completing a book on the international race for Internet leadership. Bleha argues that Japan’s private sector was able to achieve higher levels of broadband access, which not only costs less but is considerably faster than most broadband in the U.S., not only by opening up its telephone lines to competition, but through the federal government’s policy of tax breaks, debt guaranties, and partial subsidies.44 Such an approach in the U.S. would not only increase penetration, he argues, but reduce costs because it would stimulate more competition.45

So far, it appears Washington has chosen to adopt the policy that preserves existing barriers to entry. In August 2003, the FCC decided to eliminate the mandate that telephone companies share their lines with broadband competitors at low rates, an action that critics argue “has reduced this disincentive to telephone-company investment.”46

Then in June of 2005, the U.S. Supreme Court ruled in the case National Cable and Telecommunications Association vs. Brand X Internet Services that cable companies do not have to share their lines with competing start-ups.

Some argue that those rulings have leveled the playing field for cable and phone companies because the disincentive to invest heavily in networks no longer exists. In theory, this should spur more competition, lower costs for consumers, and increase penetration. And preliminary research shows that cable has lost some ground to DSL in market share.47 In fact, more people are now making high-speed connections at home through DSL-enabled phone lines than through a cable modem, according to the most recent data from the Pew Internet and American Life Project. However, that might not be the end of the story because more services at different prices are sure to be rolled out in the future.

In coming years, the broadband debate will expand. Currently, it focuses almost strictly on questions of encouraging broader access to broadband. But not all broadband is created equal. Some companies, including Verizon, are offering so-called super-broadband in some communities that is orders-of-magnitude faster than most Americans’ current connections.

And finally, there is discussion on Capitol Hill about whether to craft legislation that would preserve the Internet’s “neutrality.”48 Such provisions would prohibit telephone and cable companies from charging Internet firms such as Google and Yahoo for use of their high-speed networks, and thus continue to allow users unfettered access to each and every site. Up to this point, the Internet has remained largely unregulated. But without a monetary incentive for phone and cable companies to invest in building faster transmission lines, growth in the U.S. broadband industry remains uncertain. Moreover, this legislative debate also raises the question of who owns the content distributed over the Web? The cable and phone companies? Those producing the content? The citizenry?