The House is scheduled to vote on the Internet
Freedom and Broadband Deployment Act (H.R. 1542), sponsored by
Representatives Billy Tauzin (R-LA) and John Dingell (D-MI), on
February 27, and the airwaves and papers are filled with ads both
for and against this legislation. With each side claiming to be for
competition and against monopolies, these ads probably leave most
Americans more mystified than educated about what the bill would
do. Behind the confusing debate lurks an important decision
affecting the next phase of the Internet revolution--the deployment
of high-speed, or "broadband," service. Though far from perfect,
H.R. 1542 would constitute a small first step toward reducing
government barriers to investment in this service area and ensuring
that Americans have quality access to the Internet.
Why Broadband
Service? The terms "broadband" and "high-speed
telecommunications" refer to technologies that rapidly transmit
large amounts of information--ranging from "cable modem" service
provided by cable television systems and "digital subscriber line"
(DSL) service provided over telephone lines to satellite and other
wireless connections. There is no uniform definition of the speed
required for this service. The Federal Communications Commission
(FCC) defines as "high speed" any connection that can transmit data
to a user at 200 kilobits per second (kbps) or faster, compared
with the standard Internet rate of 56 kpbs. Others argue, however,
that the minimum should be much higher--1 megabit per second (Mbps)
or more.
The
speed is important to consumers. At 200 kbps, a Web page can be
loaded in roughly the time it takes to turn the page of a book. A
song that would take over 10 minutes to download with a standard
connection would take about two minutes with a 200 kpbs connection
and about 24 seconds at 1.5 Mbps. Similarly, downloading a
20-second video clip would take an hour with a standard connection
but two minutes at 1.5 Mbps. And with enough speed, all sorts of
things are made possible, from simple Web browsing to downloading
whole programs, perhaps even downloading entire movies. Total
benefits to consumers and producers could be substantial: as much
as $500 billion annually according to one study.
Consumers seem to be moving toward faster
connections with some eagerness. According to a recent FCC report,
there were some 9.6 million high-speed subscribers in the nation as
of last June--up 36 percent since the beginning of 2001 and 250
percent from the year before. Despite a massive financial meltdown
in the telecom sector over the past year, advanced services are
still being brought to market.
Nevertheless, there is room for concern.
First, the FCC's numbers are based on its relatively loose
definition of "high speed." And very few subscribers have speeds
fast enough for some of the most attractive applications, such as
full-length video. Second, while the agency found broadband service
subscribers in 78 percent of the nation's Zip codes, one in four of
those areas had only one service provider. Finally, some argue that
the rapid broadband growth to date may soon slow as the easy areas
to deploy become fewer, leaving only the most difficult and
expensive areas to introduce service.
What H.R. 1542
Proposes. The sponsors of H.R. 1542 sought to ensure that
broadband services would continue to grow by easing government
regulatory barriers. Changes in the bill are expected before the
final vote, but its key provisions include:
- A
ban on FCC or state regulation of the rates, conditions for, or
entry into high-speed Internet service;
- Allowing Bell telephone companies to
provide high-speed data services on a nationwide basis, despite
current restrictions on long-distance service; and
- Limits on requirements that the Bell
companies and other incumbent telephone companies (local exchange
carriers, or LECs) provide competitors with access to network
elements used for high-speed data.
Broadband
Competition. These provisions have raised a firestorm of
debate. LEC competitors--such as long-distance companies and
start-up competitive local exchange carriers (CLECs)--argue that
LECs are monopolies that need to be tightly controlled. The CLECs
were hit harder than many of the dot.coms in the NASDAQ meltdown,
and the decline in long-distance revenue has been significant. But,
despite sympathy for long-distance and CLEC investors, this is no
reason to continue current regulation of the telephone companies'
broadband services. Incumbent LECs still have a dominant share of
the voice telephone market, but the market for broadband is
intensely competitive--with telephone, cable, and satellite
companies and wireless firms all competing to provide service. Far
from dominating this field, LECs find themselves in the
unaccustomed position of the challenger (with about one-third of
the market).
The
real danger to consumers is not that broadband is a nascent
telephone company monopoly. It is that competition from telephone
companies in this market will be lacking or that consumers will not
find the service available at all. Enormous investment is still
needed to build out broadband services (some $200 billion,
according to Bear, Stearns). And regulation only makes this more
difficult, either by reducing the rewards from that investment (as
to forced access requirements and rate regulation) or directly
limiting the uses for which it can be put.
Improving Access
to the Internet. H.R. 1542 is neither perfect nor the only
way regulatory reform could be achieved. It includes mandatory
build-out requirements, specifying how much and how fast telephone
companies must provide service. This is an unnecessary and
potentially harmful intrusion into market investment decisions. At
the same time, many other steps--such as making more spectrum
available for wireless services and ensuring that local zoning
regulation does not unduly interfere with broadband deployment and
regulation does not discourage cable broadband investment--are also
needed.
Meanwhile, there are parallel efforts at
regulatory reform at the FCC. Under Chairman Michael Powell, the
FCC has opened no fewer than five proceedings aimed at reducing
broadband regulation.
Conclusion. Broadband technologies hold
great promise for American consumers, as well as for the U.S.
economy. Thus far, progress toward realizing that promise has been
good, but unless policymakers reduce the regulatory barriers to
investment, it will be limited.
James
Gattuso is Research Fellow in Regulatory Policy in
the Thomas A. Roe Institute for Economic Policy Studies at The
Heritage Foundation.