Desperately seeking broadband legislation

Congress has yet to figure out a way to spark competition and speed investment in broadband technology, says Robert W. Hahn. What are they waiting for--it's a sagging economy!

COMMENTARY-- Despite a flurry of last-minute deal cutting, it is unclear whether Republicans and Democrats will come to terms on an economic stimulus package before breaking for the holidays, as President Bush urged. What is clear is that legislation which could truly stimulate our slumping technology sector--a bill that would deregulate broadband--will have to await passage until sometime in March.

The bill, known as the Internet Freedom and Broadband Deployment Act, has strong, bipartisan support in the House and behind-the-scenes maneuvers are already underway for Senate passage. Regardless of the delay, when this vote is taken and the legislation is passed, it could be one of the most far-reaching moves Congress takes--particularly for the high-tech community, a major driver of the now-faltering wired economy.

Broadband will bring to desktop computers the ability to rapidly exchange massive files with computers across the nation or around the world. Because of the huge value these tools bring to business, broadband is now widely deployed in the private networks of corporate America. Huge investments are needed to make universal installation of fiber-optic lines, high-speed modems and other infrastructure of this second-generation Internet. However, this investment is lagging. Only 7 million homes and very few small and medium-sized businesses currently have broadband connections. Congress, now concerned about stimulating a sagging economy, must ask: What is the best way to spark competition and speed investment in this revolutionary high-speed technology?

Major interests have major stakes in this battle. On one side is AT&T, by far the nation's biggest broadband player. AT&T would like to preserve and build on its market lead. On the other side is an alliance that includes the Baby Bells--SBC, Bell South, Verizon and Qwest. They want to build fiber-optic based high-speed systems that compete with AT&T's and ones like it, a process that is advancing slowly because of regulatory disincentives.

Those disincentives are a consequence of decisions by the Federal Communications Commission applying the same rules to broadband as the 1996 Telecommunications Act imposed on the voice services offered by the Baby Bells. In essence the Act said that local phone companies must share lines with competitors at prices that greatly understate the riskiness of investing in broadband services.

Economists have a principal called "the tragedy of the commons." It states that if property is held communally, everyone has an incentive to take as much as possible and no one has an incentive to invest. The requirements of the 1996 Act were based on the idea that a history of monopoly status had made access to the Baby Bell's networks necessary for competition to occur. The FCC's implementation of these requirements has treated these networks as a form of common property. When the FCC applied these rules to the billions in new investment that the phone companies needed to become universal broadband players, the results were predictable. Investment came slowly.

This situation has been just fine for AT&T and others like it who are investing in their own broadband systems and don't come under the FCC rules. They know that the longer Federal regulations keep the Baby Bells out of this competition, the better it is for them.

If all this looks familiar it is because it is so similar to the recent "deregulation" that California imposed on its electrical power industry. California used price controls and regulatory mandates to turn its power grid into a form of common property. And rather than taking a neutral position and letting market forces work, it favored new players over old.

The result: soaring prices and rolling blackouts.

Congress can escape the tragedy of the commons in broadband with a simple declaration to the FCC about the Baby Bells: old lines, old rules; new lines, new rules. And those new rules should be the same as AT&T and similar broadband facilities providers already have--hands off the Internet. Congress can give those companies something in the deal, too. There has been talk of forcing them to open their proprietary systems to other Internet Service Providers, in other words subjecting them to the tragedy of the commons. If the aim is to get broadband out there fast, neither the phone companies nor their competitors should be forced to provide access to Internet Service Providers on non-market terms.

Expanding competition and hastening investments in broadband will allow consumers to enjoy the large benefits of broadband services much sooner.

Today, only 8 percent of American households enjoy high-speed, broadband Internet access. If broadband were as common as the telephone, consumer benefits could exceed $25 billion a year in new services and lower prices. Consumers in rural communities could benefit if their physicians were allowed to "tele-consult" with specialists. America's 28 million telecommuters--and growing--could enjoy greater job protection with a stronger and more productive broadband link to the office. And the federal government itself could cut costs by hundreds of billions if the same productivity-enhancing powers of broadband so widely used by the private sector were applied to Washington's bureaucracies--creating savings over the next decade similar in scope to the $1.3 trillion Bush tax cut passed earlier this year.

But there is no way to have more competition without more investment. Congress should recognize that protecting rights of property for all investors is the best way to create a vibrant market for every consumer.

Robert W. Hahn is director of the American Enterprise Institute-Brookings Joint Center for Regulatory Studies and has consulted for phone companies and Internet Service Providers.


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