Perspective: How to squelch growth of the high-speed Net

At a time when new technologies are constantly changing the way we work and live, the U.S. Senate is debating whether the market or government regulation is the best way to make sure that these technologies become available to all Americans.

The issue is key to a fierce debate over the efforts of the traditional phone companies to enter the market and compete with cable for both high-speed Internet and new video services. Some say the phone companies, which aim to deploy new video technologies, should have to build out their networks according to the timetables of local or state government regulators. Others argue that such regulations actually limit access by discouraging investment and competition.

A few weeks ago, the U.S. House of Representatives decided that competition is the better route--now the Senate has to decide if it agrees.

As it happens, we don't have to speculate about the answer, because extensive data show that Americans have achieved access to the two most important new technologies of our time, personal computers and the Internet, without "build-out" rules. The data detail a fascinating story of how these technologies spread across America's regions and income groups. When a valuable new technology is first introduced, the early adopters take it up quickly. And when the technology proves to be broadly valuable and widely desired, competing providers quickly enter the market.

By applying build-out requirements to new video technology, we will likely delay or deter healthy competition for video services.

Normal competition, combined with the rapid technical advances that characterize new information and telecommunication technologies, sharply drives down prices--and those steadily falling prices create broad access.

Once the process got going with PCs and the Internet, low-income households and people living in central-city and rural areas increased their computer ownership and Internet access at even faster rates than did those in higher-income households or those living in metropolitan areas.

From 1994 to 2003, PC ownership by Americans with incomes of less than $20,000 grew more than twice as fast as gains by those earning more than $50,000. In the same period, dial-up Internet access among the lower-income group grew by an average of 28 percent a year, compared to 17 percent annually for those with higher incomes.

The gains for lower-income Americans were even greater from 2001 to 2003, the most recent years for which we have data. For example, PC ownership by Americans with incomes of less than $20,000 a year increased 22 percent, compared to 6 percent for those among the more affluent. In the same years, Internet access by people living on less than $20,000 increased by almost 15 percent, compared to 6 percent for households earning more than $50,000.

The record shows that this is the way that advanced technology markets work today. Regardless of who adopts a valuable new technology first, others across the economic spectrum will increasingly adopt it too--so long as we restrain ourselves from interfering with the normal dynamics of competition and technological advance.

The same pattern should apply to the next-generation video services that Congress is now considering. Those with a bent for regulation insist that without it, companies building the fiber networks for new Internet-based video services will systematically bypass the places where lower-income Americans live.

But that seems unlikely. The data say that lower-income households and minority neighborhoods will be just the high-value customers that any company offering advanced video services looks for. Low-income households subscribe to current video services at about the same rates as more affluent households. And, African-American and Hispanic households actually subscribe to premium channels at higher rates than other groups.

By applying build-out requirements to new video technology, we will likely delay or deter healthy competition for video services. We also could slow the current spread of high-speed Internet. The phone companies plan to bundle the new video services with voice and broadband Internet access, all delivered through the same fiber network. This kind of bundling cuts the cost of each service and so helps drive greater and broader access.

Achieving broader access to high-speed Internet services for Americans, whatever their income and wherever they live, will happen fastest through competition and technological advance, not regulation. That's a social-policy goal that everyone should support.

Biography
Robert Shapiro, undersecretary of commerce in the Clinton administration, is chairman of Sonecon, an economic advisory firm, and has advised AT&T.

More Perspectives

[mmormando]

Baloney

What the author fails to mention is that originally internet access was driven by telephone system access, which was mandated by the build out requirements he decries. Now the US is significantly behind other nations in rolling out hi speed internet, other nations that do have build out requirements, while we're saddled with corporate flunkies in the government who are going to listen to people like the chairman of Qwest who when asked about his opposition of metropolitan fiber networks asked, "Why deliver a cadallac when the consumer is happy with a fiesta?", and call him a genius.

[dpent]

But PC competition isn't today's monopoly

He forgets that all these people who are adopting technology are doing so in a COMPETITIVE environment. For hook or crook, today's broadband marketplace is a monolopy in many markets and at best a duopoly in most. Innovation does not hold the same value under those conditions. Protection of cash flow is the driving factor in those cases.

Comparing it to the PC or technology products market is disingenuious. If I could go to a local retailer and buy broadband to install ANYWHERE I could possibly want it then this analysis would work. Problem is broadband doesn't work everywhere can plug in that electronic device I can buy at retail.

Broadband should more like electricity - a utility - than a technology product for that very reason. It is a utility that needs to be pervasive in order to enable the other products in the marketplace.

[bdennis410]

Regulation ALWA YS slows growth

While I appreciate Mr. Shapiro's experience and expertise, I consider his rationale for bundled services erroneous. A La Carte service offerings in fact offer the best way to introduce overall competition for each type of service, leading to lower prices for each. It is the FCC and the do-nothing FTC that reveal the negative effects of political considerations on a real free marketplace. And so no one mistakes my meaning, I wasn't conferring a positive spin on the FCC; in fact they have taken an excess of anti-competitive actions, namely by protecting the telecons and cable companies from open and freely competitive content providers and service offerings.
And the rationale of the telecons and cable that they must have restricted competition in order to recover their "infrastructure investment" is just untrue.
Does anyone honestly think that telecon and cable would refrain from building networks to seize the most humongous profit opportunity in history?
What's the size of the potential market opportunity, you ask?
Well, connecting all 112,000,000 miillion households(we're above 70% now), and say 15,000,000(about 50% now) of the 25 million businesses would generate potential revenues of...wait for it...here it comes...$900,000,000,000 Billion to $1,300,000,000,000 -That's Trillions with a big "T" folks. And that doesn't include multiple outlet charges, ancillary service packages, equipment, and...and...and...
Competitive access could cause those numbers to drop anywhere from 20% to 40%, and still deliver amazing service choices for entertainment, communications and information and so much more.
That's what the rationale should be based on; that the provisioning of services of all types, from entertainment, to communications, to information and whatever, in and of themselves offer the best opportunity.
Subsidies in the form of restricted competition, and outright allowance of monopolies just fly in the face of true free market supporters.
What cable and telecon want, and have succeeded in achieving, is a "guaranteed" ROI and profitability, free from the risk of the marketplace.
And that my friends is not what we're all about, and is in fact why cable and telecon rates have been so high for so long.
And don't look for relief anytime soon. The bundling of services along with restricted competitive access guarantees that we will face unreasonably high prices forever.
Want a reality check? Just look at how the services were developed and are being offered in Europe and Korea, Hong Kong and Singapore. Where there is competitive access, broadband penetration is higher and the cost is less. The US is , by varying definitions, 12th to 16th in Broadband access, even though Internet access overall penetration may be higher.
If this makes you frustrated and angry, do something. Write, call, email your elected representatives and call for freely competitive access.
<a class="jive-link-external" href="http://www.firstgov.gov/Citizen/Topics/Voting.shtml" target="_newWindow">http://www.firstgov.gov/Citizen/Topics/Voting.shtml</a>

Diogenes

[bdennis410]

Regulation ALWAYS slow growth and competiton

While I appreciate Mr. Shapiro's experience and expertise, I consider his rationale for bundled services erroneous. A La Carte service offerings in fact offer the best way to introduce overall competition for each type of service, leading to lower prices for each. It is the FCC and the do-nothing FTC that reveal the negative effects of political considerations on a real free marketplace. And so no one mistakes my meaning, I wasn't conferring a positive spin on the FCC; in fact they have taken an excess of anti-competitive actions, namely by protecting the telecons and cable companies from open and freely competitive content providers and service offerings.
And the rationale of the telecons and cable that they must have restricted competition in order to recover their "infrastructure investment" is just untrue.
Does anyone honestly think that telecon and cable would refrain from building networks to seize the most humongous profit opportunity in history?
What's the size of the potential market opportunity, you ask?
Well, connecting all 112,000,000 million households(we're above 70% now), and say 15,000,000(about 50% now) of the 25 million businesses would generate potential revenues of...wait for it...here it comes...$900,000,000,000 Billion to $1,300,000,000,000 -That's Trillions with a big "T" folks. And that doesn't include multiple outlet charges, ancillary service packages, equipment, and...and...and...
Competitive access could cause those numbers to drop anywhere from 20% to 40%, and still deliver amazing service choices for entertainment, communications and information and so much more.
That's what the rationale should be based on; that the provisioning of services of all types, from entertainment, to communications, to information and whatever, in and of themselves offer the best opportunity.
Subsidies in the form of restricted competition, and outright allowance of monopolies just fly in the face of true free market supporters.
What cable and telecon want, and have succeeded in achieving, is a "guaranteed" ROI and profitability, free from the risk of the marketplace.
And that my friends is not what we're all about, and is in fact why cable and telecon rates have been so high for so long.
And don't look for relief anytime soon. The bundling of services along with restricted competitive access guarantees that we will face unreasonably high prices forever.
Want a reality check? Just look at how the services were developed and are being offered in Europe and Korea, Hong Kong and Singapore. Where there is competitive access, broadband penetration is higher and the cost is less. The US is , by varying definitions, 12th to 16th in Broadband access, even though Internet access overall penetration may be higher.
If this makes you frustrated and angry, do something. Write, call, email your elected representatives and call for freely competitive access.

Diogenes

[punterjoe]

why either or?

Sure, competition is what drives progress. But utterly unrestrained, a virtual monopoly could eventually ensue, in which case the dynamic isn't outperforming competitors but the stagnation of wringing profits without additional investment/advancement. (Sound familiar cellphone users?) Regulation should be the ever present threat that compels the players to keep competing by ensuring that potential rivals have access to the playing field. Have we learned nothing from the gilded age of late 19th century America and trust busters (like Theodore Roosevelt) of the early 20th? Or the situations that led to the creation of the SEC?
Competition - definitely. But with responsible oversight.

[Yortuk]

Bundling?

Since when has bundling ever been to the advantage of the customer?

[Yortuk]

"Build-out" red herring

This issue isn't witholding acess to customers, it's witholding access to service providers. Free acess for providers is where all the internet innovation has come from. The telecoms want to shut out competition from other providers.