The Bush Broadband Economy .... interestingThe Bush Broadband Economy
Cesar V. Conda (archive)
July 20, 2004 | Print | Send
President George W. Bush recently announced his vision of universal, affordable access to high-speed broadband Internet connections by 2007, one that if realized will greatly enhance U.S. innovation, job creation, and competitiveness. To do so, however, the President will need an aggressive broadband action agenda that is as bold as his vision.
The good news is that under the Bush Administration broadband connections have increased. From December 2000 to December 2003, the number of broadband subscriber lines has grown from 7 million to 24 million, or 300 percent. About 90 percent of all U.S. zip codes have access to either cable or digital subscriber line (DSL) broadband service, up from 70 percent at the end of 2000. Further, consumers are adopting broadband technology at a faster rate than they did with other innovations such as color television, VCRs, wireless phones and personal computers.
A major contributing factor to this increase in broadband adoption by consumers has been the dramatic increase in service speeds allowing consumers the ability to enjoy more bandwidth-intensive applications. Improvements in cable modem and DSL technologies are creating new consumer benefits in numerous areas such as telecommuting, distance learning and telemedicine. But another important factor has been the Bush Administration’s pro-broadband policies – reducing taxes, supporting R&D, and taking the first steps towards deregulating the communications sector.
Specifically, the President helped make broadband more affordable by signing into law a two-year extension of the Internet Tax Moratorium, which also included a ban on taxing broadband access. Because the existing moratorium has now expired, the President has called for Congress to make the moratorium against Internet access taxes permanent, which Congress is now considering.
Additionally, the President and the Congress provided tax incentives for companies to invest in plant and equipment, including equipment used for broadband connections, such as personal computers and modems. To promote next generation wireless broadband, the Administration nearly doubled the amount of spectrum available for Wi-Fi and Wi-Max broadband technologies, which would allow wireless broadband connections covering the home or even a city block.
More importantly, the Administration has recognized the competitive nature of today’s communications marketplace and has taken the first tentative steps toward reducing the regulatory burdens that discourage broadband investment, and promoting facilities-based competition among broadband providers, such as cable, wire-line, wireless, satellite and power line.
On March 26, 2004, President Bush called for clearing away the “regulatory underbrush” limiting investment in broadband technologies. President Bush has not simply talked about what needs to be done, he has acted.
The Administration recently decided not to appeal a lower court decision to jettison the FCC’s so-called “unbundling rules.” Hatched under the Clinton-Gore Administration, these regulations forced the incumbent Bell companies to rent their networks to competitors at below-cost prices, thereby undercutting the profit incentive for the incumbents to invest in their networks and creating an obstacle to broadband rollout.
This decision clears the way for private negotiations between the Bells and their competitors that will produce a fair market price for access fees, without onerous government interference. After eight years of illegal unbundling rules that sapped investment in wire-line infrastructure, it appears that the Bush Administration will finally put this half of the house in order.
Further, the Bush FCC recently took action by lifting regulatory barriers that had held back investments by the wire-line companies in next-generation fiber-to-the-premise connections. These onerous rules had forced communications companies to, in the President’s words, “give away the use of their fiber optic broadband lines” to their competitors, which created an obstacle to last-mile broadband deployment to homes.
Despite the gains in broadband access, America still lags behind other countries. Among industrialized nations, the U.S. is ranked 10th in per-capita broadband penetration, trailing such countries as South Korea, Canada, Japan, and even socialist Sweden. The U.S. also trails these countries in terms of the average speeds available over their broadband connections. Even though broadband is available to about 90 percent of U.S. households, only 20 percent of households are broadband subscribers and 56 percent still use dial-up Internet service. In the global competition for jobs and investment, the rate of U.S. broadband use and the speeds of broadband connections must increase even more to keep pace with other nations.
The President’s vision of universal, affordable broadband is good for the country because it will promote jobs, growth, and investment, and strengthen our nation’s competitive edge. His new broadband agenda -- banning access taxes, improving rights-of-way across Federal land for infrastructure build out, promoting broadband over power lines, and freeing up more spectrum for next-generation wireless broadband – puts America on a path toward greater broadband competition and penetration.
However, in order for the U.S. to regain its global broadband dominance and complete the job of universal broadband access by 2007, the President, the Bush FCC and the Congress must take further action in recognition of the fact that the broadband marketplace is fully competitive with no company and no technology having any inherent advantage. There still exist numerous, cold-war era regulatory regimes that continue to discriminate among technologies and providers, which have had the effect of limiting competition, broadband penetration, and consumer choice.
For example, wire-line providers are subject to an array of regulatory burdens that do not apply to their cable, satellite, and wireless competitors. These burdens impose enormous costs that must ultimately be paid by the public but for which the public receives no corresponding benefit. The FCC has had proceedings open on many of these issues for the past couple of years but, sadly, has not taken any final and decisive action on them.
The Bush Administration’s decision not to appeal the lower court’s decision on the FCC’s unbundling rules provides an opportunity to rethink the regulatory framework for broadband. As in the case of successful airline and transportation deregulation in the late 1970s, reducing regulation on communications will drive improvements in services, promote innovation and investment, and lower prices for consumers
This new regulatory framework should do the following:
- Minimize regulation and ensure that any remaining regulation is “technology neutral.” Regulators cannot successfully pick winners and losers among competing broadband providers -- attempts to do so simply skew the market and produce economic inefficiencies.
- Remove the remaining uncertainty around forced unbundling. Unbundling does not increase broadband penetration, but regulatory uncertainty discourages investment.
- Prevent the patchwork of state and federal regulations. State regulatory bodies have put into place inconsistent and in some cases contradictory regulations on broadband services. To foster a national broadband policy, one that truly promotes competition and deployment across state boundaries, Congress must pre-empt state regulation of broadband services.
One more thing: fundamental reform of our tax code, one that allows companies to immediately write-off capital expenditures, will spur investment in broadband deployment.
The Yankee Group recently reported that the total number of global broadband subscribers is expected to increase from 142 million in 2004 to 327 million in 2008. If the federal government does not take further action immediately to unlock the full investment potential of the communications sector, a disproportionate share of this expected growth in broadband subscribers will occur in other parts of the world, further eroding America’s position as a global leader in communications technology.
Cesar Conda, former Assistant for Domestic Policy under Vice President Dick Cheney, is a board member of Empower America.