Broadband Fiasco

Long before Janet Jackson’s Super Bowl stunt, the Federal Communications Commission was debating the issue of unbundling — telephone networks, that is. We only wish the FCC took this as seriously as it does Ms. Jackson’s nudity.
President Bush has pursued sensible macroeconomic policies, especially on taxes, that are now paying off in a robust recovery. But his Administration’s microeconomic management has left a lot to be desired –from steel tariffs to corporate regulation, and especially in its approach to the once-roaring telecom industry. Mistakes in the latter in particular have dampened the growth and investment that his tax policies have promoted.

Exhibit A is the development of Internet broadband. For three years now, FCC Chairman Michael Powell has identified the problems inherited from the Clinton years and vowed to “clear away the regulatory underbrush to bring greater certainty and regulatory simplicity to the market.” But thanks to a lack of White House leadership, and some political skullduggery, the Bush Administration has ended up enforcing what is essentially Al Gore’s telecom policy.

The latest round of policy confusion is playing out in the D.C. Circuit Court of Appeals. Local phone carriers are once again challenging the FCC’s “unbundling” requirements, which force them to lease the use of their networks to rivals at below-market rates. Consequently, the regional Bells have been slow to upgrade to fiber. Their big concern is not getting a fair return on investment if a state regulator, rather than the market, gets to set the prices they can charge.

In the past five years, the court has twice told the FCC to clarify its rules and is expected to do so a third time. But the endless legal limbo has left us with the worst of both worlds: Potential investors see a telecom industry hobbled by instability and uncertainty, while millions of American homes make do with pokey Internet connections.

After leading the technology boom in the 1990s, the U.S. now ranks 11th world-wide in high-speed Internet use per capita, behind the likes of Germany, Canada — even Italy. In South Korea, the global leader, 73% of households have broadband. The number in the U.S. is 38%, according to Nielsen/Net Ratings.

In Japan, which also outranks the U.S. and has the fastest (and cheapest) connections anywhere, broadband users can and do download entire movies in 20 minutes. In American homes, where most people are still using 56K modems and old copper-wire phone lines, that task would take more than seven days.

Slow broadband deployment does more than prevent most Web surfers in the U.S. from taking advantage of the latest technologies and “killer apps.” It’s also a drag on the economy. The telecom industry has lost in excess of half a million jobs since 2001, and market capitalization is down $2 trillion from its peak in the late 1990s. The next generation of Internet applications has arrived, and the sad fact is that America by and large isn’t up to speed, let alone in any position to lead again.

We don’t for a moment lay all this to Mr. Powell, who clearly understands what’s impairing progress and has tried mightily to deregulate the market. Mr. Powell actually opposed the FCC rules at issue in the current court case, only to have fellow GOP Commissioner Kevin Martin waylay him last year and join Democrats in protecting state regulators interested in preserving the status quo. Recall also that in December Mr. Powell was hung out to dry by the White House after trying to do the right thing on media ownership rules. If he’s a little gun-shy these days, forgive him.

The bigger problem is an Administration that’s done, well, nothing, except say it is for broadband deployment — as if anyone’s against it. The White House has failed to act with any understanding of the important role a once-again flourishing telecom sector would play in reviving the economy. The resulting slow private investment in broadband is also leading to calls for more federal subsidies when private companies could soon offer near-universal service with sensible rules.

A look at a less-regulated area of telecommunications is instructive. “We’ve spent years and years trying to unbundle parts of a telephone network so that we could have ‘competition,'” says James Gattuso of the Heritage Foundation. “Meanwhile, there’s immense competition in satellite, and the FCC hasn’t lifted a finger to regulate that. Maybe there’s a cause and effect. The less rules you have on a service, the more competition you end up with.”

By subjecting the phone companies to regulations that exempt cable, satellite and wireless companies — as if those classifications still mean anything to people outside the regulatory world — the government is not only picking winners and losers but also limiting consumer choice. It’s long past time that the government establish a clear national broadband policy that puts all competitors under the same rules.

If the Bush Administration considers its policy benign neglect, it might reconsider. The old, Al Gore telecom rules have the country logged into the past, not the future.