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Administration Should Give Broadband Economy A Call

While the national press obsessed over the “jobless recovery,” the U.S. economy quietly received a major shot in the arm last week. This happened when a U.S. Court of Appeals ordered the Federal Communications Commission to scrap regulations that are holding back the spread of the broadband economy.
Will the Bush administration finally embrace this victory for telecom deregulation and recognize that this is an opportunity for more jobs and more high-technology investment in this crucial election year?

The stakes here for the economy are huge. This court ruling could usher in a new high-tech stock market boom led by tens of billions of dollars of new broadband investment for such purposes as delivering high-speed Internet to the homes of millions of Americans in the months ahead. Economists estimate that as many as 1.2 million new jobs could result from expanded investment in broadband technology.

Broadband technology makes Internet service faster and allows us to instantly download text, video, music and data. Soon an individual with a PC will be able to practically download all the information contained in the Library of Congress. Broadband technology has been around for years, but only about one-third of homes have access.

Far Behind
Those without service tend to live in homes in low-income areas. Hence, government is unwittingly exacerbating the “digital divide” detween the information haves and the information have-nots.

Thanks to price controls and over-regulation of the telecommunications industry, America ranks a sickly 11th in per capita access to broadband service – behind countries such as Canada and Iceland. Millions of Americans are sputtering around on the information superhighway in clunky Model Ts, and the rest of the industrialized world zooms past them in Porsches.

We continue to impose an obsolete regulatory regime on the telecommunications firms that were made worse in many ways by the “deregulation” Telecommunications Act of 1996.

The FCC requires telephone companies, firms that the regulators expect to invest $100 billion in high-speed fiber optic equipment, to allow competitors to lease their networks at below-market prices. The phone companies have balked at this deal – and for good reason. It is the equivalent of asking a firm to build a lemonade stand but requiring the owner to let its competitors use it whenever they wish. Those rules are unfair to the investors.

One of the leading policy experts in telecommunications issues is Peter Huber of the Manhattan Institute. Huber uses this analogy to explain what has gone wrong in recent years: “We have a stupefying complex labyrinth of rules that regulate the price of everything. It is Hillary-care for the telecom industry.”

What explains this anti-growth regulatory climate? The answer seems to be that the FCC commissioners still cling to the notion that broadband is a monopoly service and must be price-regulated.

Wrong. Now with satelite technology, cable TV hookups and wireless connections, broadband providers will face intense market competition forces to hold prices low and to serve customers efficiently.

Now the courts have taken a major step forward in liberating this industry from regulations that inhibit the ability of the telephone companies to invest, flourish and better serve business and household customers. If this decision is allowed to stand and price controls are finally lifted, the broadband industry can benefit from deregulation in much the same way that energy, trucking and airlines markets were dergulated to help consumers. In each of these industries, the deregulated environment cut costs to consumers by billions of dollars a year. Airline deregulation has created mass air travel in America at cut-rate prices.

Span the Gap
The same can happen in broadband. Robert Crandall, the respected regulations economist from the Brookings Institute, believes that a more sane regulatory regime at the FCC could generate $500 billion a year in economic benefits to the naiton over the next two decades. That means a faster, more efficient and user-friendly Internet for businesses, students and researchers.

The Bush administration should seize this opportunity to pump up growth and business investment by putting the FCC on a leash and letting the free-market system work to close the digital divde.

Stephen Moore is president of the Club for Growth and an economist at the Cato Institute.