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Democracy & Technology Blog “National strategy” for broadband?

Japan has 7.2 million all-fiber broadband subscribers who pay $34 per month and incumbent providers NTT East and NTT West have only a 66% market share. According to Takashi Ebihara, a Senior Director in the Corporate Strategy Department at Japan’s NTT East Corp. and currently a Visiting Fellow at the Center for Strategic and International Studies here in Washington, Japan has the “fastest and least expensive” broadband in the world and non-incumbent CLECs have a “reasonable” market share. Ebihara was speaking at the Information Technology and Innovation Foundation, and his presentation can be found here. Ebihara said government strategy played a significant role. Local loop unbundling and line sharing led to fierce competition in DSL, which forced the incumbents to move to fiber-to-the premises.
Others have taken a slightly different view. Nobuo Ikeda, formerly a Senior Fellow with Japan’s Research Institute of Economy, Trade and Industry, says that the “success of Japan’s broadband has been brought about by such accidental combination of a Softbank’s risky investment and NTT’s strategic mistakes.” Ebihara acknowledges that the results of the unbundling regulation have been “mixed” in terms of competitors investing in their own local switching and last-mile facilities, as the U.S. discovered for itself.
The whole point of Ebihara’s lecture was that the U.S. doesn’t have what he and others consider a national broadband strategy. Never mind that Verizon already plans to spend $23 billion to construct an all-fiber broadband network, which will pass up to 18 million homes by 2010, according to USATODAY. And AT&T is spending $4.6 billion to deploy VDSL to 19 million homes by 2008.
Viewed in hindsight, and not because the Bush Administration has done a particularly good job touting its own success, a clear strategy emerges. It consists mainly of relief from unbundling regulation for fiber deployments; flexibility to offer broadband services a common-carrier basis, a non-common carrier basis, or some combination of both; and national guidance for local franchising authorities.
When, on Feb. 20, 2003, the FCC set new rules for telephone network unbundling which freed fiber-to-the-home loops, hybrid fiber-copper loops and line-sharing from the unbundling obligations of incumbent carriers, then-SBC Communications (now AT&T) and Verizon quickly responded. Verizon announced it would begin installing fiber to the premises (FTTP) in Keller, Tex. and that it planned to pass “about 1 million homes in parts of nine states with this new technology by the end of the year.” SBC outlined its own plans to deploy fiber to nodes (FTTN) within 5,000 feet of existing customers in order to deliver 20 to 25 Mbps DSL downstream to every home (amd that it would construct fiber to the premises for all new builds. SBC projected that FTTN deployment can be completed in one-fourth the time required for an FTTP overbuild and with about one-fifth the capital investment. Verizon subsequently announced it would hire between 3,000 and 5,000 new employees by the end of 2005 to help build the new network, on which it planned to spend $800 million that year. And that it planned to pass two million additional homes in 2006.
It may look like these major investment decisions didn’t depend on subsequent deregulatory actions — such as the Jun. 27, 2005 decision of the Supreme Court in NCTA v. Brand X Internet Services — clearing the way for the FCC, on Aug. 5, 2005, to eliminate the requirement for telephone companies to share their DSL services with competitors. The FCC decision finally put DSL on an equal regulatory footing with cable modem services. However, it began to emerge as early as 1998 — in an FCC Report to Congress — that asymmetric regulation between the broadband offerings of the telephone companies versus their competitors would be impossible to sustain as a matter of logic. A decision by the U.S. Court of Appeals for the Ninth Circuit in 2000 all but confirmed this. Thus, it was possible to foresee that either cable would have to be regulated or the phone companies would have to be deregulated. When cable modem service achieved a higher market penetration than DSL, and given the Bush administration’s preference for less regulation, it became possible to anticipate that DSL would ultimately be deregulated.
The FCC didn’t enact national guidelines for local franchise authorities until Dec. 20, 2006, however there was a long history of abuses by local franchise authorities. In a report to Congress in 1990 the FCC said that “in order ‘[t]o encourage more robust competition in the local video marketplace, the Congress should … forbid local franchising authorities from unreasonably denying a franchise to potential competitors who are ready and able to provide service.'” Despite howls of protest from local officials, Congress imposed limits on the franchise authorities in the Cable Act of 1992. Similar abuses began showing up when the telephone companies looked serious about upgrading their broadband services. After months of discussion, the FCC began the proceeding which resulted in the current guidelines in Nov. 2005.
There’s more to be done. Spectrum policy, in particular, remains mired in special-interest broadcaster and public safety politics and must be fully sorted out. But it’s not clear the U.S. should follow the costly Japanese model, with its heavy reliance on tax breaks, debt guarantees and subsidies (see, e.g., this). And don’t forget that Japan had zero interest rates. Industrial policy leads to higher costs, because taxpayers are footing the bill. It also relies on policymakers, who usually understand the least about technology. Consider this poignant example, as noted by Philip J. Weiser:

It was the threat of Japan’s rise in the 1980s that spurred the course toward digital television that the United States still follows today. Washington committed wide swaths of spectrum to digital television, leaving U.S. mobile-phone providers with less bandwidth than they needed and only about half the amount of their European counterparts. The entire effort assumed that Americans would continue to watch television shows broadcast over the air. Yet over the past two decades, more U.S. consumers have begun to watch cable and satellite television, undermining the rationale for this expensive policy, which has also delayed innovation and imposed unjustifiable costs on the nation.

Hance Haney

Director and Senior Fellow of the Technology & Democracy Project
Hance Haney served as Director and Senior Fellow of the Technology & Democracy Project at the Discovery Institute, in Washington, D.C. Haney spent ten years as an aide to former Senator Bob Packwood (OR), and advised him in his capacity as chairman of the Senate Communications Subcommittee during the deliberations leading to the Telecommunications Act of 1996. He subsequently held various positions with the United States Telecom Association and Qwest Communications. He earned a B.A. in history from Willamette University and a J.D. from Lewis and Clark Law School in Portland, Oregon.