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Democracy & Technology Blog Wide of the mark

Wall Street Journal columnist Gordon Crovitz writes that

In Japan, wireless technology works so well that teenagers draft novels on their cellphones. People in Hong Kong take it for granted that they can check their BlackBerrys from underground in the city’s subway cars. Even in France, consumers have more choices for broadband service than in the U.S.

The Internet may have been developed in the U.S., but the country now ranks 15th in the world for broadband penetration. For those who do have access to broadband, the average speed is a crawl, moving bits at a speed roughly one-tenth that of top-ranked Japan. This means a movie that can be downloaded in a couple of seconds in Japan takes half an hour in the U.S. The BMW 7 series comes equipped with Internet access in Germany, but not in the U.S.

Then he adds that the economic stimulus package before Congress will not fix the real reason the U.S. now ranks 15th in the world for broadband penetration because

nothing in the legislation would address the key reason that the U.S. lags so far behind other countries. This is that there is an effective broadband duopoly in the U.S., with most communities able to choose only between one cable company and one telecom carrier. It’s this lack of competition, blessed by national, state and local politicians, that keeps prices up and services down.

A couple of observations come to mind.
One is that the U.S. has the most successful wireless market in the world. Cellphone calls are significantly less expensive on a per minute basis in the U.S. (6 cents per minute) than in France (17 cents) or Japan (26 cents), according to the FCC’s latest analysis of wireless competition (Table 16). U.S. mobile subscribers continue to lead the world in average voice usage by a wide margin..
The explanation for why fourth generation wireless technology is further along in Japan than it is here would have to include the fact that the Japanese government years ago decided to make leadership in 4G wireless technology a national priority and invested heavily with taxpayer money (see, e.g., this).
This is a form of industrial policy, which involves picking winners and losers, and it is how the Japanese do things. Back in the late 1980s or early 1990s the Japanese government decided Japan needed to be the world-leader in high-definition television, which prompted some in our own government to argue we couldn’t afford to let that happen, so we needed a public-private partnership and a national high-definition television transition plan (which some now want to postpone).

The good news is that AT&T, Clearwire and Verizon Wireless have all successfully acquired spectrum for the rollout of their own 4G services over the next couple years without government subsidies and oversight.

Meanwhile, 3G wireless services — which are also capable of being used for broadband Internet access, albeit at slower speeds — are now provided in zip codes covering more than 96 percent of the U.S. population, and over 92 percent of the U.S. population has access to 3G service at their primary place of residence, according to studies commissioned by CTIA.

An estimated 13 percent of U.S. mobile telephone subscribers accessed news and 
information via a mobile Web browser in January 2008, and rates were much 
higher among “smartphone” users (58 percent) and iPhone users (nearly 85
percent), according to the FCC’s analysis of wireless competition.

As a definitional matter, since most Americans can choose between at least three broadband providers and since a significant number of consumers use the third option and the third option is constantly improving, broadband is not a duopoly.

The fact that the U.S. is a few years behind Japan in 4G deployment is not the reason we slipped to 15th place in the international broadband rankings. The reason for that was a predictable yet unintended consequence of the Telecommunications Act of 1996.
When the 1996 law passed, there were several cable operators who planned to offer competitive phone services in a venture that included Sprint Corp. These plans were shelved, according to then-Sprint CEO William T. Esrey, as a result of the FCC’s “pro-competition” policies: “If we provided telephony service over cable, we recognized that they would have to make it available to competitors.” That plus the fact it was unclear whether telephone company investment in high-speed connections capable of delivering video would also have to be shared with competitors, chilled investment on both sides and prevented a spiral of competition. Thus, the local competition rules which were intended to speed effective competition actually delayed it.
Once the FCC finally scaled back its pro-competition rules in 2004, Verizon began to deploy state-of-the-art broadband to be able to enter the video market dominated by cable operators, who in turn accelerated both their own entry into the voice market dominated by incumbent phone companies and their investment in higher-bandwidth broadband service. In the past year, competition has pushed down the rates for bundles of Internet, phone and TV service by up to 20 percent, to as low as $80 per month, according to Consumer Reports.
We slipped to 15th place because of a government failure in the regulation of wireline networks. That problem has been fixed, and the last thing we need now is government intervention in the wireless market. Wireless services were completely deregulated early in the Clinton administration, and aside from the new technologies, improved service quality and choice among wireless providers, the average cost per minute of cell phone use has fallen 87 percent, from 47 cents in 1994 to 6 cents in 2007, according to the FCC’s most recent analysis of wireless competition.

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.