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Democracy and Technology Blog Thoughts on broadband strategy

The FCC received reply comments last week concerning the national broadband plan it is required — pursuant to the stimulus legislation — to deliver to Congress by Feb. 17, 2010.
In the attached reply comments of my own, I conclude:

  • The broadband market is delivering better services at lower prices. There is no evidence of a market failure which would justify additional regulation.
    I pointed out that just as the Sherman Act does not “give judges carte blanche to insist that a monopolist alter its way of doing business whenever some other approach might yield greater competition,” according to the Supreme Court, the Commission would be wise not to insist that broadband providers alter their way of doing business just because it hopes some other approach might yield more consumer benefits. The pursuit of the “perfect” may prove elusive. Meanwhile, the “good” — which presently exists in the form of a fast-charging, innovative market — could be destroyed.
  • The Commssion should focus on non-regulatory strategies which have proven effective in promoting the adoption of broadband services.
    For example, a lot of Americans don’t subscribe to broadband because they don’t see the need for it or because they are concerned about the price. According to the Pew Research Center, 50 percent of dial-up and non-online users fall into the former category and 19 percent fall into the latter category.
    A public-private partnership in Kentucky discovered that the lack of a computer at home ranked even higher than the monthly service fee as a barrier to the adoption of household broadband. In Kentucky, the number of people actually using broadband jumped from 22% to 44% as a result of the partnership’s efforts.
  • Common carrier regulation could interfere with innovation and legitimate network management.
    If government mandates that sellers have to charge everyone the same price, that potentially limits returns on investment (because some consumers are willing to pay more than others). If government says sellers can’t serve some customers unless they can serve all customers, that potentially limits investment opportunities. Net neutrality regulation would potentially lead to these and perhaps other consequences.
    One such consequence might be to prevent network operators from proactively managing the network to reduce congestion and malicious traffic which lead to identity theft and cyber attacks.
  • There is no compelling evidence of excessive profits which would justify reregulation of the special access market.
    Purchasers of these high capacity services allege profiteering, but a more reasonable analysis has found that instead of earning a 138% return on special access investment, AT&T is more likely earning 30%. Qwest is probably earning 38%, not 175%. And Verizon, 15% instead of 62%.
    If AT&T, Qwest and Verizon are earning excess profits, cable and fixed wireless competitors will be able to undercut their prices and capture market share. The higher the profits, the faster the entry.
    If regulation pushed special access prices lower, that would reduce the revenue investors could expect to earn from new competitive facilities. If investment won’t be profitable, it won’t be made.

Hance Haney

Senior Fellow, Technology & Democracy Project
Hance Haney is 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.