We get so wrapped up in the technical aspects of the Bandwidth Wars that we tend to forget that nothing's going to happen unless the bureaucrats let it happen. From today's WSJ:
Faster Web Access Coming (One Day) to a Home Near You
By Jason L. Riley, the Journal's editorial interactive editor.
It's like a coming attraction that never comes. Industry has been promising faster Internet access at home for years, but for most Americans it still hasn't happened.
At the office, we're fine, able to surf the Web at a satisfying clip on fat, data-friendly T-1 lines. But when we repair to our home connections, we face dial-up delays, busy signals and multimedia-file downloads that would test Job's patience.
The technology to speed things up--called broadband--already exists, but at present very few consumers are able to partake of its offerings. Of the 42% of American households with computers, about 25% have access to the Internet. Nearly all of us poke along at no better that 56 kilobits per second, and usually not even that fast. In a few patches of the country, however, home users are luckier. A subscriber to, say, @Home's cable-modem service in Seattle can enjoy an Internet connection over his cable television wires that's 20 times quicker.
A competing broadband service, being offered by the phone companies, is the digital-subscriber line, or DSL. DSL technology enables more data to move more quickly over telephone lines. While not as fast as a cable modem, DSL is still a dozen times speedier than the average residential connection.
Wireless communication companies also want into the broadband market and are poised to make an impact. The speed and reliability of satellite Internet access, expected to become the connection of choice for rural communities, continues to improve and costs are falling.
Right now, none of these technologies is available in most parts of the country. @Home and Roadrunner, another cable-modem service provider, have a combined 750,000 subscribers, and fewer than 200,000 users have signed up for DSL. Considering that more than 50 million Americans use the Internet at home, and that 91% of those connections are via the telephone, the high-speed access numbers are pitifully small.
What's taking the technologies so long to reach all those potential customers is partly economics. The demand for faster connections in a particular area matters most to suppliers. University towns and high-tech areas like Boston, Seattle and San Francisco were upgraded first because residents were more likely to want it. Just as important as demand, however, are the incentives--and disincentives--created by regulatory agencies and the bureaucrats who run them. In this case, the Federal Communications Commission and its chairman, William Kennard, play a crucial role.
AT&T, which has spent $116 billion acquiring cable companies in large part to be able to offer high-speed Internet access, owns a stake in both @Home and Roadrunner. Last month a federal court in Oregon ruled that Portland, which says it's trying to head off a potential monopoly, could require AT&T to open its cable lines to competing Internet service providers. AT&T is appealing, but the ruling could give the phone giant pause in its efforts to offer high-speed service in other areas.
It could also give other municipalities ideas. Yesterday, Broward County, Fla., adopted an ordinance similar to Portland's, and San Francisco has hinted it, too, may propose regulations requiring open access to cable lines.
The problem here is that these local officials are acting on assumptions that could prove false. They're behaving as though cable-modem Internet access will in fact become the industry standard. This is hardly assured, and a quick glance at a few of the competing players shows why.
True, AT&T is betting big on cable, as is software mogul Paul Allen. But others, like Sprint, are more interested in DSL technology. Sprint wants to put DSL in 34 million homes by the end of next year. Then there's Steve Case's America Online, which is eyeing the wireless route. Mr. Case has just announced a $1.5 billion investment in Hughes Electronics to promote that other alternative broadband technology--satellite delivery. As the Journal's Tom Weber reported, "The investment is clearly intended as a warning shot for cable companies."
The battle over standards is intense and continuing. "At this stage, it appears to be about as competitive a market as one could find," says Jeffrey Eisenach of the Progress & Freedom Foundation, a telecommunications think tank. "The question in play right now is: Should we have prophylactic regulation of what might someday be a monopoly?"
Cable-modem access hasn't even been established as the standard--and we don't know that it ever will--let alone shown monopolistic tendencies that call for regulation. Not that this mattered to Portland or the federal court that blessed its actions. More disturbing is the FCC, which so far has done nothing to help change the court's mind or deter imitators.
Mr. Kennard is saying all the right things. He is calling for a nationwide policy regarding broadband technology. And, yes, he wants it to be hands-off. "The information superhighway will not work if there are 30,000 different regulatory structures for broadband," Mr. Kennard told cable executives last month. "The key to better serving American families is not through more regulations on the cable industry--or more regulations on anyone--but to make sure that there is real, vigorous competition."
Still, the commissioner has yet to act. Too apprehensive to pre-empt the Portland regulators, the FCC should now challenge the court decision. It should also begin the process of establishing a uniform national policy. Doing so would indicate to broadband competitors that Mr. Kennard means what he says. Other cities would be less inclined to follow Portland's example, and the industry players would be able to operate without a dark, regulatory cloud threatening above them.
Delay and inaction by the FCC causes uncertainty, which can be costly, says Solveig Singleton of the Cato Institute. "The broadband market is still extremely high-risk, experimental. Just a few years ago, everyone thought that ISDN was the wave of the future. That picture has completely changed." It could change again. "From an investor's standpoint," says Ms. Singleton, "you want to be able to capture all of the return on your investment. This market is so risky and strange, you may lose your shirt."
Broadband investment won't grind to a halt due to regulatory uncertainty, but it will affect how aggressive telecoms can be in expanding residential high-speed services. And that means most of us are stuck with poke-along Web access at home for that much longer.
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