How to squelch growth of the high-speed Net

Former Undersecretary of Commerce Robert Shapiro warns against overregulating in the name of social policy.

At a time when new technologies are constantly changing the way we work and live, the U.S. Senate is debating whether the market or government regulation is the best way to make sure that these technologies become available to all Americans. The issue is key to a fierce debate over the efforts of the traditional phone companies to enter the market and compete with cable for both high-speed Internet and new video services. Some say the phone companies, which aim to deploy new video technologies, should have to build out their networks according to the timetables of local or state government regulators. Others argue that such regulations actually limit access by discouraging investment and competition.

A few weeks ago, the U.S. House of Representatives decided that competition is the better route--now the Senate has to decide if it agrees.

As it happens, we don't have to speculate about the answer, because extensive data show that Americans have achieved access to the two most important new technologies of our time, personal computers and the Internet, without "build-out" rules. The data detail a fascinating story of how these technologies spread across America's regions and income groups. When a valuable new technology is first introduced, the early adopters take it up quickly. And when the technology proves to be broadly valuable and widely desired, competing providers quickly enter the market.

By applying build-out requirements to new video technology, we will likely delay or deter healthy competition for video services.

Normal competition, combined with the rapid technical advances that characterize new information and telecommunication technologies, sharply drives down prices--and those steadily falling prices create broad access.

Once the process got going with PCs and the Internet, low-income households and people living in central-city and rural areas increased their computer ownership and Internet access at even faster rates than did those in higher-income households or those living in metropolitan areas.

From 1994 to 2003, PC ownership by Americans with incomes of less than $20,000 grew more than twice as fast as gains by those earning more than $50,000. In the same period, dial-up Internet access among the lower-income group grew by an average of 28 percent a year, compared to 17 percent annually for those with higher incomes.

The gains for lower-income Americans were even greater from 2001 to 2003, the most recent years for which we have data. For example, PC ownership by Americans with incomes of less than $20,000 a year increased 22 percent, compared to 6 percent for those among the more affluent. In the same years, Internet access by people living on less than $20,000 increased by almost 15 percent, compared to 6 percent for households earning more than $50,000.

The record shows that this is the way that advanced technology markets work today. Regardless of who adopts a valuable new technology first, others across the economic spectrum will increasingly adopt it too--so long as we restrain ourselves from interfering with the normal dynamics of competition and technological advance.

The same pattern should apply to the next-generation video services that Congress is now considering. Those with a bent for regulation insist that without it, companies building the fiber networks for new Internet-based video services will systematically bypass the places where lower-income Americans live.

But that seems unlikely. The data say that lower-income households and minority neighborhoods will be just the high-value customers that any company offering advanced video services looks for. Low-income households subscribe to current video services at about the same rates as more affluent households. And, African-American and Hispanic households actually subscribe to premium channels at higher rates than other groups.

By applying build-out requirements to new video technology, we will likely delay or deter healthy competition for video services. We also could slow the current spread of high-speed Internet. The phone companies plan to bundle the new video services with voice and broadband Internet access, all delivered through the same fiber network. This kind of bundling cuts the cost of each service and so helps drive greater and broader access.

Achieving broader access to high-speed Internet services for Americans, whatever their income and wherever they live, will happen fastest through competition and technological advance, not regulation. That's a social-policy goal that everyone should support.

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