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Broadband users, watch your wallets

Economist Gregory Rosston says President Bush's general statements on broadband deployment hide a more complex and potentially troubling reality.

Michael Powell, the Federal Communications Commission's chairman, recently said President Bush has set out a "bold vision for broadband investment and deployment over the next four years."

Silicon Valley, you'd better watch your pocketbooks, if that vision is anything like the tortured history of FCC and state public utility commission involvement in telephone investment and deployment. This bold vision will not only be costly but could well end up stymieing the goal of competitive broadband deployment.

In Washington, choosing words carefully is important. Every sentence uttered by the president can cause tectonic shifts in thinking and actions. The president made an incredibly simple, feel-good statement about broadband: "We ought to have a universal, affordable access for broadband technology by the year 2007, and then we ought to make sure, as soon as possible thereafter, consumers have got plenty of choices, when it comes to purchasing the broadband carrier."

Those simple words will cause lots of action, not all of it positive.

There are hundreds of people running around Washington trying to figure out how they can profit, both monetarily and politically, from this bold new policy initiative. Economists call those people "rent seekers." Like all rational people, they respond to incentives--as did Powell, who heard his president call for universal broadband and claimed to be ready to work on implementing the vision.

The current slush funds used to provide narrowband service subsidies are a terrific example of what not to do.
Powell will be buffeted by all sides (and there are many) in the rush to profit from the newly articulated vision. The incumbent telephone companies will respond to the president's call by saying, "We need to get rid of the rules that were enacted by the 1996 Telecommunications Act so that we have incentive to build advanced infrastructure."

The competitive local telephone providers will respond by saying, "You need to ensure that competition can survive, so you need to doubly enforce the provisions of the Telecommunications Act.

And then there are the fiber companies, the satellite companies, the cable companies and state regulators. Consumers, overall, are likely to be underrepresented in the process.

This supposedly market-oriented administration must find a way to fund its call for "universal affordable access." The tens of billions or hundreds of billions of dollars for building the network and providing the service do not come free, even with this record-setting, deficit-spending administration.

Where will it come from? The current slush funds used to provide narrowband service subsidies are a terrific example of what not to do. These billions of dollars are raised within the telephone system and are redistributed disproportionately, on the basis of political clout; representatives of rural states have disproportionate power in the Senate and even more so on the powerful Committee on Commerce, Science & Transportation. The FCC and state commissions are looking to perpetuate the historic narrowband system by taxing voice over Internet Protocol and other broadband services they claim to want to perpetuate at low cost. Talk about a mixed message.

We need a president who can articulate a plan, not a simplistic vision that will get twisted and end up frustrating broadband deployment.
While there may be a case for providing vouchers for low-income households that would not otherwise be able to afford broadband service, the history of telecommunications subsidies shows that the vast majority of money will go to rural states and come from urban areas. This means that low-income residents of San Jose, Harlem and Washington, D.C., will not be the recipients of the majority of subsidy dollars. Instead, they will be asked to pay higher prices to subsidize high-cost rural residents, many of whom can much more easily afford to pay for broadband service.

Higher prices will frustrate the broadband desires of many low-income folks who are likely to be more price sensitive than the few higher-income rural residents they would subsidize. If our high-tech economy really wants a broadband nation, companies should fight tooth and nail against the current inefficient subsidy system and instead work to ensure that cable, digital subscriber line, wireless and satellite services--in addition to power companies and anyone else--have the ability to provide competitive service without the shackles of the narrowband subsidy system.

If the idea is to ensure that lots of people get access to broadband service, making a simplistic, bold statement like, "We want a universal monopoly provider by 2007 and competition at some point in the future" and then having policy wonks run amok is not the way to succeed.

Much better leadership would include outlining a clear and specific plan to ensure to broadband service provider competition and then to let the market provide the services Americans want. Words matter a lot in Washington. We need a president who can articulate a plan--not a simplistic vision that will get twisted and end up frustrating broadband deployment.