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What U.S. broadband problem?

Policy analysts Scott Wallsten and Seth Sacher say the conventional wisdom is ripe for debunking.

"Tenth is 10 spots too low," President Bush declared in 2004, referring to the share of Americans with high-speed Internet connections compared with citizens of other countries. Today, the U.S. doesn't even make the top 10.

At the same time, the Internet and investments in broadband infrastructure have brought huge economic benefits--possibly accounting for a third of our productivity growth over the past decade. The economic importance of broadband and the relatively poor standing of the U.S. in broadband penetration have led to calls for government subsidies, investment, and regulations on how broadband providers can use and charge for their infrastructure. Policymakers and others hope that telecom legislation working its way through Congress will improve U.S. international broadband competitiveness.

Despite the hype, it's not clear that there's really a problem, and it is important to ensure that new legislation does not create one.

Critics contend that the broadband market is a "cozy duopoly" of DSL and cable providers that leaves consumers poorly served. But the facts suggest otherwise. The vast majority of broadband connections are indeed DSL or cable, but they compete vigorously with one another and with new technologies like wireless broadband, whose share is growing steadily.

Companies are investing bundles in broadband, and consumers are signing up for it at record rates. According to the Federal Communications Commission, the number of high-speed lines in the U.S. increased by nearly one-third to almost 43 million between June 2004 and June 2005. And a survey by the Pew Internet and American Life Project found that the number of Americans with broadband access at home increased by 40 percent between March 2005 and March 2006. Meanwhile, prices for broadband access are coming down while available speeds are going up.

While the U.S. does lag 11 other countries in broadband penetration, international comparisons must be considered carefully.

The Pew survey found that the average price of residential DSL service decreased from $38 per month in February 2004 to $32 per month by December 2005. Some evidence suggests prices may have fallen further still, with Verizon Communications, AT&T, Comcast, and others offering service plans at less than $20 per month. And as prices fall, providers are upgrading connections and investing in new infrastructure to provide higher speeds to consumers.

The rapid growth, price declines, and increasing speed and service options suggest that this market isn't really so cozy. New technologies should ensure a competitive marketplace for years to come. While the U.S. does lag 11 other countries in broadband penetration, international comparisons must be considered carefully. The share of the Americans who are Internet users, for example, compares much more favorably with the rest of the world and is higher than those of other countries often held up as models to be emulated, such as Japan.

What explains this difference between broadband penetration and Internet users? For one, about half of U.S. Internet users still connect via dial-up. Unlimited/flat-rate local telephone calls, innovations like "Web accelerators," and competition that has pushed subscription prices below $10 per month have allowed dial-up to remain an attractive option for many people. While the number of people with dial-up connections will surely continue to fall, the Pew survey reports that nearly 60 percent of dial-up users claim to have no interest in broadband.

What about broadband speeds? In some countries, notably Japan and Korea, providers advertise Internet speeds that are many times faster than those available here. Advertised speeds, however, may not accurately represent actual speeds. For example, providers in Hong Kong advertise some of the highest connection speeds in the world, but the island's telephone authority recently censured the Hong Kong Broadband Network for misleading claims regarding the speed of its service.

Numerous factors affect the speeds actually available to customers, including line lengths, the number of users sharing the bandwidth connection and the location of the content accessed. Simplistic international comparisons do not account for such considerations.

Nevertheless, universal broadband could bring real benefits, so it is worth asking what the government could do to encourage it. We offer three suggestions.

First, make more spectrum available and allow it to be tradable to ensure that it goes to its highest-valued use. Some of that use would likely be for broadband.

Second, eliminate costly franchising regulations that require providers to negotiate with local governments in order to offer video services over broadband lines. These franchising rules represent anticompetitive and anticonsumer barriers to entry. The House recently passed legislation to eliminate such requirements; the Senate should do the same.

Third, do not mandate "Net neutrality," which would restrict how broadband providers can charge to use their infrastructure. In a market as dynamic as broadband and the Internet, the price regulations that Net neutrality would entail are likely to be counterproductive.

So take a deep breath, relax and keep browsing. Scant evidence supports the idea of a U.S. broadband problem. At the same time, let's recognize the importance of broadband--and in terms of policy, as Hippocrates said, "First do no harm."