Lieberman's broadband plan draws fire

"We in government can't let this potentially fertile field of technology lie fallow," said Lieberman, who plans to introduce legislation next week on speeding broadband deployment. "The high-speed Internet is on the cusp of catalyzing a quantum leap in our economy."

Under his plan, the government would provide tax credits for companies that build broadband infrastructure and conduct research and development on broadband applications, and would require the FCC (Federal Communications Commission) to develop a new regulatory framework.

"This is not a step in the right direction, because it spends more time worrying about subsidies than cleaning up the mess the government has already created in this industry," said Adam Thierer, director of telecom studies for public policy research foundation The Cato Institute. He said the piecemeal implementation of regulations and tax subsidies would slow the broadband industry down.

Lieberman's bill follows an array of other legislative efforts on broadband, from the Tauzin-Dingell bill to tax credits for rural broadband providers being included in farm bills. And while Lieberman's proposal has a better chance of passing because it is benign, its vagueness may work against it, analysts say.

"You can't take an 'If we build it, they will come' strategy," said Imran Kahn, analyst at research firm The Yankee Group. "Regulators need to ask if deployment alone is going to stir up the economy."

At the same time, experts say availability isn't really the problem. In 2001, 60 percent of U.S. homes already were equipped to receive cable service, and 45 percent of them were equipped to receive DSL service, according to The Yankee Group.

"You need to push adoption before you go out and deploy the services," said Khan, who said any subsidies should be for consumers, instead of for the service providers.

Instead, several analysts pointed to consumers shying away from broadband because of the way the services are packaged, priced and delivered. Recently, several cable companies have started moving toward tiered pricing plans to streamline the process and make it more palatable for customers.

Mark Kersey, an analyst at La Jolla, Calif.-based research firm ARS, described the problem as a classic chicken-and-egg conundrum that won't be easily overcome.

"Content providers tell you they can't develop broadband until everyone has a fast connection, and service providers tell you they can't get customers until there's more compelling content out there," Kersey said.

The regulatory issues, such as Lieberman's proposal to revamp the FCC process, are key, according to Susan Butta, director of media relations for Verizon Communications.

The main regulatory issue at stake is the "open access" debate, which questions whether DSL (digital subscriber line) should be regulated in the same manner as cable. Though both provide broadband access to the Internet, DSL has been regulated differently, since it runs over phone lines. DSL companies have therefore been forced to share their lines in the past with competitors, while cable companies have not. That gives cable companies an advantage, DSL providers charge. Their claims are backed up by adoption statistics.

But following the recent appeals court decision that overturned an FCC ruling that requires local phone companies to share lines with competitors, analyst Blair Levin at equity research firm Legg Mason suggested that FCC Chairman Michael Powell is already leaning toward a position more favorable for the Baby Bells.

Verizon, one of the companies that stands to benefit from more lenient regulation, said Lieberman's regulatory proposals are the strong point in his strategy.

"If you live outside of 3 miles from one of our switching areas, it is technically impossible to get DSL. In order for us to make the investment, we need a policy change," said Butta.

Analysts said Lieberman needed to go further on calling for more research and development since customers won't need more bandwidth if e-mail remains the main application of the Internet.

"I think broadband problems are content-related," said Kersey. "The government could allocate tax dollars to digitizing the Smithsonian, or other government collections, like those at the National Art Gallery," which would have much more impact than vague research and development proposals for educational applications.