Think tank: More broadband regulation may be needed

From Benton . . . .

Think tank: More broadband regulation may be needed
Information Technology and Innovation Foundation president says higher speeds and lower prices for broadband won't develop without government help

By Grant Gross, IDG News Service

Competition may not fix problems with broadband speed and cost in the United States, because of the high cost of entry into the market, the leader of a technology think tank said Friday.

Many policymakers in Washington, D.C., call for competition to cure issues with broadband value and build-out, but they don't recognize that the cost of building out competing networks may make broadband a natural monopoly or duopoly, said Robert Atkinson, president of the Information Technology and Innovation Foundation (ITIF).

"It's a mistake for policymakers to assume that if they simply 'push the competition lever,' all the problems with broadband policy will be solved," wrote Atkinson, in an ITIF paper. "The bottom line is that if policymakers want to maximize not only societal welfare but also consumer welfare, they must balance the push for more competition with the need to maintain and create an efficient broadband industry structure."

Atkinson and some other speakers at an ITIF broadband policy forum argued that the U.S. may need more broadband regulations to achieve higher speeds and lower prices. Atkinson suggested a balance between competition and stronger enforcement of consumer protection and antitrust laws. Another option would be to mandate open pipes, but Atkinson said that type of regulation isn't appropriate in the U.S. right now.

Not everyone agreed that more regulation was appropriate. The suggestion that broadband is a natural monopoly or duopoly "as an economist gives me the willies," said John Mayo, professor of economics, business and public policy at Georgetown University.

A government-supported monopoly in the traditional telephone market didn't work, Mayo said. He recalled an old Bell Atlantic billboard saying something to the effect of, "We don't sell you what you think you want; we sell you what we know you need."

Broadband is still a relatively new technology and the broadband business model is still evolving, Mayo said. The industry doesn't need government regulation while it's still developing.

Other speakers complained that U.S. residents get lower speeds for higher prices than many residents of Europe and the Far East. But Mayo noted that prices have been falling. "No matter how you measure it ... it's more affordable today than it's ever been," he said.

Speakers at the forum noted that broadband policy is becoming an issue in the U.S. presidential campaign. This month, Sen. Hillary Clinton, the Democratic presidential front-runner, outlined a broadband policy that would include tax incentives for broadband carriers to move into rural and other underserved areas. Clinton also called for public and private partnerships to help roll out broadband and for the U.S. Federal Communications Commission to develop better data about where broadband is available.

Several other candidates have talked about broadband as well, including Republican front-runner Rudy Giuliani, noted Jonathan Sallet, a partner in the Washington communications firm, the Glover Park Group.

But many policymakers in Washington have recently taken a hands-off approach to broadband, thinking "let's create a neutral platform and just let stuff happen," added Steven Weber, a professor of political science at the University of California Berkeley. But just letting stuff happen isn't working to push broadband in many sectors, including health care, he said.

"I don't think that argument is completely adequate to most people," he said.

Correction: Due to a reporting error, this story as originally posted contained incorrect information regarding broadband regulation options presented by a policymaker. The article was amended on Oct. 22, 2007.



The Role of Competition in a National Broadband Policy

By Robert D. Atkinson

October 2007

Read the full text of this report (PDF)
There is perhaps no issue more central to the debate about broadband policy than the state of and role of competition. Indeed, the issue of competition drives many of the debates over broadband, including net neutrality, wireless spectrum auctions, municipal broadband, and unbundling proposals. Although some advocates claim that the current state of broadband competition is more than adequate, others decry market conditions and seek proactive public policies to spur more competition. Yet almost everyone involved in broadband policy in the United States agrees that regardless of the current state of competition, more competition is better. The stated reason is that more competition leads to lower prices, higher speeds, broader deployment, more innovation, and better customer service.

Yet, the Washington consensus in favor of more broadband competition ignores the fact that broadband displays natural monopoly or duopoly characteristics. Because of the nature of the broadband industry, there are significant tradeoffs between more competition and goals of efficiency, innovation, low prices, and higher speeds and broader deployment. Thus, it’s a mistake for policymakers to assume that if they simply “push the competition lever,” all the problems with broadband policy will be solved. Some problems will recede, but others are likely to emerge. The bottom line is that if policymakers want to maximize not only societal welfare but also consumer welfare, they must balance the push for more competition with the need to maintain and create an efficient broadband industry structure.

This paper starts by reviewing the affordability of broadband in the United States. It then postulates two starkly different views toward broadband competition: the “engineers’ view” and the “economists’ view.” Finally, it reviews the four main policy options toward broadband competition: 1) keep the same number of “pipes”; 2) spur the deployment of more pipes; 3) force incumbents to open up existing pipes to competitors, and 4) regulate “duopoly” pipes. Although each policy track will achieve some benefits, each also brings with it costs and risks. Policymakers need to balance the desire for more competition to enhance consumer welfare in the broadband realm with the need for the most efficient broadband industry structure.


Read the full text of this report (PDF)