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Network to Nowhere

The broadband problem isn't supply, it's demand.

Feb 11, 2002, Vol. 7, No. 21 • By JAMES K. GLASSMAN
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IN A YEAR OF RECESSION, unprecedented terror attacks, and the largest bankruptcy in history, there was good news from a surprising front. During 2001, the number of American homes and offices that hooked up to the Internet using fast broadband technologies like cable and digital phone lines roughly doubled--from 6.5 million to 12.5 million. Broadband revenue grew even more--up 127 percent to $4.8 billion.

Why is broadband so important? Because the next big stage in Internet commerce--a boom in online medicine, telecommuting, distance learning, and video entertainment on demand--depends on it. Such services are impractically slow when carried over the poky modems most people still use to connect to the web. TechNet, a Silicon Valley trade association, last month issued a report claiming that, with "widespread adoption of true broadband, . . . the benefits to quality of life are immeasurable."

Such statements may sound hyperbolic, but they carry a political punch. Since it took office, the Bush administration has been trying to figure out how to help extend broadband practically everywhere--both to boost the economy and to show that Republicans are tech-friendly, too. The chairman of the House Committee on Energy and Commerce, Rep. Billy Tauzin, has made broadband deployment his top priority. Since 1999, Tauzin and his Democratic counterpart, Rep. John Dingell, have been pushing a bill they say will solve a supposed broadband shortage--mainly by killing off pesky competitors to the four regional Bell monopolies.

But Tauzin-Dingell and other grandiose schemes are beginning to look like solutions in search of a problem. Broadband is now available to about 80 percent of Americans. According to the latest statistics, people seem to be adopting it awfully quickly. Why not more quickly? Perhaps because they don't like what the Internet has to offer. That could be a chicken-and-egg problem: Better content may first require more customers. Still, the more closely you look at the broadband question, the clearer it becomes that the trouble is not the supply; it's the demand.

More than two-thirds of Internet users still connect using dial-up modems with top speeds of around 56 kilobits per second. Typically, broadband allows speeds of about 400 kilobits--though speeds that are 100 or more times faster than dial-up are feasible. The TechNet folks want a "national policy" to give every American access to 400 to 500-kilobit broadband (fast enough to download a typical Hollywood movie in less than ten minutes). After all, many TechNet companies sell the stuff that makes these super speeds possible.

Still, even 400 kilobits is speedy compared to dial-up (a 10-minute download becomes just 90 seconds), and last year, the number of new users of four methods of delivering broadband shot way up. Subscribers to digital subscriber line (or DSL) technology, which juices up copper phone lines to broadband speeds, increased 87 percent. Subscribers to similarly speedy cable-modem services, which got a head start on DSL and provide broadband over the same wires as cable TV, grew 88 percent. And residential subscribers who access the Internet by speedy wireless or satellite increased from 120,000 to 500,000.

If this pace were to continue, every U.S. home would have broadband service in four years.

That's quite a turnaround, and it seriously undermines the Tauzin-Dingell bill, which rewrites the Telecommunications Act of 1996. That 1996 law, passed with the support of House Majority Leader Dick Armey and every other congressional free-marketeer, created the blueprint for deregulating the final bastion of the old telephone monopolies--the "last mile," the wire that goes from your house to the greater telecom network. Five years later, the last mile is still controlled in more than 90 percent of offices and homes by one of the four Bells: SBC, Verizon, BellSouth and Qwest, which divide up the country but don't compete with one another for local service. But the Bells now have to compete, both for local service and for broadband, with CLECs, or competitive local exchange carriers. So the Bells have been lobbying and filing lawsuits to make them vanish.

Tauzin-Dingell offers a new justification for giving the Bells a clear field. Its premise is that America desperately needs broadband, and that the competition engendered by the 1996 law only holds up progress. Instead of trusting competition, the bill trusts monopolists to get the job done.