Next time you sit down to pay your cable-modem or DSL bill, consider this: Most Japanese consumers can get an Internet connection that’s 16 times faster than the typical American DSL line for a mere $22 per month.
Across the globe, it’s the same story. In France, DSL service that is 10 times faster than the typical United States connection; 100 TV channels and unlimited telephone service cost only $38 per month. In South Korea, super-fast connections are common for less than $30 per month. Places as diverse as Finland, Canada and Hong Kong all have much faster Internet connections at a lower cost than what is available here. In fact, since 2001, the U.S. has slipped from fourth to 16th in the world in broadband use per capita. While other countries are taking advantage of the technological, business and education opportunities of the broadband era, America remains lost in transition.
How did this happen? Why has the U.S. fallen so far behind the rest of its economic peers? The answer is simple. These nations all have something the U.S. lacks: a national broadband policy, one that actively encourages competition among providers, leading to lower consumer prices and better service.
Instead, the U.S. has a handful of unelected and unaccountable corporate giants that control our vital telecommunications infrastructure. This has led not only to a digital divide between the U.S. and the rest of the advanced world but to one inside the U.S. itself. Currently, broadband services in America remain unavailable for many living in rural and poorer urban areas, and remain slow and expensive for those who do have access.
For instance, when farmers gathered at this year’s Iowa State Fair to discuss their policy concerns with U.S. Secretary of Agriculture Mike Johanns, the topic on the minds of many was broadband. And for good reason. Twenty-five percent of Iowa’s rural communities have no access to high-speed Internet service, and over half of the remaining rural communities are serviced by only one provider. Those lucky enough to live in areas served by Iowa Telecom can pay as much as $170 per month for a DSL line.
President Bush has called for “universal, affordable access to broadband technology by the year 2007,” and Federal Communications Commission chairman Kevin Martin recently declared broadband deployment to be his “highest priority.” Martin recently took to the pages of the Wall Street Journal to tout “the dramatic growth in broadband services.” In his editorial he boasts of “fierce competition” among broadband providers and tells us we’re “well on our way to accomplishing the President’s goal.”
The facts tell a different story. Today, major cable companies and DSL providers control almost 98 percent of the residential and small-business broadband market. This trend is the direct result of FCC policies that fail to encourage real competition among broadband providers, giving free rein over the market to the cable and DSL giants. The corporate giants are also vigorously fighting to stop cities and towns from building “Community Internet” systems — affordable, high-speed broadband services funded in part by community groups and municipalities — even in places where the cable and DSL companies themselves don’t offer service. Yet, like rural electrification projects in the early 20th century, today’s Community Internet projects offer the best hope of achieving universal broadband service.
Like so many other challenges faced by the Bush administration, the response to the growing digital divide has been to redefine success and prematurely declare victory.
In the 1996 Telecommunications Act, Congress directed the FCC to oversee the timely deployment of Internet services that “enable users to originate and receive high quality voice, data, graphics, and video telecommunications.” Currently, this requirement translates into an Internet connection with typical download and upload speeds between 10 Mbps and 20 Mbps (megabits, or million bits, per second).
But the FCC defines a “high-speed” connection as one capable of transmitting data at a rate of 200 kbps (kilobits, or a thousand bits, per second) in one direction — about four times the speed of dial-up. At this slow speed, it is barely possible to receive low-quality streaming video, and is completely impractical to originate high-quality video.
The typical download speed of a DSL connection in the U.S. is 1.5 Mbps, while the average cable-modem connection downloads at 3 Mbps. These connections are adequate for streaming low- to standard-quality video, but are far too slow for applications like high-definition video. Furthermore, they pale in comparison to what is being offered in Japan, where consumers can download high-definition movies in less than five minutes.
Setting the high-speed standard so low allows Martin and the FCC to portray the increase in mediocre connections as a sign of progress. Other countries define broadband in a more honest way. For example, Canada has declared the minimum standard for broadband to be 1.5 Mbps in both directions — more than seven times faster than what the FCC considers to be “advanced service.”
Defenders of the status quo like Martin argue that since the U.S. spans a huge geographical area, it is wrong for us to expect the level of high-speed broadband service that Western Europe or Asia enjoy. But this ignores the success of sparsely populated nations like Canada, and cannot explain why densely populated cities such as San Francisco do not have access to the same types of high-speed connections found in Seoul, South Korea, or Tokyo.
Martin’s failure to confront the broadband problem becomes painfully obvious when you consider how his commission measures broadband availability and adoption. Instead of counting the number of subscribers in a particular area, the FCC considers an entire ZIP code as “covered” if at least one person living in that area has a broadband connection. This allows the FCC to make misleading boasts about how broadband coverage reaches 99 percent of the country.
Consider the case of Loudoun County, Va., a high-tech community just outside of Washington that’s home to Internet giant America Online. The FCC claims there are more than six broadband providers, on average, within each Loudoun County ZIP code. But a recent survey revealed that one-third of the county’s households are unable to purchase any broadband service.
Nationwide, the reality is only one in three urban and suburban American adults have broadband at home, and only one in six adults living in rural areas do. Furthermore, the choice of broadband providers available to these consumers is paltry. The FCC’s own data show that nearly 20 percent of all Americans report having no cable or DSL service providers in their neighborhood, and another 28 percent only had access to one provider. In President Bush’s home state of Texas, for example, 93 counties have only one broadband provider and 16 counties offer no service at all.
Most of the countries surpassing the U.S. in broadband speed and availability have “open access” rules governing both their cable and DSL industries. Open access rules require the owner of a network to allow its competitors access to the network at wholesale prices. These rules usually apply to networks that are “natural monopolies” like telephone systems and railroads, and in order to ensure innovation among competitors, these provisions usually do not apply to newly built infrastructure. Ultimately, open access benefits consumers by creating competition that leads to lower prices and new innovative services. You can credit open access with the drop in long-distance rates seen in the 1990s.
Nations like Canada long ago mandated that the local cable and telephone monopolies provide competing Internet Service Providers (ISPs) access to their networks at wholesale cost. However, here in the U.S., the FCC — backed by the Supreme Court in the Brand-X case — took the bizarre step of exempting cable Internet providers from all open access rules, while applying them in a limited fashion to the incumbent DSL companies.
The Brand-X ruling affirmed an FCC decision to classify cable modem service as an “information service” and not a “telecommunications service.” Under the 1996 Telecommunications Act, information service providers are not subject to the open access regulations that are applied to telecommunications providers, such as DSL companies. To assert that cable-modem services have no telecommunications component is simply bizarre. Indeed, Justice Antonin Scalia said in his dissent, “When all is said and done, after all the regulatory cant has been translated, and the smoke of regulatory expertise has blown away, it remains perfectly clear that someone who sells cable-modem service is ‘offering’ telecommunications.”
The Supreme Court’s decision in effect ensures that consumers have no choice among cable-modem providers. This is because almost all municipalities grant a single cable provider the right-of-way to lay cable wire, in exchange for a portion of its local revenues — usually 5 percent.
While almost no competition exists within local cable Internet markets, consumers in some larger cities have been able to choose among several DSL providers. (Although thanks to other FCC decisions, customers often must purchase a phone line in addition to their DSL service.)
But the FCC recently decided to cut off this last frontier of competition by ending most of the remaining open access provisions governing the DSL industry. Bush’s FCC believes that open access is restricting innovation in broadband services.
However, the FCC’s own data indicates that open access in the DSL sector has contributed to growth in DSL services and the weakening of the cable companies’ monopoly power over the broadband market. It appears that the FCC is acting under pressure from telecom companies, which are demanding a “level playing field” in the wake of Brand-X. This move will permanently entrench a cable-DSL duopoly over the broadband market, ensuring higher prices and lousy service for consumers.
Now, some may see the recent “price wars” between such popular providers as Comcast and SBC as a signal that the market is functioning properly. Closer examination of introductory offers reveals them to be nothing more than bait-and-switch gimmicks.
SBC’s $14.95 per month offer for its “DSL-express” service — rolled out with much fanfare earlier this year — is merely an introductory rate, which requires signing a long-term contract with an expensive termination penalty. Furthermore, subscribers must be new SBC DSL customers, and must purchase the DSL along with the additional cost of SBC telephone service. The connection itself is extremely slow by most standards of “broadband,” as it only offers a maximum upload speed of 384 kbps. When spread out over three years, the true cost of the SBC offer is about $25 per month, not including the cost of the phone line, taxes and other fees. When these additional charges are included, the total cost averages out to well over $40 per month.
Rick Lindner, chief financial officer of SBC, told investors the offer was simply a way to lure customers away from cable companies and sell them other SBC products. Lindner explained that bundling low-cost DSL with phone service “suddenly takes you from … being a $15 product to being a $65 or a $70 customer.” He joked: “We’re out to pillage and plunder the industry, that’s our objective.”
The most promising alternative to the cable-DSL duopoly is Community Internet — universal, affordable high-speed broadband service provided by cities and towns or community groups. Hundreds of places — from Philadelphia and San Francisco to Chaska, Minn., and Granbury, Texas — are now viewing broadband as a public service, no different from water, gas or electricity. They are building Community Internet and municipal broadband projects to bring high-speed Internet to areas overcharged or underserved by the cable and DSL companies.
Community Internet projects come in many different forms, utilizing different technologies and various business models. Some projects are built and operated exclusively by a municipality, while many others operate under public-private partnership agreements. Although a few places receive broadband over power lines, or fiber laid directly to homes, the majority of Community Internet projects utilize “Wi-Fi” technology to create “hot-spot” zones of broadband coverage or, in many cases, build a “mesh network” to blanket an entire city. San Francisco Mayor Gavin Newsom is currently taking bids to build just such a network in his city, with Google offering to provide the service for free.
The story of tiny Scottsburg, Ind., illustrates how Community Internet can provide needed services that keep jobs and resources in the local economy. In 2002, Scottsburg Mayor Bill Graham was confronted with the possibility of two local businesses leaving town because his city had no broadband service. One of the companies nearly lost a key defense contract because its dial-up Internet connection repeatedly failed as it was trying to send in a bid.
The mayor contacted cable and DSL providers, who told him outright that providing broadband in his town just didn’t make business sense. As Graham told the PBS program “Now”: “We were in a crisis mode. We were gonna lose companies, gonna lose jobs. We just had to do something, you know. How many jobs can a small community lose? None.”
A committee formed by the city to find a viable solution to this problem quickly concluded that the answer was to construct a municipal wireless network. The city created the Citizens Communication Corporation, and within four months installed wireless transmitters on water and electric towers, producing a network that reaches over 90 percent of the county’s residents.
After the Scottsburg network was up and running, several DSL companies (the very same ones that had refused to service Scottsburg) went to the Indiana statehouse to lobby in support of a bill that would have prevented any other towns in the state from creating their own Community Internet systems. Fortunately, the powerful testimony of Mayor Graham convinced legislators to kill the SBC-backed bill.
However, across the nation, the cable and telecom companies, armed with powerful lobbyists and coin-operated “experts” are quietly working the halls of state legislatures and Congress in a concerted effort to kill off Community Internet. Over the past several years, 14 states enacted laws that ban or place limits on municipalities from building Community Internet projects.
Over the summer, Rep. Pete Sessions (R-Texas) — a former SBC executive — introduced an anti-Community Internet bill with the Orwellian title “Preserving Innovation in Telecom Act of 2005.” The legislation would prevent any city in the country from providing Internet access if a private entity offers service nearby — even if the private company serves as little as 10 percent of the residents.
Community Internet opponents routinely accuse municipal broadband providers of being an unfairly advantaged competitor and offering an inferior service doomed to fail and bankrupt taxpayers. But the allegation that municipal broadband providers hold an unfair advantage because they are the beneficiaries of special tax and legal treatments doesn’t hold water.
For decades, the incumbent cable and Bell companies have enjoyed all the benefits of a protected monopoly status, granted to them by the FCC and by local municipalities. And over the past several years, these companies have received hundreds of millions of taxpayer dollars to subsidize their broadband deployment efforts. The truth is that Community Internet projects pay taxes just like any other competitor. In fact, a study by the Florida Municipal Energy Association showed that private incumbent providers pay fewer taxes than municipal systems and receive more state and federal subsidies.
In addition to providing broadband to underserved areas, Community Internet projects often entice other competitors into the market. The same Florida study found that municipal construction of communication networks expanded “the number of private firms serving the same market by more than 60 percent.”
Yet the big cable and telecom companies continue to spread misinformation. A “fact sheet” distributed to journalists earlier this year by Verizon, detailing supposed failures of Community Internet projects, was found to be full of errors and mistakes, relying primarily on a 7-year-old discredited study of municipal cable TV networks.
Notably, municipal networks are arising because of the failures of the incumbent providers. Without them, the U.S. will continue to fall behind the rest of the world in broadband technology. Nations such as Canada and South Korea long ago realized the importance of public broadband, and incorporated municipal systems into their overall broadband strategies.
There are signs, though, that the tide may be turning in the U.S. against the cable and Bell companies. This year, spurred in part by success stories in places like Scottsburg, anti-municipal broadband bills were defeated in seven states and delayed in two others. Sens. John McCain, R-Ariz., and Frank Lautenberg, D-N.J., have introduced a bill that would allow municipalities to provide Internet service and overturn existing state anti-municipal broadband laws. The bills are expected to receive further attention this fall.
But Congress needs to do more than just allow Community Internet projects. It needs to free up valuable “spectrum” for these wireless networks to operate on. Currently, most Wi-Fi devices operate on an unlicensed basis in the “2.4 GHz” region of the spectrum — a crowded area occupied by hundreds of different types of consumer devices such as microwave ovens and cordless phones. The physical properties of this end of the spectrum prevent wireless signals from penetrating obstacles and terrain. This means citywide networks using the 2.4 GHz band will require large amounts of antennae, raising the overall price of deployment.
If wireless networks were able to operate on lower-frequency spectrum — such as the region used by over-the-air television stations — the infrastructure costs would be much lower, potentially allowing Community Internet networks to offer extremely fast connections for as little as $10 per month.
In most areas, even in large markets like Los Angeles, large portions of the television spectrum go unused. (Just attach an antenna to your TV to see how many channels it picks up — odds are it will be less than a dozen, and most of those will barely be visible.) Congress should allow low-power wireless devices to operate on these valuable but unused channels.
Similarly, Congress could set aside a portion of the spectrum coming back to the government from the broadcasters, as part of the digital television transition. The current plan is to auction off this valuable resource to the cellphone companies to cover the cost of the war and tax cuts. But it’s hard to imagine a better use of the public airwaves than opening up the spectrum for everyone to use.
But the answer doesn’t lie solely in government either. What is needed is a truly competitive market, with many providers engaging in innovation that ultimately benefits all consumers. Government can play a role in making the market more competitive — both by deploying Community Internet projects and by requiring the cable and telephone companies to provide open access to their networks.
American innovation offers a solution to our broadband problem. It’s time for Congress, the FCC and the White House to stop protecting the corporate dinosaurs and start exploring alternatives that will foster a genuine free market in high-speed Internet services.