Like the Europeans, North
Americans are beginning to realise the scale of the broadband
rollout disaster for their economy. But unlike the Europeans, those
in the U.S. have quickly determined three things that could give
them a potential springboard to launch a new wave of competitive
telecoms.
First: regulation matters a lot in the telecoms business, and
they have some figures to prove it. But second: the existing
framework for telecoms competition in the U.S., enshrined in the
Telecom Act of 1996, is not bringing businesses and residential
customers the broadband connectivity they had been promised. There's
a lot of argument about why this has happened. But the debate has
moved quickly on to consider how to improve the situation.
Third, they recognise that broadband is a telecoms problem after
all; it's a myth to blame the standstill on the Internet. "The
dot.com crash was incidental to what has happened to the [broadband]
industry," said Bruce Kushnick, director of the New Networks
Institute, speaking at a recent conference on the Broadband Economy,
hosted by the Columbia Institute for Tele-Information in New York.
In fact, regional Bell telephone operating companies in the U.S.
were announcing plans for broadband access network rollout before
anyone had dreamed of intranets and extranets.
Kushnick reminded conference attendees that back in 1993 Bell
Atlantic (now Verizon) had promised to connect 8.75 million homes
directly to its fiber network by 2000, and in the same year Pacific
Telesis (now part of Qwest Communications) said it would run
broadband straight into 1.5 million homes by 1996.
The cost of the 'no-networked' economy
Kushnick and
others say the 'no-networked economy' has cost businesses and
consumers at least US$58 billion - and that's just if you tot up
what Bells have levied in additional call charges, with the approval
of states commissions - to build the broadband systems they never
delivered.
Even the Bells' defenders assert that broadband's non-appearance
is a massive opportunity cost. Potentially, it would have provided
the filip the U.S. needed to avoid the current recession, now
heading into its fifth successive quarter.
According to the Brookings Institute, a think-tank part-sponsored
by incumbent telcos, a national broadband system could be generating
$500 billion a year for the U.S. economy alone. That's if half the
premises in the country had broadband: The current rate of
penetration by cable modems and digital subscriber lines will likely
see less than 10% of households and small and medium-sized
businesses connected at the end of this year.
The Brookings report was cited by three of the speakers at last
week's one-day conference. To say the least, it has made telecoms
people sit up. Many are asking what has gone wrong with the
deregulation program that was supposed to produce the competition in
network services to ensure a widespread and rapid deployment of
broadband.
A prime culprit is the federal system of disguising access
charges as "free" local dial-up services and forcing operators to
settle the billing between themselves.
"Regulation matters," said Larry Darby, director of Washington
DC-based Darby Associates. "But [1996-style] price caps protected
incumbents from risk and... assured them of earnings. If we had
subsidised long distance [telecoms services] out of local rates
instead of the other way around, we would now have many more local
access technologies invested and deployed."
Darby said that overall, regulation was discouraging investment
and that what is needed is a new competition policy for telecoms
that recognises that impact on investment.
No problem
Of course, his wasn't the only opinion on
that. Several people said there was too much heat being generated
about something that wasn't actually a problem. "Broadband has
already happened," said Ken Zita, president of New York-based
Network Dynamic Associates. "But nobody noticed."
For example, IP virtual private networks (IP VPNs), one of the
touchstone service innovations for business broadband, is worth
maybe $400 million in the U.S., according to Zita. But data
networking based on old-fashioned frame relay and other high-speed
transmission platforms, is already "a $25 billion business."
"The big driver of broadband is going to come from sophisticated
machine-to-machine processing," said Zita. "You don't need local
access for that."
The question might be: What's everyone waiting for? Not much,
according to Craig Hall, networks business development director at
Nortel Networks, who professed he was a bit bemused about
definitions. He pointed out that his household shared as many as 16
lines, wireless included.
"We are probably a broadband family on aggregate lines," said
Hall. "We just don't show up in surveys."
Hall said the biggest issue for most people in the telecoms
industry was what was happening to investment. But that did not cut
much ice with some delegates, who lamented bitrate offerings in the
U.S., compared with true broadband in some European countries.
"In Milan you can get 10 megabits per second symmetrical access
to your apartment in a gigabit Ethernet system," said David Waks,
principal of System Dynamics Inc., of Morris Plains, New Jersey. "In
the U.S., we are talking 200 kilobits per second."
Waks said afterwards he was referring to the multi-dwelling
system operated by Fastweb, which he had seen for himself on a
summer tour of Europe's broadband hotspots. He also cited
Bredbandsbolaget in Stockholm, and the $165 million public
investment in infrastructure in Sweden, as models for broadband
policy.
In Europe, the debate on what to do about broadband telecoms may
have started earlier, but it seems to have slowed to a halt by
comparison with the U.S. The European Commission still hasn't
completed the review of its framework legislation started nearly two
years ago. And national regulators are increasingly absorbed with
making sure they are chosen to head planned new converged telecoms
and media industry regulatory authorities.
Ironically, these are some of the same things that Americans
blame themselves for. But the U.S. had its argument about media
industry consolidation and convergence five years ago and proponents
of diversity lost, so everybody's free to spend some time on
telecoms now.
U.S. reactions
The response to the broadband debacle in
the U.S. is different in other key practical ways, too. Incumbents
don't pretend they want to work within the new regulatory framework;
they say frankly that they would rather have no regulation at all.
That helps at least to make the situation more transparent.
Many of the top-flight lawyers who staff the firms representing
Bells and competitive service providers, and who usually take a turn
at the Federal Communications Commission in Washington DC, also have
a powerful hand in forming the numerous public policy organisations
(like Kushnick's) which lobby both, and which don't have many
equivalents in Europe.
And the U.S. business and technology consultancies that drive
business are not ready to give up on the broadband project. Some are
stepping up as investors themselves.
"It's not a big scale project," said David Allen, co-principal of
World Collaboration for Communications Policy Research, of Concord,
Massachusetts, who has bought a DSL wholesale business in the town.
"We have two and a half dozen customers." Allen said his local
authority has funds for new area services, and is considering how to
allocate them. Effectively, Allen is pitching to make broadband
infrastructure a part of those local services. He hopes to persuade
the authority that broadband is a facility for the local economy
because it will attract relocating businesses.
But for the most economically conservative, public investment is
no cure for the spreading disease of regulation, which should simply
be done away with.
"Korea, the number one country for broadband, is completely and
utterly unregulated," said Jerry Hausman, of the Massachussetts
Institute of Technology. "There's no pricing controls. Government
has stayed out of it... Canada [number two] has much less
restrictive regulations than the U.S."
Way ahead for U.S. and Europe
But what then is the way
ahead for the U.S. and Europe if neither has got it right so far?
One man who might know is Alfred Kahn, professor of economics at
Cornell University and keynote speaker at the CITI. Kahn deregulated
trucking and airlines for the Carter Administration. And he
suggested that telecoms - which he's had a go at, too - is more
complicated than either.
"No industry, with the possible exception of electric power, more
clearly poses the dilemmas of reconciling regulatory interventions -
necessary to ensure equal competitive opportunities - with genuine,
unregulated competition," he said.
His own suggestion is that if it has proved impossible for the
FCC to manage the regulatory process, then perhaps the
responsibility should be handed back to the states. "State-by-state
regulation was clearly meant in the [Telecom] Act," said Kahn.
This, he went on, would have meant some states opting to promote
network access by requiring incumbents to unbundle network elements
[UNE], others for full unbundling, and others wholesaling based on
total element long run incremental cost (TELRIC.) "The follies of
some states would quickly have become apparent," he said.
The idea of devolved regulation excited some but alarmed others.
"There are drawbacks" said Phil Weiser, of Princeton University
and the University of Colorado. "The FCC needs to set minimum
standards on a range of things. And not all states have the
resources to experiment as, say, New York can."
Not surprisingly, the incumbent telcos are particularly unhappy
at the prospect of a regulatory web stretched across every state
boundary.
"Is it better to go from one to 50, or from one to zero?" said
Dennis Weller, the Irving, Texas-based chief economist of Verizon
Inc. "I would say the latter."
David Molony is the editor of respected telecoms newspaper
CommunicationsWeek
International.