Internet Insight: Broadband Homeland

With universal broadband deployment in the United States stuck in neutral, a growing number of economists, industry leaders and government policy-makers are pushing just about any incentive that might jump-start new network build-outs.

With universal broadband deployment in the United States stuck in neutral, a growing number of economists, industry leaders and government policy-makers are pushing just about any incentive that might jump-start new network build-outs.

But disagreements among the broadband players—coupled with consumer groups impassioned resistance to any solution that further deregulates the telecommunications industry—threaten to perpetuate the snails pace of broadband deployment.

For example, last month the Federal Communications Commission moved to spur DSL (digital subscriber line) rollouts by tentatively redefining DSL as an "information service" rather than a telecom service. It was a controversial move that split the commission itself and immediately prompted Sen. Byron Dorgan, D-N.D., to schedule public hearings on the matter.

But it also re-emphasized the agenda of FCC Chairman Michael Powell, who last October said his goal was to make the United States the most wired nation in the world. That goal is becoming more urgent as the recession in the technology sector proves to be much more stubborn than expected.

"Now weve had a year of implosion," said Jonathan Cody, attorney adviser in the FCCs Office of Plans and Policy, in Washington. For the five years leading up to 2001, Cody said, the Internets impact on the economy "was a great run-up, and our basic mantra was dont screw it up. Now, were asking, Are there barriers in regulation to deployment?"

All the fuss over residential broadband might seem strange to IT professionals accustomed to the world of T-1, T-3, Synchronous Optical Network or Gigabit Ethernet. But in the past year, a growing number of economists and industry analysts began predicting that residential broadband would play a key role in determining whether the U.S. economy grows or stagnates in the next decade. As a result, residential broadband such as cable, DSL and satellite links could have a major impact on the budgets and roles of IT departments.

Not surprisingly, the nexus of the debate is the FCC, especially Powell. At a time when investment in DSL has slowed to a crawl and the future of third-generation wireless is in chaos, the commission finds itself under growing pressure to ease regulations imposed on RBOCs (Regional Bell Operating Companies) by the Telecommunications Act of 1996 and to reassess the way it dispenses increasingly precious radio spectrum for wireless bandwidth.

"The bottom line is that it costs a lot to build these networks," Cody said. "So were looking for things we can do to encourage that investment—but consistent with the Telecommunications Act of 1996."

Congress, Cody said, built a great deal of regulatory flexibility into the 96 act—certainly enough to redefine the nature of DSL. "If the authors were to start over today, they might define broadband Internet access service differently."

Some of the loudest complainers have political or economic agendas, while others are seeing only the empty half of the glass. For example, Paul Polishuk, president of Information Gatekeepers Inc., a Boston-based consulting service that specializes in broadband issues, pointed out that it nearly doubled last year, to about 10 million U.S. residences.

"What else grew by 100 percent last year?" Polishuk asked in a statement e-mailed to eWeek last month. Citing "recession, numerous xDSL resellers going bankrupt, broadband ISPs going bankrupt, a lack of effective marketing, 20 percent price increases and very limited broadband access availability," he called last years growth "an astounding record, not a symptom of failure."

Yet many experts inside and outside the technology sector insist current growth rates are inadequate. One of the most ambitious plans for accelerating residential broadband was set out in a policy paper issued in January by TechNet, in Palo Alto, Calif., a group representing senior executives of the nations leading technology companies. It calls on President Bush and policy-makers "to make broadband a national priority and to set a goal of making an affordable 100M-bps broadband connection available to 100 million American homes and small businesses by 2010."

Most analysts believe that goal is fantasy.

"It would be terrific if it happened, but I dont think its possible, frankly," said Ben Macklin, an analyst for the Manhattan-based research group eMarketer Inc. For one thing, Macklin said, that kind of speed is well beyond the capabilities of existing infrastructures of any kind—cable, copper or wireless. "If were talking 100M-bps, were talking about fiber right to the home, and thats going to take a huge amount of investment between now and 2010," he said. "Whos going to pay for that? The cable companies? The telcos? The government?"

While the bandwidth blitzkrieg outlined by TechNet may seem extreme, such calls are becoming increasingly urgent for two reasons. First, a growing number of studies suggest subtle but undeniable ties between broadband availability and economic growth. And second, that link is becoming apparent as the United States finds itself falling further behind other nations in the availability of residential broadband.

With a penetration rate of just over 10 percent of all households as of Jan. 1, the United States ranked seventh in the world. Over the next three years, TechNet predicts, the United States will fall to ninth place if current growth rates continue.

Billion-Dollar Opportunity

Still, few doubt that the economic consequences of residential broadband could be enormous for the United States. The most widely cited study on the subject was published last July by Criterion Economics LLC, a Washington-based consulting company. The authors, Robert Crandall of the Brookings Institution, and Charles Jackson, a professor of electrical engineering and computer science at George Washington University, drew upon data from myriad sources to arrive at the conclusion trumpeted in their reports ungainly title: "The $500 Billion Opportunity: The Potential Economic Benefit of Widespread Diffusion of Broadband Internet Access."

The Crandall-Jackson report credits the "IT revolution" of the late 1990s with the single biggest leap in total productivity in U.S. history—a tenfold increase from 1995 to last year over the previous 20 years. But the data also suggests it was the surge of the Internet during that period, not just the more-bang-for-less-bucks magic of Moores Law, that made computer technology the nations economic rocket. Now the Internet could start dragging the economy.

Todays standard dial-up speed of 56K bps, Crandall and Jackson wrote, "[are] hardly fast enough to download large audio or video files, to obtain complicated visual images required for real-time computer games or to conduct advanced e-commerce." Without universal high-speed access, they said, "the evolution of the Internet to its full potential is temporarily blocked, and its contribution to the acceleration in economic growth may soon ... end."

Both the Crandall-Jackson report and the TechNet policy paper are technology-agnostic, expressing equal enthusiasm for coaxial cable, DSL, fixed wireless and satellite. And just as important, both make clear that universal broadband is not a dot-com issue, nor are its benefits limited to online retailing or electronic delivery of entertainment products, the two most frequently cited "killer apps" for broadband. Every enterprise is going to be affected, they predict, in the marketing and delivery of goods and services and in relationships among customers, vendors, suppliers, investors and employees.

State Farm Insurance Cos., of Bloomington, Ill., for example, is an old-line, mainstream insurance company, typically not the sort of company associated with e-commerce or cutting-edge e-marketing initiatives. But Bob Reiner, State Farms director of enterprise Internet services, sees nothing but opportunity in universal broadband.

"The more sophisticated the information we can provide our customers in the form of business support tools, educators, etc., with the sheer speed of broadband, the better informed the customer is," Reiner said. "More informed is better as far as were concerned."

Customers expectations of access to individualized information is growing fast, Reiner said. That, in turn, requires increasingly sophisticated interactive technologies.

The Post-56k Vision

"Wed be able to develop better tools if performance on a 56K modem wasnt always a consideration," Reiner said. "For example, in a typical auto rate quote, we ask 24 to 30 questions, and it usually spans anywhere from 7 to 12 pages. That would be enhanced exponentially by broadband. Right now, where it might take you 15 minutes to do an auto rate quote, Im sure that could be pared down ... to just a few minutes."

Even behind the corporate firewall, IT departments will soon discover that universal broadband redefines the work environment—how, where and when employees do their jobs, interact with human resources and other departments, manage benefits and retirement plans, or monitor projects, among other things—as well as the way IT personnel do their own jobs.

"There are currently about 50 or 60 million mobile workers in the U.S.," eMarketers Macklin said, "and certainly a growing number of remote workers as well, so it is a challenge. The IT area will need to facilitate these changes, and theyll have to do it while improving network security at the same time."

Calling "ubiquitous broadband" inevitable, one travel industry CIO, who asked not to be identified, speculated that the only thing more frightening than the consequences of universal broadband for IT departments were the consequences for his industry.

"The IT implications for widespread telecommuting alone are enormous," he said. "Then you start adding things like videoconferencing—which, unfortunately for us, is high on corporations wish lists because of the huge cost savings over business travel. ... Its going to be a mess for IT—a target that keeps moving faster all the time."

The government, too, is often shooting at a moving target because many aspects of universal broadband are tied to regulation, oversight and laws that are outdated almost as soon as theyre enacted. Whats more, many critics paint government as the bogeyman—paradoxically both for interfering too much with the telecommunications industry and for not being proactive enough in encouraging the development of new infrastructures.

"We clearly understand that all these groups are clamoring for more broadband," said the FCCs Cody. "But I dont know that any of that makes us move any faster or directs our thinking. At the end of the day, were just trying to come up with what we think the right answers are for consumers."

The most contentious issue has been the spotty record of the RBOCs deploying DSL. Consumer advocates have laid this to any number of reasons, from an inability of traditional monopolies to play in a competitive, entrepreneurial market to a fear that inexpensive high-speed DSL will cannibalize sales of highly profitable T-1 lines to medium-size and large enterprises.

But the phone companies say they have little incentive to build out DSL services as long as they are subject to regulatory restrictions not imposed on their chief competitors—cable broadband providers. Their primary complaint is that the Telecommunications Act of 1996 bars them from providing long-distance voice or data services until they can convince the FCC they have opened their networks to competition. And to ensure that such competition is possible, they must allow competing providers of both local phone service and Internet services access to their networks at wholesale prices.

Cable companies are not subject to these so-called open-access requirements. At the same time, as they upgrade their networks from one-way analog television transmission to two-way bandwidth for broadband and other digital products, there is nothing preventing companies such as Comcast Corp., AT&T Corp. and Time Warner Cable Inc. from offering local phone service over their cables. This regulatory inequity, say the Bells, is why cable broadband currently serves six times the number of residential customers served by DSL.

While that argument is widely considered disingenuous at best, there is growing recognition in Washington that the emergence of cable as a competing information and voice network—coupled with increasingly interactive high-speed satellite technologies and rapid advances in fixed wireless technologies—demonstrates that the market is beginning to generate natural competition for the Bells where the 1996 act has largely failed to impose competition artificially.

It was against that background that the FCC voted Feb. 14 to reclassify broadband services over phone lines. In announcing the change, Powell said the reclassification would provide greater regulatory clarity, "so companies—incumbents and competitors alike—know what to expect and can make prudent decisions to build and enter these new markets." In taking the action, he added, "We have stopped just talking about promoting broadband and started acting."

The FCCs redefinition accomplished a goal of the Tauzin-Dingell bill, legislation considered last week by the House that would also give RBOCs the right to offer DSL without first having to prove they have opened their local monopolies to competition. But unlike the FCCs simple redefinition, the bill would also rescind the requirement that the RBOCs open up their networks to independent DSL carriers and would prohibit both the FCC and the states from regulating high-speed data networks—even if they happen to be carrying long-distance voice over IP.

The issue is far from resolved. Most consumer advocacy groups oppose the decision because it will clearly make it much harder for small DSL providers that sprang up under network-sharing provisions of the 1996 act to compete or even survive. FCC Commissioner Michael Copps alluded to that problem in dissenting from the decision, arguing that "setting competition policy is the jurisdiction of Congress."

Cody said nothing is carved in stone but action had to be taken. "The industry is clamoring for broadband, and I think consumers to a large extent are clamoring for broadband," he said. "We have not made any final decisions. This was to lay out our beginning thinking on this issue." Describing reclassification as "the necessary first step," he said, "At the end of the day, what we want to see is consumer choice. The more pipes, the more choices youre going to have. That will derive great benefits for the public and for the economy."