Which Broadband Nation?

The FCC's Real Wrongs

PHILIP J. WEISER

Like monetary policy and antitrust regulation, telecommunications policy is a major driver of economic growth rarely debated in public. During the last presidential campaign, for example, issues related to the United States' technological leadership were either marginalized or ignored altogether. By highlighting the importance of this overlooked topic, Thomas Bleha ("Down to the Wire," May/June 2005) performs an important public service. Unfortunately, in criticizing Washington's approach to the issue, he misidentifies the challenge and offers a problematic solution.

TOKYO STORY

The essence of Bleha's argument is that under President George W. Bush, the United States dropped "the Internet leadership baton," allowing Japan to "pick it up" and guide broadband innovation. Bleha cites Japan's progress in spurring high-speed Internet access connections via both wires (using digital subscriber line [DSL] and fiber-optic technology) and wireless spectrum. He predicts that Japan and other technology-savvy countries, such as South Korea, will reap "the benefits of the broadband era" while the United States will be left behind.

It is beyond dispute that Japan has succeeded wildly in stimulating the rollout of DSL connections. Japan's recent regulatory policies, along with the entrepreneurial gusto of the venture-capital firm Softbank (which underwrote the investments made by Yahoo! BB), have brought faster, cheaper, and more innovative broadband services. The number of DSL connections in Japan surged from 100,000 in 2001 to more than 9 million just three years later, with the established providers offering only 40 percent of these. Regardless of whether this success owes more to government regulations or to Softbank's risky investments, Japan's experience is worth examining.

Bleha argues that the day of reckoning will come for Washington, not only because Japan's success has eclipsed U.S. progress but also because of what he describes as U.S. policy failures. Unfortunately, he misstates the record. Bleha blames Michael Powell, the former chair of the Federal Communications Commission (FCC), for making a series of convoluted regulatory decisions and for failing to encourage broadband deployment by requiring that all broadband networks be shared with competitors. Under Powell, the FCC did exempt telephone companies from having to share newly built fiber-optic connections with rivals, but it did so to encourage companies to invest the billions of dollars necessary to lay down the expensive cables in the first place. Bleha, moreover, overlooks the fact that to promote competition, Powell did support the Japanese model and a "line-sharing" policy that would have given new providers access to existing copper wires. Unfortunately, as part of a compromise designed to guarantee access to existing voice telephone networks, a majority of the FCC rejected Powell's position, making a policy mess. Contrary to Bleha's criticism of Powell, Washington failed to follow the Japanese model because it focused on the old voice network, not because Powell lacked the vision necessary to promote DSL competition.

OUT OF COMMISSION

As Bleha correctly notes, U.S. broadband policy focuses on encouraging platform rivalry, with DSL and cable modem providers taking the lead. Soon, however, they will face competition from wireless services such as next-generation mobile phones or fixed wireless technologies such as WiMax. According to Bleha, the Powell FCC failed to facilitate the rollout of such technologies; instead, he charges, the FCC "only tinkered with spectrum policy around the edges."

Once again, his indictment misses the mark. The current FCC is not to blame for the lack of spectrum available for wireless broadband; U.S. broadband policy is hamstrung by a series of protectionist decisions that Congress and earlier commissions made years ago to govern the transition from analog to digital television. These decisions, intended to protect U.S. television manufacturers from Japanese competition, dedicated large swaths of spectrum to television broadcasters, which now reach only approximately 15 percent of their viewers "over the air" (as opposed to via satellite or cable connections).

The challenges of reforming U.S. spectrum policy appear lost on Bleha. For starters, the United States remains committed to simultaneously broadcasting television shows in both the analog and digital formats, which requires reserving valuable spectrum even as fewer Americans watch over-the-air television. Worse, broadcasters cannot sell or lease to wireless broadband providers the spectrum they currently use, for example, for UHF stations. In other words, it is the rigid requirements (most mandated by Congress) restricting the use and transfer of spectrum that are stifling wireless broadband development today. If anything, the FCC deserves credit for taking, despite these conditions, a number of very important steps, including promoting secondary markets for spectrum, spurring the use of spectrum on an unlicensed basis for technologies such as WiMax, and calling for other innovative spectrum policy reforms, such as those designed to take advantage of software-defined radio technology.

CROSSED SIGNALS

Bleha's most troubling argument is his claim that the U.S. government should support certain technologies as part of its economic development strategy. To appreciate how risky the proposal is, consider the rise of advanced television and advanced mobile-phone service, both of which prompted regulatory strategies of the kind Bleha champions -- and both of which ultimately backfired.