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America: Still the High-Speed Laggard

In the early 1990s, Taylor Reynolds spent time as an exchange student in South Korea -- a good deal of it hunting for a computer on which to write his term papers. "I finally found someone whose sister worked in a preschool, and it had a computer," he remembers. "I had to go in on Saturdays to use it."

Reynolds, now a telecommunications analyst at the Organization for Economic Cooperation & Development (OECD), an international body that researchers the state of world economies, says South Korea is a far different place today, with 73% of the population enjoying high-speed Net access at home. "It was quite a transformation," he says. However, his parents in Salt Lake City, Utah, can't even get a digital subscriber line (DSL) high-speed Net connection from their phone company, Qwest (Q).

They're not the only Americans missing out on the broadband boom. Countries like South Korea, Demark, and even Canada are leapfrogging ahead of the U.S. in broadband adoption. Thanks to high costs, very little competition, and the logistical challenges of wiring large metropolitan areas, the U.S. is increasingly losing ground to other countries when it comes to broadband penetration and access.

COULD BE BETTER. In 2000, the OECD said the U.S. ranked third in Net users connecting at high-speed among the top-30 world economies. The next year it fell to fourth. Now it's 11th, according to the OECD. And fast connections in the U.S. are slower than in many other countries. A top-of-the-line cable modem in the U.S. carries five megabits per second, while broadband connections in Asian countries like Japan and South Korea are often 20 times faster. South Korea is, in fact, the world leader in broadband. And unlike the U.S., it has multiple companies offering most of the country DSL lines that are also faster than what's available in the U.S., thanks in no small part to government encouragement and sponsorship.

Certainly, broadband in the U.S. is growing. The OECD estimates the number of American broadband subscribers increased 32%, to 37 million, last year. That places the country well above the average for the 30 largest economies of the world. And the number of broadband connections has finally surpassed dial-up. That's not bad.

It's not great, either. About 20% of the U.S. has no way to get broadband Net access, and 5% to 10% more only have one choice: Their local cable-TV provider. Makes sense then, that while the U.S. ranks 11th in total broadband penetration, it ranks 23rd in DSL use (see table, "Cable: The Broadband Champ".)

BLAMING WASHINGTON. In fairness, the U.S. is a big country, and it's an expensive place to do business. The low labor costs and small geographies of many Asian countries allow utilities to offer broadband at rock-bottom prices, says Vamsi Sistla, director of broadband research at the consulting company ABI Research.

But that rationale only carries so much weight: Canada is a big country, too, and it doesn't have nearly the geographic advantages of a country like South Korea. Yet nearly all Canadian homes can get a broadband connection, according to online marketing trade publication eMarketer.

Many critics point the finger at Washington for not fostering the kind of competition that has allowed Canada's broadband market to thrive and led France -- not exactly known for fostering capitalist competition -- to boost its broadband penetration from 12% in 2003 to a forecasted 41% next year. If cable companies were forced to open up their lines, over-night 80% of the U.S. would have more than one broadband supplier to choose from. Theoretically at least, that would drive down prices and force companies to offer enticing service packages like phone and TV delivered via the Web.

SHARE THE RISK? It could happen. And a drama playing out now in the Supreme Court could help. On Mar. 29, the court heard arguments between Brand X, a small Santa Monica (Calif.) Internet service provider and the Federal Communications Commission. Brand X is trying to force the FCC to make cable companies lease their lines to rivals. Proponents say this would allow more competition, lower prices, and boost broadband adoption.

Opponents, including the FCC, point to what's happened in the telecom world since the Baby Bells were forced to share lines because the Telecom Act of 1996. They argue that sharing phone lines has only slowed DSL proliferation. It costs billions to upgrade DSL networks, and up to now, phone companies have been reluctant to take that kind of financial risk, saying they shouldn't be forced to share their networks with rivals who didn't put in the upfront money.

Based on that argument, the FCC, in addition to fighting the Brand X suit, is now mulling whether to allow the telcos to shut their lines to rivals. "We're seeing positive signs over the past few months that we'll have less policy and less regulation," says Shawn Dainas, spokesman for SBC Communciations (SBC). "If you're putting in all the risk, why do you have to share with competitors who aren't putting anything into the technology?"

BETTER WI-FI COMING. So if Brand X loses when the Supreme Court hands down hits ruling, which is expected this summer, is the U.S. doomed to keep slipping? Not necessarily. Verizon Communications (VZ) has pledged to install fiber-optic lines to 3 million households by the end of 2005. It'll offer speeds three times as fast as cable modems for $49.95 per month -- the best deal for that speed in the states so far, says eMarketer. SBC and BellSouth (BLS) are also boosting their networks.

And this summer the WiMax wireless communication standard will finally be set. WiMax is a faster, more reliable cousin to Wi-Fi, promising a strong signal for wireless Internet access for three to five miles. It could reach 98% of American homes on just $3 billion dollars in equipment, says eMarketer -- far cheaper than laying fiber-optic cables. Experts say WiMax could start gathering momentum by the end of the decade.

The Net may be faster for most consumers in South Korea, Denmark, or Canada than in the U.S. for now. But universal broadband for Americans is coming one way or another. Too bad other countries are getting it first. By Sarah Lacy in Silicon Valley

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