Broadband is on a tear in the U.S. for the 12 months ended in June, the number of speedy, always-on internet connections has soared 43%, to 22 million users, according to market researcher RHK Inc. That's 18% of U.S. households. In four years, it could balloon to 50% of American households, estimates Forrester Research Inc. The service is surging "faster than any other consumer technology except DVDs," says Forrester analyst Jed Kolko.
Yet for all that progress, the U.S. is hardly the world's broadband leader. South Korea, Japan, and even Canada are ahead on just about every metric -- from the percentage of their populations with broadband service to the speed of those services. Three-quarters of Korean households have it, and their broadband allows them to cruise the Net at 3 megabits per second, on average -- about three times the speed American homes get. And the cost? About $25 a month, compared with an average tab of $45 for most Americans. In Japan, where 27% of homes have the service, broadband averages 10 megabits per second for only $23 a month. "[Real broadband] has not even started in the United States," says Masayoshi Son, CEO of Japan's Softbank Corp., which is pushing the broadband rollout in Japan. Even Michael Price, senior managing partner at the New York investment and advisory firm Evercore Partners Inc., says the U.S. "is on training wheels" when it comes to broadband.
But does it matter? Do broadband Net links have any impact beyond letting people swipe even more pirated music or while away the hours watching TV on their computers? Yes. For starters, broadband is critical to productivity. Through videoconferencing, it lets people work faster and more efficiently from home, allows students to take classes not offered at local schools, and permits patients to get care from specialists over vast distances. According to a study by economists Robert W. Crandall and Charles L. Jackson for the think tank Brookings Institution, universal broadband service could inject $300 billion annually into the U.S. economy. Just as important, U.S. competitiveness is at stake. Intel (INTC ), Microsoft (MSFT ), and eBay (EBAY ) became tech leaders, at least in part, because of early experimentation in the U.S. with semiconductors, software, and the Net. If entrepreneurs in other countries have a head start of several years to test new broadband applications and business models, U.S. startups may never catch up. "Technology leadership is not foreordained," says Reed E. Hundt, the former chairman of the Federal Communications Commission.
That's not to say the U.S. can -- and should -- copy South Korea. Deploying broadband there was fast and cheap because the country has just 15 million households and is only 38,000 square miles -- 1/100th the size of the U.S. And 60% of the population lives in large apartment blocks rather than the sprawling suburbs where many Americans reside. And the Korean government invested $850 million in broadband infrastructure and promises another $850 million over the next four years. There is no appetite for massive federal investment in the U.S.
Still, America's broadband infrastructure could be improved with some elbow grease and a heightened sense of urgency. The first step is for the federal government to roll up its sleeves and get into the game. The U.S. is alone among developed countries in not having an official broadband policy. In 2000, the Canadian government set the goal of making broadband available in every community by 2005 and offered financial incentives for providing service in the remote Yukon. That helped push broadband adoption to 36% of all Canadian households, twice as high as in the U.S., says analyst Kathie Hackler of researcher Gartner Inc. All the U.S. has is the FCC, "which is dazed and confused," says Hackler.
A good start for any broadband policy would be for the FCC to clear up contradictions in its own regulations -- and quickly. After an initial ruling on broadband regs in February, it took the FCC six months to write the roughly 600-page final draft. And the job is only half-finished. While the agency is phasing out old rules that forced regional telephone companies to sell digital subscriber lines (DSL), their broadband service, to rivals at state-mandated discounts, the Bells still operate under regulatory restrictions that obligate them to wholesale their DSL lines to rivals. Meanwhile, cable companies operate without these restrictions. That's a big reason why cable modem service is available to 85% of the country, compared with about 70% for DSL. The FCC is reviewing these DSL rules and could vote on them this fall. To boost the rollout of DSL, the FCC should vote to eliminate them.
That's not all the government can do. Some 15% of the U.S. still doesn't have the opportunity to buy broadband service because it's too expensive to deploy in remote areas. The Broadband Internet Access Act, an initiative introduced by Representatives Phil English (R-Pa.) and Robert T. Matsui (D-Calif.) that is similar to Canada's Yukon effort, could help bridge the divide. That bill would give tax credits of up to 20% to companies that invest in speedy service in rural and other underserved regions.
Certainly, bringing U.S. broadband usage up to snuff is more about private enterprise than government initiative. The cable-TV companies and the Bells could spur consumer demand by lowering prices. Korea and Japan have such high penetration rates in part because broadband is $25 a month or less. Verizon Communications and SBC Communications Inc. are showing the way by dropping the price of DSL to $29.95, in some cases with a package of phone services. They're betting they can make up for thinner margins with more customers -- and emerge as the nation's broadband leaders. Other companies should follow their lead.
U.S. broadband providers also have to play catch-up on transmission speed. Kim Ji Su, a 23-year-old medical student in South Korea, boasts a 20-megabits-per-second Net connection that lets him play games, surf the Web, and watch reruns of popular soap operas -- all at the same time. That sort of setup is pure fantasy for U.S. Web surfers. Yet the technology is available to boost speeds both on cable and phone lines. In an encouraging sign, Comcast Corp. is testing a 3-megabit service in Atlanta, Pittsburgh, and Knoxville, Tenn. If the tests are successful, the service could become the standard cable-modem package. "We're bullish about this business and recognize the customers' need for more speed," says Greg Butz, senior vice-president for marketing and business development at Comcast Online.
The final piece of the puzzle is content. Relatively few U.S. consumers will buy broadband simply because it's fast. They need compelling applications. One of the most promising, the ability to download and swap music, video, and other forms of entertainment, has been bogged down by legal controversy and questions about whether people will pay for digital music. Yet the emergence of legit, fee-based file-sharing services such as iTunes shows that those roadblocks can be overcome. "Much of the law necessary to establish property rights for content providers already exists," says Alan Fisch, an intellectual-property law expert at Howrey Simon Arnold & White, in Washington, D.C.
Still, there's a shortage of newcomers pushing Web content that takes unique advantage of broadband. Venture capitalists have cut their investments in startups precipitously, and Net-content providers have been particularly hard-hit. Just nine such startups received venture funding in the first half of the year, while 38 business-software companies did, says researcher Venture One Corp. It's time for Silicon Valley and Hollywood to work together to improve online offerings -- following in the steps of artists such as The Rolling Stones, who agreed to sell much of their music over the Web in August. Once that happens, U.S. broadband will really rock.
By Roger O. Crockett
With Moon Ihlwan in Korea and Catherine Yang in Washington