Commentary: Behind In Broadband

New policies are needed to help the U.S. catch up

Love. Tears. Romance. Like millions of other Japanese, Midori Kato has been transfixed by the Korean soap opera Winter Sonata. But the 42-year-old freelance editor started watching the weekly drama even before it became available on broadcast television in April. Instead of watching on her TV, she logged on to the Web over a blazing 100-megabit-per-second broadband link. The video is just as crisp as her TV screen, right down to the tears on heroine Choi Ji Woo's cheeks. "I'm hooked," Kato says.

Don't expect to share in the travails of Winter Sonata's lovers anytime soon. That's because the U.S. is becoming something of a broadband backwater, a place where almost no one can do what Kato and millions of other Japanese take for granted. Many Americans may think that the U.S. is making progress because the number of broadband Net links continues to climb, but that misses the bigger picture.

The U.S. has steadily fallen behind other nations, both in terms of the share of the population with broadband and the speed of those connections. Consider this: In 2000 the U.S. ranked third in broadband penetration among the nations in the Organization for Economic Cooperation & Development. Last year it dropped to 10th place. That's behind recognized leaders such as Japan and Korea, as well as countries like Belgium and Canada. "It's ridiculous that the U.S., of all places, is so far behind in this key measure of economic development," says Tim Johnson, publisher of London's Point Topic, which analyzes world broadband trends.

At stake are more than just the bragging rights. Broadband is the foundation upon which entire new generations of technology will be built: full-motion video, Web-based medical care, more sophisticated Internet telephoning, and online gaming. Already, companies abroad seem to be using their robust broadband markets to gain an edge on U.S. rivals. Korea's NCsoft Corp. has come out of nowhere to become a tough contender in multiplayer online games. The City of Heroes game it launched this year has become one of the most successful online games in the U.S., while competitor Electronic Arts is struggling to create a multiplayer hit. "Given its experience in Korea, NCsoft may have an edge," says analyst Joseph Laszlo of Jupiter Research.

That's why the U.S. is in dire need of stronger leadership in broadband. The country is alone among developed nations in not having a comprehensive broadband plan. Both President George W. Bush and Democratic Presidential candidate John F. Kerry have pledged to tackle the issue after the election. But so far, their proposals, such as refraining from taxing consumer Web-access services, are modest.

Worse, current U.S. policies have the country moving backward. Look closely at the evidence: What helped the rollout of broadband in Korea and Japan were not massive government subsidies, as some believe, but policies that allowed vigorous competition. In particular, those countries forced the incumbent phone companies to let startups use their networks at reasonable, government-set prices. Those startups, especially Hanaro in Korea and Yahoo! BB in Japan, waged fierce battles against giant rivals, driving prices down and speeds up. "Competition is the No. 1 [reason] why one country grows faster than another," says Sam Paltridge, the OECD's telecom analyst.

On this score, the U.S. has blown it. This summer the Bells won an eight-year battle to stop competitors from using their networks at deep discounts. That prompted AT&T (T ) and MCI Inc. (MCIP ), which had been using the Bells' lines, to retreat from the consumer markets. "The holy jihad war of telecom between the incumbents and the competitors" has delayed broadband in the U.S., says former U.S. Federal Communications Commission Chairman William E. Kennard, who favored the Bells' leasing obligations. Now, most markets are cozy duopolies, at best, where consumers can get broadband only from a phone or cable company. The result is that U.S. consumers can pay $35 or more for a 1.5-megabit-per-second connection, compared with Yahoo! BB's price of $25 for 26 megabits.

To have any hope of joining the world's broadband vanguard, the U.S. must create a viable third competitor. The options are few. Congress is unlikely to force politically powerful Bells to share their networks, even though lawmakers are expected to rewrite the telecom industry's regulations next year.

Much more promising is the rivalry that might be sparked by new, inexpensive wireless technologies. Chief among these is WiMax, expected to be available next year. WiMax is expected to zip bits through the airwaves as fast as 75 megabits per second and cover areas as wide as 30 miles. Because the equipment needed to cover a small city can cost as little as $100,000, WiMax could open the door to a stampede of contenders. Already, it's winning the backing from the likes of chip giant Intel Corp. and cellular pioneer Craig O. McCaw.

Bush and Kerry both favor making airwaves available for the new technologies, but there's one hitch: The best radio spectrum for wireless broadband isn't available. It's being used by TV broadcasters for analog transmissions. The broadcasters have been given another set of airwaves, for digital TV, but they're not eager to forfeit their freebie. If Bush and Kerry want wireless technology to spark more competition, they'll have to make the politically difficult step of taking on the powerful broadcasters.

Rural Reach

Federal and state governments can provide other incentives to create a third rival. One way is for lawmakers to pass a bill now pending, sponsored by Senators John D. Rockefeller IV (D-W.Va.) and Olympia J. Snowe (R-Me.), to let companies expense equipment costs when they build networks of at least 20 megabits a second. A U.S.-backed bond program would encourage municipalities to build their own fiber networks and then lease them to upstarts. And government can attract broadband to sparsely populated regions without tax dollars by creating pools of local buyers -- a measure Canada has adopted to reach its vast rural expanses. For instance, a U.S. Veterans Administration hospital, acting as an anchor tenant, could corral a group of local businesses and nonprofits to entice a phone, cable, or wireless company to serve them.

There are plenty of U.S. defenders who say the nation need not fret. After all, broadband is becoming more widely used. And the Bells are promising to build faster networks. Verizon Communications Inc. (VZ ) is spending billions to install fiber lines as fast as 30 megabits per second in 3 million households by the end of 2005. Plus, some argue that other countries have an advantage in broadband because their populations are more densely packed and therefore cheaper to reach.

But excuses never make good policy. If the U.S. is not to lose out in the global race for the next-generation Internet and the new businesses it can spawn, change is needed. The country must create vigorous competition to drive the low prices and high speeds that can usher in a prosperous broadband economy.

By Catherine YangWith Moon Ihlwan in Seoul and Hiroko Tashiro in Tokyo

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