More Competition, Not Regulation, Is the Key to Faster Broadband

It’s rare these days in Washington to find even a goal free of bitter partisan division. Fortunately, there is one: faster Internet access over “broadband” networks.

 In contrast to electricity, broadband isn’t an all-or-nothing proposition. There are many different broadband speeds, more like driving a car. Unlike driving, there is no unsafe speed. Faster is simply better.

 As my Bloomberg Government colleague Afzal Bari and I explain in a new BGOV analysis, virtually all urban residents and the vast majority of those living in rural areas have access to “fixed” broadband (fiber or cable) or wireless at download speeds of at least 10 megabits per second (Mbps). That’s well above the 4 Mbps download speed that the Federal Communications Commission has defined as minimally acceptable broadband service. At 10 Mbps, users can easily browse the Internet, do video conferencing, and use basic cloud services such as e-mail and document sharing.

 However, broadband at 10 Mbps is inadequate if you want next-generation Internet services, such as streaming 3D television content, using complex cloud computing applications and conducting sophisticated data analytics. Fewer than half of households can get 100 Mbps or faster download speeds to enable these functions, and less than 4 percent have access to ultra-fast broadband at 1 gigabit (one thousand Mbps) speeds.

 Encouraging broadband providers – those with fixed fiber optic or coaxial cables or wireless competitors – to keep investing in faster networks will be a central objective of whoever is chosen to head the FCC after Obama’s first-term chairman Julius Genachowski steps down.

 Afzal and I outline three broad possible strategies. One is to hope that providers wire individual cities with ultra-fast 1 Gigabit service like Google is doing in Kansas City. No one knows Google’s plans for other cities, however, and for a municipality to do this on its own, as Chattanooga, Tennessee has done, will require subsidies, which are unlikely in this age of budget austerity at all levels of government. In any event, hope is not a strategy.

Another approach for those frustrated with cable monopolies of 100 Mbps service is to regulate these providers as if they were public utilities. With a guaranteed rate of return—and the concomitant entry protection that goes with it—cable providers would do whatever the regulator tells them to do, including increasing their speeds.

But it is a mistake to declare cable’s lead as a lasting monopoly. This pessimistic view is belied by two important facts. For one thing, broadband speeds — both fixed and wireless — have continued to increase rapidly during the past five years, driven by competition, investment and consumer demand. Second, the proliferation of smartphones and tablets connected to the Internet has driven improvements in wireless service (especially the latest 4G LTE) to the point where wireless is a viable competitor to fiber optic and cable. In short, utility-style price regulation of cable is unnecessary and even counter-productive, since it can discourage cable from making improvements, while discouraging new entrants, telcos with fiber or wireless, to enter cable-dominated markets with higher-priced but potentially better service. 

The third approach to speeding up broadband networks is to vigorously promote competition among both fixed and wireless broadband providers. This can best be done if the FCC accelerates its auctions of spectrum for expanded wireless networks, while the commission and local governments cut back regulations that inhibit investment by fixed broadband providers (telcos in particular).

We are encouraged that the FCC seems intent on proceeding with its spectrum auctions in 2014 (though we wish this had happened earlier), but are less optimistic that the commission will reverse its policies of the past four years that are inconsistent with the deregulatory agenda that would really unleash competition in the broadband market and accelerate the race for faster broadband speeds.

 

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