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Broadband Blues

Last year the hot debate in telecom policy circles was over "net neutrality." This year it's over whether the United States is losing the broadband race.

At first glance, there shouldn't be much of a debate. According to the OECD, the U.S. ranks 15th among 30 OECD nations in broadband subscribers per capita, down from 4th in 2000 and 14 places behind the broadband leader, Denmark.

Those who are critical of current U.S. broadband policy (or lack thereof) pounced on the numbers as clear evidence of failure. In contrast, defenders of the status quo attacked the messenger, proclaiming that something is rotten in Denmark (or in this case, in Paris where OECD is headquartered). Leading the charge, the National Telecommunications and Information Administration has painted the rankings as bogus in part because they exclude "students, employees of corporations and United States Government employees," and others who get broadband for free. But leading nations also have students and employees of corporations and government who get broadband for free and they aren't counted either. NTIA also points to the fact that the U.S. leads the world in number of broadband subscribers. Yet we also lead the OECD in non-subscribers, and we certainly do not hear anybody touting that dubious accomplishment.

Many conservatives have also launched a full-throated attack on the rankings. Some even go so far as to allege a Euro-biased OECD plot "to put EU countries in the best light and the U.S. in the worst light." Wow, talk about paranoid.

Most conservatives don't go that far, but they still find fault with the rankings. Scott Wallsten, of the conservative Progress and Freedom Foundation, argues that, "The share of Americans who are Internet users, for example, compares much more favorably with the rest of the world and is higher than those of other countries often held up as models to be emulated, such as Japan." But this is only because more Americans are on painfully slow dial-up connections. In fact, the same proportion of Japanese households subscribe to broadband as in the U.S., but they get speeds 20 to 100 times faster.

Others dismiss the very idea of comparing us against other nations, citing factors, like differential population density, that claim excuse our poor performance. But when you use a measure of "urbanicity" that takes into account both the percentage living in urban areas and the average density of those areas, there is virtually no correlation between a country's "urbanicity" and level of broadband adoption.

So why have conservatives launched this assault on "facts?" Three reasons. First, they fear that our falling rank will be seen as a repudiation of the U.S. broadband regulatory strategy of favoring inter-platform competition (letting cable and telephone companies slug it out in the broadband marketplace). Other nations, including most of the OECD leaders, chose intra-platform competition (requiring the incumbent telephone monopolies to share their lines with other broadband ISPs). But the OECD numbers shouldn't be seen as a reflection one way or another on the validity of our regulatory strategy or theirs. Lacking robust competition from cable companies, those nations chose their approach largely because they knew that if they wanted to "generate" competition, forcing the incumbent to share its lines was the only way. In contrast, in the United States, cable companies were in the marketplace first and it is the incumbent Bells that have had to struggle to catch up.

The second reason for their condemnation of the OECD numbers stems from a general reluctance of conservatives to admit that the U.S. may not be number one. A decade ago, America was riding high on the digital wave, looking back at other nations that "didn't get it." After all, the French had Minitel and the Koreans charged Internet users by the minute. How things have changed. Now, these nations have leapfrogged us, not just in broadband, but in a host of digital applications: Japan in mobile commerce; the Netherlands in health IT; Korea in telematics (applying IT to transportation); Belgium for smart IDs; Germany for smart cards, etc. And what's worse, at least for market-oriented conservatives, many of these nations got there through a combination of private sector innovation and government support.

This leads to the third, and perhaps most fundamental reason for their complaints. Conservatives wonder, exactly who is the OECD to tell us that we don't have the right amount of broadband? There is only one process by which we can know, and that is the working of the invisible hand of the market. In fact, according to conservatives, as long as we let the market work, we will always have the right amount of broadband, since by definition the amount the market provides must be the right amount.

If we are behind, they argue, it's because other nations have succumbed to the sin of implementing a market-distorting national broadband policy. Former FCC Commissioner Harold Furchtgott-Roth warns that the OECD numbers will lead us to "imitate Western Europe and say that they got it right and we got it wrong. It doesn't make sense and the reason is that free markets work. Centralized planning, such as in France, does not work."

This gets to the heart of the matter. For conservatives, "centralized planning" means adopting a proactive national broadband policy that work to generate more and better broadband than consumers acting on their own would purchase. To be sure, the conservative faith in markets is amply justified in many areas where consumer choice leads to the best outcomes. No one is calling for a national iPod policy or for tax subsidies on Blu-Ray DVD players, for the good reason that these are consumer items that the market best allocates. But broadband is different: market failures lead to it being undersupplied. The principle market failure is that the provision of broadband involves what economists call "positive externalities." For example, the fastest broadband connections simultaneously support a host of digital video, voice, and data applications, like telemedicine. Yet the success of these applications is hindered by a classic "chicken or egg" dilemma: they will not develop without a market of high-speed broadband subscribers, but consumers need these applications as a lure to enter the high-speed broadband market in the first place. So yes, conservatives are right. Proactive policies and incentives for more broadband might "distort" the market. But they are wrong in saying that this distortion would outweigh the benefits. In fact, the innovation and productivity spurred by more and faster broadband is likely to vastly exceed any minor losses from "misallocation" of economic resources.

Broadband has become the 21st century equivalent of a "chicken in every pot." Everyone is in favor it. But the real issue is not whether broadband is good and more is better, but whether the market alone will provide the right amount of it anytime soon. The OECD numbers suggest that we can do better. Now it's up to us to do so. We can start by crafting and implementing a proactive national broadband policy.