Let the Market Control Faster Access to the Internet
The Internet is usually viewed as the no-holds-barred domain of entrepreneurs and venture capitalists. However, in a federal appeals court in Portland, Ore., this free-wheeling territory is being invaded this month by scores of lawyers and lobbyists on the payroll of Internet, telephone and cable giants.
The outcome of AT&T; vs. City of Portland could determine how and when American homes and businesses are linked to the Internet via the newest generation of high-speed connections known as broadband. The court’s decision also holds sweeping implications for the future of the $300-billion-and-climbing electronic commerce market.
The lawsuit stems from Portland’s decision to add an “open access” provision to AT&T;’s application for an otherwise routine cable license transfer. As with other politically charged language, the term “open access” obscures more than it explains. In this case, open access means a government mandate that AT&T; allow competing firms to use its newly acquired cable lines under a rate structure set by government to offer high-speed Internet access and other services.
The idea that government should mandate access to new technologies and infrastructures that are privately owned and privately financed is bad economics, bad policy and--if the court allows Portland to stand--bad law. This holds true for both new cable lines owned by AT&T; and for traditional telephone lines owned by the regional Bell operating companies.
Until Portland, government at all levels had resisted the temptation to regulate the Internet. Regulators recognized that any short-term benefits would not outweigh the advantages of a long-term, hands-off approach aimed at creating a competitive marketplace where new technologies flourish and companies fight for customers. And with good reason.
From an economic standpoint, it is impossible to argue that one company holds or is ever likely to hold monopoly control over the broadband market. Today, there are hundreds of companies competing to offer high-speed Internet access using four principal technologies--cable, satellite, wireless transmission and digital subscriber lines, or DSL, delivered over existing telephone lines.
Competition among these technologies has spurred hundreds of billions of dollars of investment as companies race to win subscribers. On Oct. 19, SBC Communications announced that it was investing $6 billion to make DSL service available to more than 61 million customers. America Online has invested $1.5 billion in Hughes Electronics to allow it to beam Internet access via satellite. AT&T; has already spent about $140 billion to purchase cable companies, and it plans to invest billions more to upgrade these lines to deliver broadband service.
The public policy arguments against mandated access are equally compelling. If Portland becomes the law of the land, each of the 30,000 cable franchise authorities scattered across the United States will have the right to set Internet policy within their jurisdictions. Imagine the implications of thousands of local regulatory bodies dictating policy with regards not just to Internet access but content and taxation as well. What rational company would invest billions in innovative new technology when the potential profits from those investments would lie at the whim of 30,000 local regulators?
The hurdles to national Internet regulation are no less daunting. In 1996, Canada began requiring cable operators to allow access to any and all Internet service providers. It took Canadian regulators three years just to set the rules and protocols for mandated access. Rate schedules still have not been set and are not expected to be set until next year.
With these and other concerns in mind, the Federal Communications Commission has rejected repeated calls to expand its regulation of Internet access, concluding that the “market is the only force . . . sufficiently dynamic and informed to create a competitive broadband marketplace.”
The FCC’s faith in the market is well-placed. There is already considerable evidence that the threat of competition between cable companies like AT&T; and DSL providers like the regional Bell companies is creating more Internet choices for consumers at dramatically lower prices. Although DSL technology has existed since the late 1980s, few Internet users had access to this technology at any price. Now, after feeling the heat from cable, DSL is being rushed to the market at competitive prices. US West, for example, has lowered the price of its DSL service over the last two years by almost 40%.
Competition in the broadband industry is thriving. Companies are scrambling to invest in exciting new technologies. Consumers are enjoying faster connections to the Internet at lower rates. So why regulate when competition is working? Good question.
