U.S. Aiding Broadband Despite Strong Growth

Even as the economy hurtles toward a recession, Americans are signing up for pricey high-speed Internet access at a record pace.

But that hasn’t stopped the telecommunications industry from lobbying Congress for $413 million in tax relief and $80 million in low-cost loans as well as regulatory concessions that the firms say are needed to spur the technology’s rollout in more areas. And Congress appears poised to give it to them.

On Nov. 8, the Senate Finance Committee approved the tax credits for companies that provide rural areas with high-speed Internet access, also known as broadband. The Senate’s Democratic majority hopes to enact the measure--introduced by Sen. John D. Rockefeller IV (D-W.Va)--as part of an economic stimulus package, which is being challenged by Republicans.

The low-cost loans to help underwrite high-speed access in rural areas were approved by Congress last week and now only await President Bush’s signature.

In the House, Commerce Committee Chairman W.J. “Billy” Tauzin (R-La.) said he has enough votes to pass a measure that would allow the Baby Bell phone companies to offer high-speed Internet service without first allowing competition in their local telephone markets--a condition of the 1996 Telecommunications Act designed to prevent the Baby Bells from protecting their monopolies. House Speaker J. Dennis Hastert (R-Ill.) predicts the bill will come up for a floor vote by early December.

The bills have sparked an outcry from many policymakers and some consumer groups that say the measures are handouts that essentially reward years of foot-dragging and obstruction by the Baby Bells.

The Bells’ competitors, including Sprint Corp. and more than 100 other rivals, are howling as well. They gathered on Capitol Hill last week and denounced the Tauzin bill as a regulatory giveaway.

“If enacted into law, its consequences would be devastating to our ‘new-economy’ companies and consumers,” the group said in a letter to Hastert.

What rankles the opponents most about the proposals is that broadband, which provides speeds that are 10 to 30 times faster than today’s dial-up modems, has been doing just fine without help from the government.

“As we look at a U.S. economy that’s in a recession and an electronics market where consumers have scaled back their purchases, it is remarkable that broadband continues to grow quite well,” said Dylan Brooks, a senior technology analyst at Jupiter Media Metrix, a New York research firm. “We’ve really seen a shift in the last year from a market of early adopters to a burgeoning mass market.”

Indeed, demand for broadband is so strong this year that providers have been able to raise prices as much as 15% for a service that often requires customers to wait weeks for a high-speed hookup.

“The Internet has become a real necessity for families and individuals, and what we are seeing is strong interest ... [among] our members in moving to upgrade to broadband service,” said Audrey Weil, president of AOL Time Warner Inc. unit AOL Broadband. Fast Internet access, she added, sells itself: “It’s just a matter of us getting the installations done and keeping the consumers’ awareness up.”

Harris Miller, president of the Information Technology Assn. of America, said a better way to promote broadband would be for the government to step up its use of the Internet. Then, it could use its buying muscle to win lower broadband prices for nearby consumers and businesses when it orders high-speed lines, especially in rural and inner-city areas.

To be sure, investors are pouring less money into broadband ventures. And supporters of the Rockefeller bill say it is not aimed at spurring incrementally faster Internet access but very high-speed “next-generation” broadband in rural areas where the costs of wiring an area are high.

Nevertheless, the New Jersey consulting firm Probe Research found in June that consumers already were adopting broadband at a faster rate than the telephone, cable TV or the personal computer. There are now more than 8 million broadband subscribers in the U.S.

Meanwhile, Jupiter predicts the number of broadband subscribers will rise 20% this quarter, up from a 17% increase in the third quarter.

It would seem an unlikely time for Congress to be giving the industry a boost. But broadband has been swept up in the government’s efforts, after the Sept. 11 terrorist attacks, to stave off a crippling recession with tax breaks and other forms of economic stimulus.

“I think the perception among a lot of elected folks is that broadband is somehow going slow even though it’s growing quite rapidly,” said Robert D. Atkinson, an economist and technology expert at the Progressive Policy Institute, a liberal think tank in Washington. “I think the terrorist attacks have made it easier for Congress to consider helping” the technology industry in order to stimulate the broader economy.

The Rockefeller and Tauzin bills were thought to be longshots when introduced this year.

But the regional Bells have lobbied hard to convince lawmakers that federal reforms are needed to put them on equal footing with their less heavily regulated cable company rivals. The majority of new broadband users are flocking to cable, which signed up 825,000 new subscribers last quarter. They bring the number of subscribers getting broadband from cable to 6.4 million, the National Cable and Telecommunications Assn. said.

“The government needs to let normal marketplace incentives work,” said Jim Ellis, general counsel for SBC Communications Inc., the telecom giant that serves California and 12 other states.

“The deployment of broadband in the U.S. lags behind Europe and Asia and needs more of our government’s support,” Ellis said.