Behind In Broadband



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 US 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 US 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 US 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 US 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 US 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 and MCI, 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 and Olympia J. Snowe, 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 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 Yang With Moon Ihlwan in Seoul and Hiroko Tashiro in Tokyo
in BusinessWeek. Copyright 2004 by The McGraw-Hill Companies, Inc

Taking a Wrong Turn On Broadband

In 2000, America had the world’s third-highest broadband adoption rate. Now
it’s No. 10-and could slump further in the years ahead. Here’s why:

No Leadership: While nations such as Canada, Japan, and Korea adopted
policies to promote broadband years ago, no US Administration has yet endorsed a
comprehensive plan. President George W. Bush and Democratic Presidential
candidate John F. Kerry are advancing broadband plans, but the initiatives are
modest.

Botched Public Policy: The US has never had aggressive pro-broadband
policies, and it’s now moving backward. This year, US regulators dialed back
on the Bells’ obligation to lease their networks to competitors at deep
discounts. That decision will eliminate AT&T and other companies as viable
broadband players.

Timid Competition: US consumers depend primarily on a cozy duopoly of
broadband providers: the Bells and the cable-TV companies. The two sides have
been slow to push for higher broadband speeds or fast price declines.

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