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 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.