The Broadband Problem: Anatomy of a Market Failure and a Policy Dilemma

Chapter 6. The Policy System and Alternatives in the United States: Causes and Implications

169 6 The Policy System and Alternatives in the United States Causes and Implications The assessment conducted in chapters 3–5 suggests that the U.S. broadband industry is not performing very well. Moreover , there appears to be little reason to believe that the situation will markedly improve on its own. Altogether, then, the United States has both a major national interest in, and cause to be very concerned about, the future performance of the local broadband system. The industry’s problems have probably already caused large economic welfare losses over the past decade, since the advent of the Internet revolution . Historical and current conditions suggest that broadband services will underperform optimal, achievable levels in bandwidth and price-performance ratios by one to two orders of magnitude—that is, by a factor of 10 to 100—over the next decade. This may seem extreme, but high-technology sectors are such that inefficiency causes dramatically larger effects than in traditional industries. As noted earlier, the excess momentum of IBM and the traditional computer industry caused the average price-performance ratio of computers delivered to the world market to lag behind optimal levels by an order of magnitude for a decade. To be sure, the existence of a national interest in improved broadband deployment does not, by itself, imply that major policy changes are required or appropriate. It could be that the system will self-correct and that performance will begin to improve without policy intervention; alternatively, it could be that no productive policy interventions are feasible. These questions are 1901-06_CH06.qxd 03/03/04 10:59 Page 169 170          considered in the final chapter of this book. At a minimum, the existence of a nationally important market failure does suggest the importance of investigating policy options. The status quo is not producing impressive results, and its continuation is not riskless. On the other hand, it is clear that the existence of the broadband problem is not an accident, and that it reveals deep flaws in federal policy and regulatory systems. Implications for U.S. Regulatory and Policy Systems The history and status of the broadband problem, and the industries causing it, suggests major inadequacies in the U.S. policy institutions critical to the telecommunications industry, and to high technology in general. Indeed, perhaps the strongest argument for avoiding policy interventions specifically directed at local broadband service is that the current federal policymaking and regulatory system has such severe problems that it would be politically, administratively, and logistically difficult to do better than the status quo. The Federal Communications Commission, Federal Trade Commission , state public utility commissions, the Antitrust Division of the Justice Department, and the federal courts trying antitrust and regulatory cases all have substantial problems in dealing with the major industries they oversee , particularly in high technology. To varying degrees, all of them face political and interest group pressures, procedural and bureaucratic requirements that impede prompt action, and a shortage of high-technology expertise. This pattern has worsened under the Bush administration, in which most senior positions related to economic policy have been filled by executives from low-technology, energy-intensive industries.Vice President Dick Cheney and Commerce Secretary Don Evans both came from the oil industry; Treasury Secretaries Paul O’Neill and John Snow were, respectively , CEO of Alcoa, an aluminum company (aluminum production is among the most energy-intensive of all industries), and of CSX, a rail transport company. Administration appointments more directly related to telecommunications have also been heavily weighted toward executives or consultants for large firms. To some extent, this problem predates the Bush administration. The FCC has never contained many people, its commissioners included, with extensive experience in high technology. FCC commissioners are appointed by the president, the chairman comes from the party occupying the White 1901-06_CH06.qxd 03/03/04 10:59 Page 170          171 House, and the other commissioners are balanced between the two political parties. For traditional and political reasons, commissioners are nearly always lawyers or executives in traditional media industries; virtually none have ever come from a high-technology background, either industrial or academic. A substantial fraction of commissioners and other appointed FCC officials over the past two decades have represented the major communications firms they regulate. After leaving the FCC, most former commissioners have either become industry lobbyists or have entered FCCregulated , spectrum-based businesses; some have even received free spectrum from the FCC. The Bush...