The Need for Speed: A New Framework for Telecommunications Policy for the 21st Century

Toward a Twenty-First Century Policy Framework for Telecommunications

3 Toward a Twenty-First Century Policy Framework for Telecommunications 25 Broadband deployment in the United States is at a crossroads. Although virtually the entire nation is covered by two wireline technologies (cable modem and DSL) for first-generation broadband service, roughly 55 percent of the nation’s households have access to only one wireline provider capable of supporting next-generation or “superfast” broadband as defined by the FCC.7 In its sixth (2010), seventh (2011), and eighth (2012) “Broadband Progress Report,” the FCC defined broadband as “a transmission service that actually enables an end user to download content at speeds of at least 4 megabits per second (Mbps) and to upload content at speeds of at least 1 Mbps over the broadband provider’s network (4 Mbps/1 Mbps).”8 That requirement largely excludes many varieties of DSL service from the broadband landscape, and it is consistent with our view of what constitutes a reasonable alternative to superfast cable modem service. By 2012, cable infrastructure was upgraded to next-generation technology (DOCSIS 3.0), which is capable of offering download speeds of 100 Mbps or faster, in roughly 98 million U.S. households.9 In both 2010 and 2011, cable companies invested nearly $13 billion in cable infrastructure,10 one-third of which was likely broadband related.11 In contrast, telephone company infrastructure has been upgraded to next-generation technology (“fiber to the premises” or “fiber to the node”) in only 55 million U.S. households.12 Although in 2011Verizon passed an additional 900,000 homes with FiOS13 and in 2012 AT&T committed to wiring another 8.5 million homes with U-Verse over three years,14 telcos generally seem to be more focused on increasing penetration at homes already served by fiber and on expanding their fourth-generation (4G) wireless offerings.15 A third and a fourth broadband pipe are being deployed by wireless 4G operators and satellite providers, respectively. This fact pattern— nearly ubiquitous deployment by at least one provider, with significant areas beholden to a single fixed-line provider capable of satisfying the FCC’s standard—forms the context in which all discussions about broadband policy should take place. Three economic principles guide our policy prescriptions relating to broadband policy: —Broadband deserves special treatment. —Maximizing consumer welfare is the proper objective. —Regulators should embrace ex post, case-by-case review of vertical restraints among broadband providers and Internet content providers. If broadband did not constitute the most important platform by which U.S. households interconnect, build vital human capital, and freely express their opinions, then we should be indifferent as to how many people have broadband access. If broadband investment did not generate millions of jobs, support billions in economic output, enhance the nation’s productivity, and permit development of innovative ways to deliver heath care and other vital services, then we should be content with the current level of 26 Toward a Twenty-First Century Policy Framework broadband investment. But broadband does in fact deliver all of those benefits and more, which implies that broadband deserves special treatment by policymakers. As economists with great faith in market forces where they are allowed to operate, we would not advocate policies to enhance competition in, say, the number of search providers or the number of local French bistros, despite our strong affinities for both. Market competition can be counted on to deliver the socially optimal level of those services. Unfortunately, several barriers, including government-created barriers, stand in the way of market forces working their magic for broadband, and those barriers need to be removed. In addition to calling for removal of artificial barriers to entry, we advocate limiting the FCC’s authority, sharpening its focus, and embracing case-by-case adjudication of access and carriage disputes (instead of allowing it to issue broad orders that proscribe certain vertical arrangements), which could not only accelerate further investment in broadband facilities but also promote consumer welfare more broadly. In the remainder of this chapter, we elaborate on the reasons that we believe that the foregoing three principles should guide broadband policy. In chapter four, we provide specific policy recommendations for implementing these principles. Our recommendations fall into two broad categories: policies that would stimulate investment by fiber operators and those that would stimulate investment by wireless providers. The Case for the Three Broadband Policy Principles Many documents about broadband have been published. Nowhere else, however, have we...