- The Washington Times - Monday, March 6, 2006

Broadband policy is national security policy. It should be fashioned by the federal government to insure universal availability. At present, countless parochial-minded municipal jurisdictions are thwarting the deployment of broadband by prohibitive “build-out” burdens on its pioneering delivery of IP-enabled video products to protect incumbent cable operators.

Congress should supersede that municipal protectionism with a consumer-friendly statute that encourages traditional phone companies to compete with cable through broadband delivery of multichannel video choices by nixing build-out. If broadband video revenues are arrested, broadband deployment will falter.

President Bush, in April 2004, announced a goal of “universal, affordable access to broadband technology by the year 2007.” The reasons are compelling.

Broadband innovations promise to revolutionize entire ways of communicating, learning and doing business. Broadband availability is the keystone to national economic and communications security for the 21st century. As Joseph Schumpeter observed in “Capitalism, Socialism and Democracy,” the alpha and omega of economic prosperity is a ceaseless process of creative destruction whereby new products and new methods of production displace the old.

Broadband pioneering has enabled the displacement of customary ways of research, education, communications, airline reservations, watching television and endless additional features of everyday life. New dazzling broadband innovations and universal deployment are as certain as the rotation of the Earth if municipal build-out mandates do not kill the goose that is laying the golden egg.

Investment in broadband is commensurate with corresponding revenue streams. If broadband is confined to voice and data transmissions without video opportunities, investment will be blunted. The sunk and fixed costs of laying fiber are enormous. But if a video revenue stream complements voice and data earnings, broadband investment will surge, especially in minority or poverty-stricken communities.

An analysis by the Phoenix Center for Advanced Legal & Economic Public Policy Studies estimated the percentage of homes occupied by racial minorities or the impoverished that would be served by broadband would rocket from a tiny fraction of 1 percent to approximately 99 percent if voice and video services could be supplied over the same pipe.

Phone companies already use broadband for voice and data communications. To prevent them from employing the same network for video would be conspicuous economic waste, akin to limiting a drug to the treatment of a single illness, or confining a professor to the teaching of a single course, or prohibiting an aircraft from carrying both passengers and cargo.

But that economic folly is at work. At present, thousands of local jurisdictions are imposing cost-prohibitive “build-out” requirements on phone companies eager to compete with local cable monopolists in providing video products to drive down prices and upgrade customer service. Municipal officials customarily beholden to the incumbent cable operator demand that new video entrants provide virtually instant wireline service throughout the entire cable franchise area.

The protectionist intent of effect of these build-out mandates is to block new entrants. A staggering amount of capital investment is needed to bring video to the home by laying new fiber or by upgrading an existing wireline network. That investment must be made without a guarantee of a single new subscriber. The economic risk becomes prohibitive if video competition with the incumbent cable monopolist cannot proceed in stages in response to free market forces.

As the Federal Communications Commission (FCC) has recognized, “build-out requirements are of central importance to competitive entry because these requirements impact the threshold question of whether a competitor will enter the … market at all.” The commission employed that rationale to prohibit the imposition of build-out requirements on cable operators as new entrants in the telephone market challenging incumbent telephony providers. The predictable consumer-friendly result has been falling phone bills and superior service.

The video market would turn equally favorable if phone companies were not deterred by protectionist build-out mandates. According to the FCC, the average bill for expanded basic cable rocketed 40 percent between 2000 and 2004. Subscribers are eager for more than a “nonchoice, choice” for a cable subscription. Where new wireline video providers have challenged the incumbent cable monopolist, cable prices begin a vertical plunge within months: 25 percent lower in Keller, Texas; 37 percent lower in Temple Terrace, Fla.; and, 42 percent lower in Herndon, Va. And in Texas where build-out obligations are prohibited by state law, new video entrants responded with alacrity by announcing $1 billion in new broadband investments. In Indiana, a franchise reform measure approved on March 1, promises to open the market to new competition and investment in that state as well. It’s time for Congress to emulate these innovative state actions with national legislation to accelerate broadband coast-to-coast.

A federal anti-build-out statute would not disturb existing federal and state prohibitions on “red-lining,” i.e., denying a video product on the basis of income. Indeed, such a law would prevent a digital divide by bringing broadband to 99 percent of the poor, as the Phoenix Center study estimated.

Congress should say “no” to build-out and “yes” to free and fair competition by new entrants in the multichannel video market. If build-out requirements are permitted, broadband deployment will languish at the expense of economic and communications security.

Bruce Fein is a former general counsel of the Federal Communications Commission and a consultant to AT&T.

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