Time for Broadband Regulation?

There may soon come a time when both small and mid-sized e-commerce businesses will be rooting for the U.S. government to stick its nose directly into the broadband industry, just as it did when the country was being wired for telephone service, and again when it broke up Ma Bell.

There are currently a handful of bills trapped in the House of Representatives Commerce Committee that would give relief to local exchange carriers by allowing them to offer high-speed Internet services, but they are not likely to get any action this legislative term.

Broadband is obviously not as important for the average American as the telephone, in terms of connectivity to the rest of civilization. But with the explosion of e-commerce, broadband will play an increasingly critical role in the position of the United States in the global economy.

One forecast sees broadband services growing from 2.1 million subscribers in 1999 to 18.9 million in 2004, with spending rising from $1.1 billion (US$) to $6.9 billion.

Subsidize Broader Access

There are two ways government involvement could help. One is to subsidize broadband access to the regions that would never get it if left purely to market forces.

The Federal Communications Commission (FCC) acknowledged this “digital divide” within the United States. In its second annual report to Congress recently, the FCC named five groups as vulnerable to being bypassed: rural, inner-city, low-income, minority and tribal.

Chairman William Kennard bemoaned the fact that large segments of the population are being left behind, and said the FCC should adopt a policy of inclusion. But he stopped short of recommending government intervention.

Keep an Eye on the Big Players

The government could also be proactive by taking as vigilant a stance in ensuring that monopolies do not form in broadband — thereby raising prices for consumers while lowering customer service — as it has been against, say, large software companies owned by Bill Gates.

When Verizon Communications and NorthPoint Communications joined forces recently, it raised some eyebrows. With that deal, Verizon could very well become the first nationwide provider of direct subscriber line (DSL) services, an increasingly popular way of providing high-speed Internet services to businesses and consumers.

There are those who would cheer such a development, and there are others who have nightmares to relate about costly delays in obtaining DSL service, even in those relatively few areas that have access. They fear service may get even worse if there is no incentive to get better.

One-Stop, High-Speed Shopping

NorthPoint is basically a DSL wholesaler. Other Internet Service Providers act as distributors, buying the service from NorthPoint and re-selling it to businesses and consumers. But if Verizon becomes NorthPoint’s favored partner, the company’s current clients may feel that it would be useless to compete.

Together, Verizon and NorthPoint will serve the top 100 metropolitan markets in the United States. In one sense, that will help e-commerce, as it will provide one-stop shopping for businesses wanting to connect their telecommuters with branch offices scattered around the country.

In another sense, one-stop shopping can sometimes be spelled “monopoly.” With consumers already complaining about a severe lack of customer service on the part of many DSL companies, how will it be when there is no one to offer anything better?

Consolidation Likely

Analysts believe consolidation is inevitable in the DSL market. It is likely, especially in light of the Verizon-NorthPoint arrangement, that big firms — AOL, for example — might gobble up the other major DSL companies, Covad Communications and RhythmsNet Communications.

Government intervention is a tricky, delicate affair, almost universally frowned upon by business. However, even though it should be employed as a last resort, it is sometimes a necessary evil to keep a fair amount of leverage in the hands of consumers.