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The Broadband Problem

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

Charles H. Ferguson
Copyright Date: 2004
Pages: 236
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  • Book Info
    The Broadband Problem
    Book Description:

    As the Internet revolution continues to unfold and transform telecommunications, pressure is building for faster, less expensive, and more widely accessible broadband service. Such a development would facilitate improved and less expensive traditional applications such as voice telephony and web browsing. It would also enable new and useful applications such as Internet-based television, videoconferencing, and software distribution. Broadband has great potential to improve efficiency and productivity, even to improve national security in some cases. Broadband service and affordability, however, have consistently lagged well behind demand and progress in information technology, with damaging results. The Internet revolution remains incomplete and threatens to stagnate if the situation continues. In The Broadband Problem, economist and technology entrepreneur Charles H. Ferguson explains the causes and ramifications of this damaging bottleneck, and he offers suggestions on improving the current state of affairs. He asserts that current telecommunications law and policy have not provided sufficient levels of new entry, competition, and innovation in the local telecom market. The continuing dominance of ILECs (incumbent local exchange carriers) in that market impedes the healthy, and much-needed, development of an efficient broadband market. The result of these policy and market failures is inadequate technological progress, innovation, and productivity in advanced Internet services and telecommunication services generally. The broadband problem is holding us back, and thus must be addressed and solved. With this important volume, Charles Ferguson has contributed mightily to that mission.

    eISBN: 978-0-8157-9644-2
    Subjects: Political Science, Technology, Business

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Preface
    (pp. vii-x)
  4. Acknowledgments
    (pp. xi-xii)
  5. Abbreviations
    (pp. xiii-xvi)
  6. 1 Introduction
    (pp. 1-30)

    Of all the factors blamed for the U.S. economy’s recent problems, one that has received insufficient attention is the failure of the local telecommunications industry to provide rapid technological progress and cost reductions in the high-speed data communications services necessary to an advanced information economy. These services—which include high-speed Internet service, videoconferencing, and video delivery—are becoming essential to businesses and consumers alike. Yet ten years after the advent of the Internet revolution, the broadband situation remains quite unsatisfactory. The problem isn’t technology; it is the failure to deploy it. In January 2002, the Committee on Broadband Last Mile...

  7. 2 Telecommunications in the Internet Age: Very High Stakes
    (pp. 31-56)

    As atechnologicalinnovation, the Internet dates to the invention of the Internet Protocol (IP) and the IP-based Arpanet in the late 1960s. But its industrial and social impact was not felt until the invention of the World Wide Web in 1989–91, the appearance of the Mosaic graphical web browser in 1993, and the privatization and commercialization of Internet use in September 1994. In mid-1994, the entire World Wide Web consisted of perhaps 10,000 sites. Shortly thereafter, the Acceptable Use Policy restricting Internet use to noncommercial purposes was abandoned, commercial Internet applications became legal for the first time, and...

  8. 3 Technological Performance
    (pp. 57-96)

    Upon examination, the incumbent local exchange carriers emerge as slow-moving and inefficient, their primary concern in markets and in politics being to preserve their monopoly positions and existing businesses, in part by resisting improved technology. While this strategy succeeded for a long time, the ILECs’ inefficiencies have begun to adversely affect their financial performance, which has been deteriorating since 2001. Even with the collapse of most local competitors, they are gradually losing business, primarily via substitution effects produced by other technologies—such as cell phones, Internet telephony, and e-mail. Like IBM in the early 1990s, the ILECs may eventually face...

  9. 4 Financial, Strategic, and Political Conduct of the ILECs
    (pp. 97-137)

    The ILECs’ financial, strategic, and political conduct—like their technological behavior—seems focused on preserving their local services monopolies and preventing competitors from gaining access to their infrastructure. They have been very slow to modernize local loop infrastructure, even when sharply increasing demand for digital services since 1994 warranted such investments. They have treated their monopoly local services markets as cash cows, using cash flow for dividends, share repurchases, acquisitions, and lobbying activities rather than for R&D or capital investment in new technology. They have merged with and acquired each other, reducing the total number of large local services providers...

  10. 5 The ILECs’ Competitors
    (pp. 138-168)

    The ILECs’principal, and only significant, direct competitors in wireline services are the CATV industry (in residential broadband service) and IXCs such as AT&T and MCI (primarily in business voice and data services). Remaining CLECs also hold small market shares in some areas. As of 2003, ILECs held roughly 75 to 80 percent of the local business market (including both voice and data), about 95 percent of the local residential voice market, and a 30 to 35 percent share of the local residential broadband market. At year-end 2002, according to FCC statistics, the ILECs served nearly 170 million voice lines, while...

  11. 6 The Policy System and Alternatives in the United States: Causes and Implications
    (pp. 169-192)

    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...

  12. 7 Policy Recommendations
    (pp. 193-216)

    The policy measures proposed here concentrate on creation of an open-architecture, competitive U.S. broadband industry; structural and procedural reforms in the U.S. policy, regulatory, and research systems; national security and antiterrorism issues; and broader issues such as corporate governance, trade and development policy, and research on economic growth. These recommendations embody the view that U.S. policy should force a transition to an open, competitive industry, if necessary through antitrust actions and structural divestitures, while simultaneously pursuing procedural reforms in the regulatory system and other policy goals. In addition, two recommendations are directed at increasing financial incentives related to broadband deployment...

  13. Notes
    (pp. 217-226)
  14. Index
    (pp. 227-236)