American Broadband Market Works, Economists Say

WASHINGTON, June 15, 2009 – Reports of the death of American broadband have been greatly exaggerated, said a group of economists Friday at a panel on broadband market competition sponsored by the Progress and Freedom Foundation.

Groups like Free Press who routinely cite international statistics to support a thesis of market failure in broadband are overly pessimistic, said  Thomas Hazlett, Director of Information Economy Project and professor of law at George Mason University. “We’re all falling behind…the decline is on and we’re all sinking into the abyss,” he said sarcastically. Whether or not the American market is truly a duopoly can be tested empirically, Hazlett suggested.

Emperis managing partner Jeffrey Eisenach called the U.S. rankings and duopoly claims “two big misconceptions with the state of the world.” Recent OECD rankings are “100 percent wrong,” he said. And charges of a duopoly fail because of differences between services offered to residences and business.

Regardless, because American broadband was deregulated just five years ago, “competition is driving innovation,” he said. Europe has very little fiber deployed in comparison to Verizon’s deployment of fiber to many American markets, he noted. And when one counts DSL, Cable, and 3G networks of both AT&T and Verizon Communications, 80 percent of Americans have “four pipes” to the home, he suggested.

But Information Technology and Innovative Foundation President Rob Atkinson said there is a difference between government “facilitation” of deregulation and actual deregulation on the broadband system. “I think we are behind, and I think it is a duopoly,” he said. But Americans are “lucky to have two pipes” compared with many countries, he said. Introducing a municipal third pipe would be “overbuilding [and] a huge waste of money.”

The FCC can expand broadband penetration by educating people “at the margins” on the benefits of broadband and using programs like the Universal Service Fund to get service to consumers “at reasonably low prices,” Atkinson said. But regulation of the broadband market would discourage innovation, Eisenach said. “regulations…don’t give enough credence to how capital markets work,” he said.  While 100 percent coverage “may be the right number for health care,” it’s not worth the investment for broadband, he said.