December 12, 2001
Comments on Deployment of Broadband Networks and Advanced Telecommunications
Ms. Nancy J. Victory
Assistant Secretary for Communications and Information
1401 Constitution Avenue NW
Washington, D.C. 20230
Dear Ms. Victory:
This past October, Discovery Institute released Broadband or Bust! Networking Society to Accelerate Economic Growth, by Senior Fellows George F. Gilder and John Wohlstetter. The paper covers many of the issues raised in the Notice identified above, and is enclosed for your review.
Since March 2000 the technology sector, which for 1995-2000 contributed 40 percent to American GDP growth and added one percent to productivity, has fallen into a genuine depression, an unprecedented collapse in share values. While the dot.com bubble was sure to burst, numerous networking companies supplying innovative products and services have seen their share values literally implode. The tech collapse coincided with a cyclical slowdown, a sudden post-Y2K tightening of monetary policy, sluggish tax policy and unwise regulation to create what amounts to a “perfect storm” of reinforcing negative effects.
Computer and telecom companies are facing steep declines in revenues, with the telecom sector slashing capital spending in 2002 by 20 percent, an unprecedented move that comes on the heels of 2000’s 5 percent cutback, itself a record decline for telecom investment. Top computer industry executives have stated that broadband networking must be more widely deployed to homes and businesses if computer growth is to resume. Their concern is so great that it caused them to drop long-held opposition to liberalizing regulation of local telephone companies.
Broadband deployment is stalling at around 9 percent of homes—early adopters. While its pace of initial rollout is faster than for earlier consumer technologies, its debut came during a period of record prosperity and the “animal spirits” of the first Internet Revolution—factors not equally present in earlier times.
In particular, telephone companies have been hampered by regulatory rules requiring them to share networks with rivals at prices below true cost, in effect socializing their profits while privatizing their risk. The resulting disincentives slowed replacement of legacy networks by newer, optical technologies. Today’s supposed long distance “fiber glut” is in reality a proxy for the constraint of limited legacy network “last mile” broadband capability—broadband applications must have a “wide pipe” end-to-end, or they will not be deployed at all.
Just as a chain is no stronger than its weakest link, a network connection is only as broad as its narrowest segment. Thus, so long as there is a narrow pipe in most of the local loop—the network periphery, the wider bandwidth at the network long distance core will lie unused.
Without driving fiber optics closer to homes and businesses, the coming cornucopia of two-way high-resolution video and high-speed data services will not be deployed. Without the liberation of optics, the computer industry will not realize its rapid growth potential. Without broadband to revitalize the tech sector, a huge potential boost to the economy—and federal revenues—will be foregone.
Opponents of broadband regulatory reform will raise the specter of incipient monopoly if telephone company entry is accelerated. There is, however, no credible case that companies with 125 percent of a market will monopolize it at the expense of well-financed competitors who already own 70 percent of same.
Broadband investment will stimulate computer networking, which is critical to revive the tech sector driving US economic growth. It will rejuvenate venture capital technology investment as well. Finally, encouraging new network facilities investment will also improve network robustness and thus, homeland security, by increasing network diversity and obviating the need to ration capacity in a crisis.
Thank you for your consideration of the attached report.