Getting Serious About the Internet Build-OutRejuvenating the Internet build-out without fixing public policy is like asking someone to draw a square circleSolving a technology challenge is frequently straightforward. There is either a large consensus or just a handful of contending viewpoints on what should happen next. The solution for a policy challenge, however, is messy. Ideologies, allegiances, values, ego, and political ambitions all come into play more dramatically. Although the Internet build-out is fundamentally about technology, the root problems now are about how technology innovation and implementation are thwarted by public policy and regulations. The Bell companies, ISPs, digital subscriber line (DSL) upstarts, optical equipment manufacturers, and others are trying to find their way out of the Internet downturn in the context of a policy environment that hasn't kept up with changes in consumer attitudes and technology. Asking business to bring the promise of the Internet to fruition without addressing the public policy elements is a futile gesture in pursuit of something that will never exist. It's like someone asking you to draw a square circle. THE DILEMMASo where to begin? The first challenge is recognizing that until the business model for building out the "last mile" makes sense, it's just not going to happen. Right now, phone companies like Verizon and SBC Communications Inc. have invested tremendously in digital loop carriers (DLCs) in order to increase the efficiency of voice transmission over their copper wire networks. The DLC strategy was implemented, however, before DSL technology - originally a high-speed data service - arrived and is incompatible with it. Meanwhile, DSL is what consumers want in order to have relatively speedy access to the Internet, as well as standard voice service. The task of reconfiguring and sharing the physical DLC apparatus for DSL, however, is expensive. The large service providers are reluctant to take on the capital risk or investment while knowing they would be building the resources for their competitors (such as former Wall Street darlings Covad Communications Co., Northpoint Communications Inc., Rhythms NetConnections Inc., and a host of less prominent firms) that might have a right to share those facilities as a result of the 1996 Telecom Act. The smaller firms say those big service providers act in deceitful ways, pretending to comply with the law but generally using tactics that delay implementation and drain resources. THE WAY OUTThe policy solution, of course, is to give the big phone companies tariff incentives (the chance for fatter margins) to take on the risk and to give young competitors assurances of revised regulatory powers to bring speedy remedy for anticompetitive behavior from the big companies. Jeffrey Marcon, director of business development at Zhone Technologies Inc., says that the consolidated regional Bell companies will "ultimately deploy next generation DLC systems, which enable broadband service delivery - meaning data, voice, and video - efficiencies and economies. The ability to deliver scalable, integrated new services over broadband access is too great a revenue opportunity to ignore." Public policy will either hinder or facilitate the process to benefit more than one interest. We could also be more aggressive at using fiber optics instead of copper. Yes, expense and time are the primary hurdles. In some cases, there are also physical restraints, as in Hawaii where the high water table is prohibitive. Yet opportunities do exist, especially in wiring new homes in large developments. The phone companies are subsidized in many respects to hold on to the antiquated copper system. That could change with a direct assault on those subsidies or by favoring fiber implementation, as illustrated by local governments that are trying to build municipal fiber networks. The whole process can also be advanced by checking what phone companies can expect from litigation, encouraging more enlightened building codes, or establishing arbitration panels to speed decisions. ENABLING COMPETITIONThe second challenge is related to the first but focused on the way regulators work on the public's behalf. Clearly, regulators blew it when they auctioned portions of the radio spectrum, granting rights to Next Wave Telecom Inc., which had a challenging business plan and no backup guarantor for payments. The FCC's folly was compounded when it reauctioned the spectrum award while in litigation with Next Wave Telecom about its property rights when it failed to make its payments. Then there was the WorldCom Inc. debacle. By prohibiting WorldCom from acquiring Sprint after it had already acquired MCI, regulators injured a firm that would have brought more competition (read better services and lower prices) to a host of local monopolies, both domestic and international. The upshot isn't that regulators need to stay out of the picture entirely, but that they need to adapt strategies and methodologies to the way the world is today, and not the past, in order to enable competition. WHAT'S AT STAKEThe third thing that needs to be done is more elusive but ultimately the most powerful, namely, stirring some sense of urgency about the significance of universal broadband service. Broadband service has the potential to spark another great run in economic development. A whole array of services at the home, including Internet shopping, medical consultations, productivity tools, distance learning, and entertainment offer more than personal enrichment. Communication technology firms will benefit, although there will be winners and losers within the sector. Innovation, speed, and a good ear for what customers want will mark the success stories. If the telecom industry is as big as the $700 billion number used by many, then clearly national economic performance has much at stake. The importance of the moment can't be overstated. Nicholas Imparato [imparato@hoover.stanford.edu] is editor of Public Policy and the Internet (Hoover Institution Press, 2000). |
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