U.S. needs more broadband competition, expert says

The U.S. broadband market may see lower prices and faster speeds with more competition, one expert says.

By some measures, the U.S. broadband market is healthy -- prices have fallen, speed has increased and millions of people have become customers in recent years. But customer choices are still limited, and prices could fall even more with more competition, one telecom expert said Friday.

Other countries with higher speeds and lower prices have generally taken a different route than the U.S., which has generally relied on the marketplace to determine the cost and quality of broadband, said John Windhausen, president of Telepoly, a telecom consulting firm. Japan, for example, has mandated that its incumbent telecom carriers roll out fiber-based broadband service, and many countries in Europe require incumbent broadband carriers to share their lines with multiple competitors.

In the U.S., most people have one or two choices for broadband carriers, cable or DSL (digital subscriber line) and fiber providers, he noted. "We don't have a sufficiently competitive broadband marketplace," he said during an Information Technology and Innovation Foundation (ITIF) forum on broadband competition.

The European line-sharing approach is modeled after the U.S. Telecommunications Act of 1996, but that approach was later abandoned by the U.S. Federal Communications Commission in favor of the network operator being the lone broadband provider. The Telecom Act has been "a huge success -- in France," Windhausen said.

In France, competitors of the incumbent network owner are now starting to build their own networks, using the profits they generated by providing service over the incumbent's lines, Windhausen said. That hasn't happened in the U.S., despite the FCC's efforts to encourage competitors to build their own networks, he said.

While Windhausen decried a lack of competition in the U.S., Jeff Eisenach, chairman of economic consulting group Empiris, called the lack of competition a myth. If people don't "separate out broadband," the U.S. telecom market is very competitive, he said.

The U.S. broadband policy "has unambiguously worked in terms of dramatic rises of [subscribers] and in terms of falling prices," Eisenach said.

Broadband providers are constantly improving service and speed, he added. In the Northeastern U.S., where Verizon and Comcast compete head to head, Comcast has begun rolling out service with speeds of up to 160Mbits per second, and Verizon is testing service of 100 Mbits per second, he said. Verizon's next-generation fiber service will be up to 400 Mbits per second, he added.

The U.S. telecom industry, including cable providers, spent US$70 billion to improve infrastructure in 2007, more than the entire U.S. government spent on infrastructure, Eisenach added. At the same time, broadband prices have steadily fallen over the past five years.

The price for 1 Mbit of broadband service has dropped to less than $7 a month, added Everett Ehrlich, president of ESC, an economic consulting firm. In 2002, it was four times that amount, and before then, that speed wasn't available, he said.

Eisenach also suggested that more and more people will begin to use wireless 3G and 4G services as their broadband connection, bringing another competitor to the broadband market. People who worry about poor areas not having wired broadband connections discount the wireless option, he said.

About 30 percent of poor people don't have landline phone service but use mobile service instead, he said. "I just don't know if that's a market failure," he added.

An ITIF report from May found that the U.S. paid more per megabit of service than 17 of the 30 member nations of the Organisation for Economic Cooperation and Development (OECD). The average download speed among consumer broadband services in the U.S. is 8.9M bps (bits per second), according to the OECD, slower than average speeds in 18 other OECD countries.

Windhausen discounted 3G mobile service as broadband. "I really don't believe you can say mobile wireless is now a significant broadband competitor," he said. "I don't know anybody who says, 'I'm going to dump my DSL service because my cell phone service is so much better.'"

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