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Broadband lag could hurt the U.S.
Several Asian, European nations have greater share of people with access; some experts see threat.
June 17, 2005: 1:28 PM EDT
By Rob Kelley, CNN/Money staff writer

NEW YORK (CNN/Money) - Thomas Bleha believes the United States stands to lose big if it keeps slipping behind other countries in the percentage of citizens with high-speed Internet access.

Bleha, who's writing a book about the global fight for Internet leadership, argues that broadband access has implications far beyond the speed of Web browsers. Full-scale adoption of the high-speed connections in Asian and European nations has fueled economic growth, technological innovation and improved quality of life, he said.

"There are myriad benefits across the economy," Bleha said. "In corporate communications alone, data transfer, collaborative working and telecommuting amount to a big competitive advantage."

Bleha cited a 2001 study by economist Robert Crandall and telecom consultant Charles Jackson that found that widespread broadband adoption could add $500 billion to the economy and create 1.2 million new jobs over a decade.

Fears about falling behind were fanned by a recent study by the Organization for Economic Cooperation and Development showing the United States has slipped to 12th place, from fourth three years ago, in the percentage of people with broadband connections.

South Korea ranked first last year, with 24.9 citizens out of every 100 having broadband access, nearly double the U.S. figure of 12.8, the OECD study said.

But while some experts said the United States will get stung if it keeps losing ground, other experts said the issues are more complex -- and this country much more competitive -- than the figures suggest.

"The major impediment to U.S. adoption is price, not lack of availability," said Charles Golvin, a senior telecom analyst at Forrester Research. "Broadband is widely available but, like many technologies, it appealed first to high-income people, and lower prices will make it more mainstream."

A month of broadband access costs American consumers $40 to $60 versus $20 to $35 in South Korea, according to Fortune.

SBC recently slashed its monthly broadband fee to $14.95 for customers signing up online, a figure below what many households now pay for slower dial-up access -- a move that could spark a broadband price war.

But Haim Mendelson, Professor of Electronic Commerce at Stanford's Graduate School of Business, is not convinced that American consumers are seeing the lowest prices.

"We have a problem in terms of competition," he said. "In most U.S. markets you have one major cable player and one major DSL player -- a duopoly. This just isn't as competitive as in South Korea and the Netherlands, which have many companies competing fiercely."

High-speed, or broadband, connections are typically available through DSL over traditional phone lines, or over cable or fiber-optic lines.

The companies that account for most domestic spending on broadband networks are telecom firms like SBC (Research), Verizon (Research), BellSouth (Research) and Qwest (Research), which typically offer DSL service, and cable operators Comcast (Research) and Time Warner Cable, which offer broadband via cable. (Time Warner Cable, like CNN/Money, is owned by Time Warner (Research).)

Charles Ferguson, author of the study "The Broadband Problem," believes high-speed access has an inherent risk for these companies. "Both the telecom and cable industries are worried that broadband could eventually undermine them. Phone companies fear that people will move to (Internet phone service), and cable companies fear that digital video will threaten cable."

A Bush administration official reportedly has disputed that the nation is falling behind, noting the U.S. leads the world in the total number of high-speed users, availability of wireless Internet and computers devoted to online commerce -- even if we're slipping on a per capita basis.

"There's enormous commercial value for businesses in broadband, and American businesses take advantage of that every day," said Harold Furchtgott-Roth, a communications consultant and former FCC commissioner. "If you look at the leading business-to-consumer Internet companies, most of those are American. And in business-to-business Internet activity, the U.S. is also ahead."

Most countries ranked above the U.S. in the OECD study are smaller with denser populations that are more easily networked.

"Population density affects both the cost of deploying cables and the availability of access," noted Stanford's Mendelson.

Some countries on the list have benefited from government initiatives. According to Fortune, the South Korean government has spent billions in recent years to create a high-speed backbone for school and government offices, and offered incentives for companies to broaden their residential networks.

New Federal Communications Commission Chairman Kevin Martin told National Journal's Technology Daily recently that broadband development will be the "number one priority" of his tenure. "It affects the way that we entertain ourselves, the way that we educate our children, the way that we work," he was quoted as saying.

He told the magazine he would review broadband regulations to make sure they encourage growth, and said he would pursue a market-driven approach to network expansion.

Robert Litan, senior economic fellow at the Brookings Institution, expressed reservations about government programs like that in Korea. "I'm skeptical about subsidies," said Litan. "Especially now that there's increasing competition -- the phone companies are really competing with the cable companies -- markets are encouraging natural growth. And in a few years there will be wireless broadband, which will drive prices down."

Meanwhile, a case before the Supreme Court, Brand X vs FCC, could have a serious impact. Brand X, an Internet service provider, is appealing a 2002 FCC decision that owners of large cable networks do not have to lease part of their networks to competitors. If the appeal is successful, that might bring more competition to broadband.

The OECD study did not differentiate between business and home subscribers, but Matt Davis, a broadband analyst with the Yankee Group, said the difference is crucial. Businesses use high-speed access for applications that drive productivity. But in Asia, applications like online gaming and video chat are behind the rapid growth of high-speed networks, he said.

For the full details of the study on OECD's web site, click here.

In the near future, broadband access will become wireless with Intel's WiMAX technology. Read more here.  Top of page


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