Stephen Ellis | November 27, 2007
AS the new Labor Government considers how to deliver on its promise of improving Australia's broadband infrastructure, one market it should avoid borrowing ideas from is the US.
Rudd should not take muddled approach of the US example
The US economy is more successful than any other at fostering and propagating technological innovation, but its regulation of network infrastructure has been something of a black spot and, if anything, is becoming more inconsistent and uncertain, as recent battles over network neutrality and cable television unbundling show.
A combination of history, shifting regulatory approaches and the law of unintended consequences leave the US with much the same lacklustre broadband record as Australia: prices are higher, adoption is lower and speeds are slower than in many other rich economies.
Because most US telecommunications always was privately held and the dominant carrier, AT&T, was broken up in the 1980s after an anti-trust ruling, the US industry sidestepped much of the debate over access regimes, structural separation and competition trade-offs that accompanied telecoms privatisation and deregulation in Australia, New Zealand, Britain and elsewhere in the 1980s and 1990s.
In 1996 Congress forced local loop unbundling as part of deregulation, paving the way for competition in DSL provision and an epic round of industry consolidation, which a decade later has left just two dominant US telcos: a new version of AT&T, and Verizon. But the unbundling arrangements were struck down in the courts in 2004, curtailing DSL competition, leaving about two-thirds of Americans with just two options for broadband, their local cable monopoly, and their local phone monopoly, and most of the remaining third with just one.
Meanwhile, after 2000 the Federsl Communications Commission largely pursued a hands-off approach, particularly under Bush-appointed chief Michael Powell, who argued convergence between technologies was rendering old distinctions (for instance between fixed and wireless telephony, or different parts of the media) irrelevant.
In this vein, Powell pushed a 2005 decision to reclassify DSL as an information service not subject to common carrier provisions (broadband over cable is similarly classified).
Common carrier provisions prevent the telephone companies from offering better services in return for higher prices or restricting the equipment used by consumers, and give the FCC power to ensure fair pricing and access. To be fair, Powell's free market vision included FCC enforcement of consumer rights to use broadband to access whatever content or services they wanted via whatever devices they wanted.
In line with this, the US Federal Communications Commission took action in 2005 against an internet service provider that blocked voice over internet protocol traffic.
It also pressed AT&T into ditching contract terms that banned users from attaching its DSL service to wireless routers.
None of these rights are protected in law.
This led to the current debate over network neutrality, in which Google, Microsoft and others have sought legislation preventing phone and cable firms from offering tiered broadband or blocking certain data classes (such as Comcast's recent alleged disruption of BitTorrent traffic).
For their part, broadband companies argue such changes prevent them managing their networks to ensure a given quality of service.
Consumer interests in this debate are not clear cut. While common carrier provisions stop any restriction of their access to content or services, they also have potential costs (for instance, a ban on ISPs controlling BitTorrent traffic volumes may impose slower internet speeds on non-downloaders).
Regulatory meddling with pricing and fair access might superficially address concerns with lack of broadband competition, but it would come just as there is some evidence that pricing pressure across network services is gradually increasing and as a planned spectrum auction poses the possibility of a wireless broadband alternative.
At the moment, the debate is sufficiently inconclusive (and the regulatory regime sufficiently muddled) that the worst of all worlds is playing out: investment in networks is probably deterred by the possibility of new rules, but more assured internet access is not available even to those willing to pay for it, carrier actions are not transparent, and there is little clarity on consumer rights.
Making the situation worse, the FCC has lurched along an erratic path since 2005, at times trying to reach allegedly market-oriented outcomes with highly interventionist methods.
The best example is its attempt to enable consumers to buy cable television a la carte or channel by channel, by forcing cable firms to completely unbundle services (regardless of cost or impact on media diversity), and a related push to arbitrate the periodic fights between cable and content firms over whether particular channels will be carried, and at what price.
The weaknesses in US broadband outcomes are a reflection not of a failed pursuit of either libertarian or hands-on regulatory approaches so much as the muddled, inconsistent application of both, at different times and in different markets.
But the end result certainly offers little to entice anyone looking for best practices.