Americans get a raw deal

High prices and poor technology are symptoms of a deeper malaise

America, the joke goes, doesn't have broadband. At best, it has "middleband" - overpriced, sluggish internet connections, transmitting grainy video and tinny music over ageing technology. While 89 per cent of American households now have access to some kind of high-speed internet connection, either through their telephone with DSL technology or through the cable lines down which their television programming also runs, less than 20 per cent bother to subscribe. As a consequence, the US ranks behind countries such as Finland, Iceland and South Korea in its adoption rate. For a nation that prides itself on technological and economic primacy, this is an embarrassment, and indicates a huge policy failure.

A principal reason for the slow take-up is straightforward: consumers are unwilling to pay high prices for the inadequate service on offer. They certainly get a raw deal compared to the South Koreans, who enjoy connection speeds up to 20 times faster than are available in the US. And American consumers are charged between $35 and $50 a month, roughly the same as the Koreans pay for their superior service. To put it another way, while Koreans are surfing the web, making internet phone calls and watching the latest Hollywood blockbuster on their laptops, Americans are still struggling to make out Paris Hilton in her murky home video.

High prices and underdeveloped technology are symptoms of a deeper malaise. As the policy analyst and entrepreneur Charles Ferguson has put it, "the principal source of the problem is the monopolistic structure, entrenched management and political power" of the local telephone and cable companies that control access. He might also have added President Bush's dogged anti-regulatory policies that have done so much to protect them.

More than 95 per cent of US broadband connections are provided by local cable and phone companies, which control almost every neighbourhood under a rigid duopoly. The local telephone companies, the "Baby Bells", are notoriously poor innovators and delayed the onset of DSL for years in order to protect their existing ISDN technology. The typical Bell company invests almost nothing in capital spending - while burning hundreds of millions of dollars a year on lobbying and political contributions. Unlike Korea, which opened up its national phone network to competition, the US has shown little interest in smashing these local monopolies. Tellingly, while prices for every other telecommunications product have plummeted, broadband prices have remained steady for years, and have only recently begun to fall.

These companies have found a powerful protector in the Bush administration and in the chairman of the Federal Communications Commission, Michael Powell (son of the Secretary of State, Colin Powell). Since 2001, the commission has sought aggressively to protect broadband companies from competition. In 2003, it tried to redefine them as "information services" rather than telecommunications providers, and thus exempt them from the legal obligation to open their lines to competitors at all. Courts rejected the move. The commission has scorned calls to foster competition, instead supporting industry demands for further deregulation without competitive pressure. Meanwhile, Bush has mixed campaign trail calls for access to broadband for all by 2007 with vague policies and a commitment to the laissez-faire status quo.

Activist government policy could make a huge difference to usage, as it did in fostering the growth of canals, railroads, motorways and airports in earlier periods, and as it has done in Korea and Japan. The Bells and the cable companies could be forced to let other firms sell services over their lines for a fair (that is, low) price - as the 1996 Telecommunications Act committed them to doing and which they have lobbied ferociously against ever since. Government subsidies could expand the reach of quality broadband services to 100 per cent of US households by helping to finance a fibre-optic "last mile" and building networks in rural areas where private companies cannot recoup their costs (in parts of Alaska, connecting one new DSL subscriber can cost $9,000). State and federal government could help towns such as Burlington, Vermont, that in frustration have taken it upon themselves to build community-owned, advanced fibre-optic networks.

But in its slavish commitment to a free-market mythology, the Bush administration and its corporate backers have brought only delay, confusion and often chaos with misadvised policies. It's all horribly familiar.

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