Affordable Broadband

:
Empowering Communities Across the Digital Divide Dr. Jabari Simama

EXECUTIVE SUMMARY
By opening the door to economic and educational opportunity, better health care, personal enrichment and political power, broadband Internet access has become a transforming technology that can help narrow the gap between society’s rich and poor.

With a broadband connection, children in the most isolated inner-city neighborhoods and rural regions can tap into the same universe of knowledge as children in the most affluent suburbs. Workers who want to enhance career prospects by earning advanced degrees can use broadband to “sit” in the classrooms of the world’s most renowned professors and young students can “walk” the stacks of distant libraries and access the wealth of information available online.

Broadband also helps create wealth and opportunity for communities that are wired by attracting businesses that want to locate in areas with a strong broadband presence. Recent economic models show that for every one percentage point increase in broadband penetration, employment expands by almost 300,000 jobs.

Fortunately, in recent years the combination of falling prices and increasing deployment of high-speed Internet connections means that a greater number of lower- income Americans and minorities have joined the broadband revolution. By early 2007, for example, the gap between home broadband access for African-Americans and their white counterparts had narrowed from 17 percentage points in 2005 to a mere eight percentage points currently (48-40 percent). The data also shows that English-speaking Hispanics are signing up for home broadband at about the same rate as non-Hispanic whites. But Latinos with limited English are less likely to go online than either white or black Americans. While there remains a substantial gap between the broadband use of the wealthiest Americans and the poorest, the drop in prices has facilitated greater broadband adoption across the board. Even among households with annual incomes of less than $30,000, the number of consumer’s high-speed Internet connections has doubled from 15 percent to 30 percent in the last two years.

But the recent gains are fragile and could easily be reversed by public policy errors that drive prices 1

higher. Such an outcome could force large numbers of the most recent broadband users to cancel their new connections due to lack of affordability. The following study, “Affordable Broadband: Empowering Communities Across the Digital Divide,” examines both the opportunities and the risks, while simultaneously outlining some public policy guidelines for maintaining the momentum toward the national goal of broadband for every American.

KEEpIng BRoAdBAnd AffoRdABlE WIll SpREAd dIgITAl EMpoWERMEnT

To ensure a continued increase in the number of consumers signing up for broadband and to retain those consumers currently using broadband, we must reject policies that raise prices and embrace those that may help drive prices lower.

Three strategies that enhance this effort are as follows:

Strategy 1 – open the door to Competition

As exemplified by the experience in video services, opening the door to competition is among the best ways to reduce prices for broadband. For example, recent FCC data shows that cable TV prices are 17 percent lower ($35.94 a month v. $43.33 a month) when cable TV providers face competition from a second landline provider. Economist Robert J. Shapiro, who served as U.S. Under Secretary of Commerce for Economic Affairs from 1997-2001, put it this way:

“Broad access to new broadband telecommunications services for Americans at every income level and geographical area can be achieved by encouraging competition itself, which drives down the prices of these services and promotes additional technological innovations that further drive down prices.”

To this end, policymakers should look for opportunities to facilitate the market entry of new competitors and new services and press ahead with efforts to eliminate antiquated regulations that restrict competition, limit choices and keep prices high.

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Strategy 2 – Avoid Regulation that drives Up prices

Regulators should remain a strong defender of consumer rights and continue to protect consumers against business misconduct. But they should be wary of taxes or regulations that could raise costs to consumers. For example, some policymakers are considering proposals that would limit the use of technology and management techniques designed to enhance the efficiency of broadband service and handle an emerging explosion in Internet traffic. By reducing efficiency, this type of rule could result in increased prices for consumer broadband access.

Economists Robert E. Litan and Hal J. Singer have argued that “the cost per customer of providing basic Internet access (and thus the price) would increase significantly if access providers were prohibited from using intelligent traffic control, including quality of service, to meet the demand for Internet traffic.” They calculated that under some scenarios, as many as one third of broadband subscribers might disconnect from high-speed Internet because the price burden would be too great.

Strategy 3: Encourage Investment

Policymakers should seek strategies that would encourage capital investments into underserved communities to ensure the delivery of affordable and sustainable broadband services to every consumer.

Perhaps the principal question is how to finance the necessary capital cost associated with the expansion of online video and other data (dubbed “the exaflood” by some). Many commentators believe that this “exaflood” will create a critical online traffic jam unless Internet capacity is greatly expanded. One recent study estimates that the total investment required to meet the growing demand for bandwidth will be up to $137 billion.

Public policy choices that restrict the implementation of innovative technical and business approaches would undoubtedly place a heavier cost burden on the backs of individual consumers.

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ThE pATh To EMpoWERMEnT

The path to broadband empowerment for America is clear – focus on affordability. Americans can now buy high-speed Internet services for as little as $15 a month, down from more than $80 dollars a month less than a decade ago. Moreover, packages that deliver phone, broadband and video are currently priced at around $100 a month. At those prices, most households can afford a high-speed Internet connection. As a result, more American homes are connected to broadband than ever before – and the gains are seen among every racial group and at all income levels.

Broadband is among the rare technologies that can fundamentally transform the way people live. When all people have the chance to have broadband Internet access, America can become a more fair and just society. In recent years, minorities and lower-income Americans have begun to close the gap with their more affluent fellow citizens. The long-term challenge is to resist actions that will make broadband more costly and reverse recent progress by ensuring new entrants to the broadband community are not the last in and the first out.

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Affordable Broadband:
Empowering Communities Across the digital divide

ThE pRoMISE of dIgITAl EMpoWERMEnT

The United Nations recently proclaimed that for someone striving for success in the 21st century, broadband Internet access is as crucial as access to water or electricity. For both communities and individuals, the splitsecond click of a mouse opens a door to economic and educational opportunity, better health care, personal enrichment and equally as important, global political power.

With a broadband connection, children in the most isolated inner-city neighborhoods and rural regions can tap into the same universe of knowledge as children in the most affluent suburbs. Workers who want to enhance career prospects by earning advanced degrees can use broadband to “sit” in the

The split-second click of a mouse opens a door to economic and educational opportunity, better health care, personal enrichment and equally as important, global political power.

classrooms of the world’s most renowned professors and young students can “walk” the stacks of distant libraries and access the wealth of information available online. Without it, they are confined to what is available only in their own backyard.

Using broadband, employees from firms around the world can collaborate on projects in real time, workers can telecommute to a “virtual” office hundreds or even thousands of miles from where they live, or gain new “on-demand” skills as they need them. Without a reliable Internet connection, job seekers are cut off from these opportunities.

Broadband also helps create wealth and opportunity for communities that are wired by attracting businesses that want to locate in areas with a strong broadband presence. At a macro level, studies estimate

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that universal broadband access would unleash up to $500 billion in economic growth1 and more than 1.2 million high-wage jobs.2 And, recent economic models show that for every one percentage point increase in broadband penetration, employment expands by almost 300,000 jobs.3 Broadband empowers in other ways too. It can enhance health care by connecting patients to medical specialists

Broadband also helps create wealth and opportunity for communities that are wired. For every one percentage point increase in broadband penetration, employment expands by almost 300,000 jobs.

Internet Access – Moped or Motorcycle?
When connecting to the Internet, consumers can choose between dial-up service and broadband. Dial-up is slower. It requires a user to dial a phone number and connect every time he or she wants to go online, and it cannot reliably deliver streaming video and other high capacity applications that dominate today’s Internet. This paper focuses on broadband, high-speed connections that are always connected to the Internet and can run applications that will not work effectively on dial-up because of transmission delays or lack of bandwidth. Broadband is qualitatively better and delivers opportunities that dial-up cannot. Choosing dial-up over broadband is like opting for a moped over a motorcycle. The moped enables you to move around the neighborhood much faster than walking, but the motorcycle can carry you across the country. More than 15 percent of Americans use home dial-up connections to go online. It is certainly better to be online with dial-up than not at all, but the data shows those with dial-up do fewer things online. Full digital empowerment requires broadband.

and procedures that are not available locally, increasing patient knowledge and also cutting medical costs. It can bring Americans closer to their government by facilitating the delivery of government services and also serve as an effective grassroots information and mobilization tool that can expand the political influence of society’s less powerful.

1 “The $500 Billion Opportunity: The Potential Economic Benefit of Widespread Diffusion of Broadband Internet Access, Robert W. Cran dall and Charles L. Jackson, July 2001, http://www.criterioneconomics.com/docs/Crandall_Jackson_500_Billion_Opportunity_July_2001.pdf 2 Building a Nationwide Broadband Network: Speeding Job Growth, by Stephen B. Pociask (February, 2002) http://www.newmillenniumresearch.org/event-02-25-2002/jobspaper.pdf. 3 The Effects of Broadband Deployment on Output and Employment. Robert W. Crandall, William Lehr and Robert Litan. June 2007.

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fUlfIllIng ThE pRoMISE As prices fall the divide Closes

A dozen years ago, a groundbreaking report by the U.S. Commerce Department, “Falling Through the Net,” drew attention to a “digital divide” that separated white Americans from their fellow citizens in the AfricanAmerican and Hispanic communities in their adoption of computer technology. About one-third of nonHispanic whites said they owned a home computer in 1995, compared to just over 10 percent of Blacks and about 12-13 percent of Hispanics.4

Moreover, poorer Americans were far less likely than the more affluent to own a computer. In 1995, personal computers cost $2,000 or more for an entry level machine [the equivalent of $2,758.23 in 2007 dollars]. Back then, computers were simply too expensive for many Americans to afford. While more than six of 10 Americans with annual incomes of $75,000 or more owned a computer in 1995, only about 20 percent of those earning less than $35,000 a year reported that they had a computer at home. Among citizens with incomes of less than $20,000 annually, only about 12 percent owned a computer.

But as prices fell, computer ownership rose for all groups. From 1994 to 2003, the price of computers dramatically declined, even as quality improved. During that period, Americans with incomes of less than $20,000 increased their computer ownership at an average annual rate of 18.1 percent, more than twice the 8.3 percent average annual rate of those earning over $50,000. Today, a basic computer can be purchased for as less than $500. Not inexpensive, but within reach for most working Americans.

As the divide in computer ownership closed, a new divide opened between those with broadband service and those without. This new divide is critical because a high-speed broadband connection to the Internet is what really brings life-changing power to the personal computer, lifting it from a home-bound device for writing text or playing games to a powerful engine that brings a world of opportunity and information directly into our homes.

4 “Falling Through the Net: A Survey of ‘Have Nots’ in Rural and Urban America,” U.S. Department of Commerce, July 1995. note, the percentages quoted here are inexact because the report divided each group into three categories – “rural,” “urban,” and “inner city,” but did not aggregate the three categories to produce a single, total number for racial or income groups.

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Here, too, we see a connection between price and adoption. As the cost of broadband access has declined, the percentage of Americans signing up for broadband has climbed rapidly. Monthly access fees for broadband, once $80 or more have fallen as low as $15 for entry-level services and the average cost of broadband appears to have settled in the mid-$30 range, making it affordable for a much larger group of Americans than ever before.

As the The New York Times wrote in March 2006: “African-Americans are steadily gaining access to and ease with the Internet, signaling a remarkable closing of the ‘digital divide’ that many experts had worried would be a crippling disadvantage in achieving success.”5

The body of research that bolsters the newspaper’s assertion is steadily growing. The Pew Internet & American Life Project reported in March 2007 that the percentage of AfricanAmerican adults with a home broadband connection has nearly tripled, from 14 percent in early 2005 to 40 percent

As the cost of broadband access has declined, the percentage of Americans signing up for broadband has climbed rapidly.

in early 2007. The black-white gap also narrowed dramatically during that time. In early 2005, 31 percent of white Americans, but only 14 percent of blacks, reported a home broadband connection. Two years later, this gap had been cut by more than half. The percentage of white Americans with a home broadband connection has risen to 48 percent, just eight percentage points higher than the participation rate for African-Americans. The data shows that English-speaking Hispanics are signing up for home broadband at about the same rate as non-Hispanic whites. But Latinos with limited English are less likely to go online either by dial up or broadband than either white or black Americans.

As prices decline, poorer Americans as a group also are adopting broadband at a faster pace. For those earning less than $30,000 a year, Pew reports that broadband access at home doubled from 15 percent in 2005 to 30 percent in 2007. Despite this progress, the rich-poor gap remains substantial as 76 percent of households with income of more than $75,000 reporting that they have broadband access at home. Rural Americans also remain behind. While 52 percent of urban households have broadband, only 31 percent of

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Michel Marriott, “Blacks Turn to Internet Highway, And Digital Divide Starts to Close,” The New York Times, p. A1, March 31, 2006.

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households in rural areas report they enjoy high-speed Internet access.6

BroAdBAnd AdoptIon By rAce/ethnIcIty (percentage with broadband at home) 2005 White Black Hispanic
(English-speaking)

2006 42 31 41

2007 48 40 Not available

31 14 28

Wireless – Another Road to Empowerment

The wireless revolution and the introduction of such alternative delivery methods such as broadband over powerlines and satellite may open another road to digital empowerment for underserved groups, including minorities and rural communities. Current pricing and availability of these

BroAdBAnd By IncoMe LeveL (percentage with broadband at home) 2005 Under $30K $30K-$50K $50K-$70K More than $75K 15 27 35 47 2006 21 43 47 62 2007 30 46 58 70

technologies may limit their immediate appeal for some groups at this time. Nonetheless, FCC data shows remarkable growth in satellite and wireless broadband in the home from some 532,000 households in December 2005 to almost 3.4 million households in December 2006 (when businesses are included, wireless broadband lines totaled 22.5 million in December 2006, compared to just 3.4 million a year earlier).7 While wireless still accounts for less than six percent of all home broadband, the upward trend as well as the likelihood that wireless prices will decline over time bodes well for the future – providing policymakers

6 Pew Internet and American Life Project, “Home Broadband Adoption 2007,” June 2007, available online at http://www.pewinternet. org/pdfs/PIP_Broadband%202007.pdf 7 Federal Communications Commission, “High Speed Services for Internet Access: Status as of December 31, 2006,” released October 2007, available online at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-277784A1.pdf

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avoid new regulations or other actions that inflate wireless costs. What’s more, the proven willingness of minorities to embrace advanced technology suggests wireless may also be attractive to the most recent broadband adoptees.

The wireless revolution may open another road to digital empowerment for underserved groups, including minorities and rural communities.

For example, The Pew Internet & American Life Foundation reported in April 2006 that African-Americans are more likely than whites to use their cell phones to send and receive text messages (42 percent to 31 percent); play games (29 percent to 20 percent); use the Internet (17 percent to 12 percent) and play music (11 percent to 5 percent).8 A 2006 survey by Forrester Research showed that minorities have been about twice as likely as white Americans to abandon their local phone line in favor of a mobile phone. Only 4.4 percent of whites have given up their wireline phone line for a mobile phone, compared with 10.4 percent of Asian-Americans, 8.6 percent of Hispanics, and 6.3 percent of African-Americans, according to Forrester.9

Wireless also has the potential to help close the urban-rural divide, which to date has proven more stubborn than the divide between the races. As it stands now, only about 31 percent of rural households have broadband compared to 52 percent of urban homes.

Delivering broadband to less densely populated and geographically dispersed locations such as rural communities involves special challenges. But just as emerging countries with limited telecommunications infrastructure have chosen to leapfrog to wireless instead of expanding their wireline networks, rural Americans may increasingly opt for wireless to help bridge the gap. In addition to the benefit of mobility that enables consumers to take their network with them or because it may be the only option available, wireless may soon be more attractive economically as well. JP Morgan, the Wall Street investment banking firm, projects dramatic declines in wireless broadband prices over the next several years. According to JP Morgan, average monthly prices for “other broadband” technologies declined 24 percent from almost $60 in 2004 to about $45 in 2007. JP Morgan says average costs could drop to less than $33 by 2010.

8 Pew Foundation Internet & American Life Foundation, “How Americans Use Their Cell Phones,” April 2006, available online at http:// www.pewinternet.org/PPF/r/179/report_display.asp (A January 2006 survey by JackMyers.com reported similar results) 9 Maribel D. Lopez, “What Communications Services Are Ethnic Minorities Buying?” Forrester, April 11, 2006.

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If these projections prove correct, rural Americans (and others interested in mobile broadband) may be on the cusp of a broadband breakthrough.10 AffoRdABIlITY And oThER KEYS To pRogRESS

What is closing the digital divide between the races? The most significant factor is price. It has long been established that within a country or community, the cost of a new technology critically affects the rate at DSL

AVERAgE MonThlY REVEnUE pER SUBSCRIBER15
2004 $41.71 $40.56 $59.57 2005 $38.64 $40.09 $55.78 2006 $35.50 $37.92 $50.14 2007 $33.50 $36.27 $45.03

Cable Modem Other
(satellite, 3G, mobile wireless, wifi, BPL)

which it spreads. When a new technology is introduced, it is usually relatively expensive and only a small number of higher income enthusiasts, or “early adopters,” will purchase it. The foundation for broader adoption is laid once the technology has shown itself to be useful, and competing manufacturers have entered the market. Competition in a rapidly expanding market, coupled with improvements to the product, drive down the price. That is when access to the technology – whether it is a powerful new computer, a mobile phone, or a plasma-screen television – spreads far and wide. Since lower-income people are more price sensitive, they purchase the technology in far greater numbers as the prices drop. Or, as the Yankee Group investment firm said in the headline of a 2005 report on broadband: “Price Erosion Drives Mass Adoption.”11

The cost of a new technology critically affects the rate at which it spreads. Steep price declines have coincided with dramatic increases in the number of Americans who now enjoy broadband service at home.

Precise price estimates vary depending on methodology, but there is no doubt that steep price declines

10 11

Guerilla Economics, “Broadband Competition Throughout the United States and the Impact on Pricing” July 12, 2006. Nicole Klein and Daniel Klein, Yankee Group, “2004 Broadband Subscriber Forecast: Price Erosion Drives Mass Adoption,” January 2005

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have coincided with dramatic increases in the number of Americans who now enjoy broadband service at home. Economists generally report a drop from $80 to $25 a month for 1.5 Mbps service from 1999 to 2006, and in many parts of the country consumers can buy broadband for $20 a month or less. The Pew Foundation’s 2006 broadband survey prices also showed average prices falling into the $30’s and estimates by JP Morgan, the Wall Street investment banking firm, show that average DSL prices fell about 20 percent from almost $42 in 2004 to $33.50 in 2007. According to JP Morgan, cable modem costs also fell, declining about 6.5 percent to $37.92 from 2004-2006.12 Pew reported an 8 percent price decline in average broadband prices from $39 to $36 a month between March 2005 and March 2006, a time when broadband adoption accelerated dramatically from 30 percent to 42 percent for all Americans and from 14 percent to 31 percent for black Americans. In a further indication of a correlation between price and adoption, Pew noted that consumers were adopting DSL broadband service at a much faster rate than cable modem service during the 12-month period – a time when DSL prices fell almost 16 percent from $38 to $32. In Pew’s words: “DSL has captured a majority of subscribers in the fast-growing middle- or lower-middle income range of the market. Among broadband-using households with incomes between $30,000 and $50,000 annually, 55 percent use DSL and 35 percent have cable modem service.”13

Content Matters, Too

Factors other than price can also encourage broadband adoption. One is the availability of online content that is geared toward specific populations or interest groups. Movida Communications has had great success in selling a service that offers Hispanic-specific news and content, including regional news programming, Latin American soccer scores, Hispanic celebrity news and gossip, home country news alerts, and Patron Saint of the Day features.14 In promoting broadband access, it is important to highlight the online content that will

12 Sidak, J. Gregory, “A Consumer-Welfare Approach to Network Neutrality Regulation of the Internet.” Available on line at http://papers. ssrn.com/sol3/papers.cfm?abstract_id=928582 Hahn, Robert and Litan, Robert, “The Myth of Network Neutrality and the Threat to Internet Innovation.” The Milken Institute Review, First Quarter 2007. http://www.aeibrookings.org/admin/authorpdfs/page.php?id=1342; Pew Internet & American Life Project, Home Broadband Adoption 2006. available on line at http://www.pewinternet.org/pdfs/PIP_Broadband_trends2006.pdf 13 Pew Internet & American Life Project, Home Broadband Adoption 2006. available on line at http://www.pewinternet.org/pdfs/PIP_ Broadband_trends2006.pdf 14 Maribel D. Lopez, “What Communication Services Are Ethnic Minorities Buying?” Forrester Trends, April 11, 2006.

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be the most attractive and useful to reluctant or late adopters.15

In their study on how minority groups use computers and the Internet, Bharat Mehra, Cecelia Merkel, and Ann Peterson Bishop emphasize the importance of community in broadband adoption. They note that many people learn how to use the Internet from family or friends, or take up computer activity on behalf of others. Making broadband Internet access available at libraries, churches, schools, community centers and clinics in African-American neighborhoods is likely to generate a greater demand for broadband in individual residences, especially as prices continue to decline.16

driving Adoption Through Education

Helping individuals better understand the value of broadband is another key to accelerating the adoption rate. As with anything new, information technology triggers fear and a natural suspicion of change in a sizeable segment of the population. As John Horrigan of the Pew Internet & American Life Project observes: “Non-Internet users do not have very positive attitudes about information technology. Many report worries about information overload and fewlink information technology to greater control over their lives. Moreover, nonInternet users are apt to see the online environment as a dangerous place – that is, a place with inappropriate or irrelevant content.”17 Initiatives like ConnectKentucky, a public-private partnership designed to drive broadband adoption in Kentucky, show the value of aggressive efforts to promote adoption among skeptical citizens. Beginning with a mapping effort to determine the level of broadband availability and gaps in coverage, ConnectKentucky promotes deployment by building demand in communities that are not currently wired. It also encourages citizens to sign up for broadband service by explaining how the Internet works and how individuals can use it to enrich their lives. As a result of these efforts, which can be replicated to drive broadband in every American community, Kentucky boosted computer ownership by 20 percent and raised the number of households

15 Bharat Mehra, Cecelia Merkel, and Ann Peterson Bishop, “The Internet for Empowerment of Minority and Marginalized Users,” New Media and Society 6, no. 6 (2004): 781-802. 16 Margaret C. Simms, “Measuring the Divide: African-Americans’ Access to the Online Universe,” The Joint Center for Political and Economic Studies, March 2006. 17 John B. Horrigan, “Why it Will be Hard to Close the Broadband Divide,” Pew Internet & American Life Project,” August 1, 2007, available online at http://www.pewinternet.org/pdfs/Broadband_Commentary.pdf

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using broadband by 73 percent between 2005 and 2007.

SECURIng ThE gAInS And SpREAdIng EMpoWERMEnT

Broadband access is price elastic; it is spreading because declining prices have enabled more people to fit highspeed Internet access into their budget. Conversely, policies or economic developments that drive up price or reduce incomes can reverse the progress and cause the divide to widen again. Income levels are beyond the scope of broadband policy, but broadband policy can and must be heavily influenced by considerations of price -- rejecting approaches that would drive up prices. We must make sure that the large number of Americans who have just joined the broadband generation are able to stay online. The last ones on, must not become the first ones off as a result of policy mistakes that put broadband beyond their economic means.

Conversely, policies that tend to drive prices lower should accelerate adoption and move America closer to its national goal of universal broadband.

Among the best ways to reduce price is to expand competition. The experience in video services offers an especially compelling example of what happens to price in the absence of competition and when competition is introduced.

We must make sure that the large number of Americans who have just joined the broadband generation are able to stay online. The last ones on must not become the first ones off as a result of policy mistakes that put broadband beyond their economic means.

For decades, most consumers who wanted to purchase cable television services were forced to buy from a monopoly provider and the rates they paid rose steadily. In recent years, as reforms in video franchise regulation have enabled new competitors to enter the market in many states, rates have declined significantly in areas where cable companies now face direct competition from alternative wireline carriers.

In 2004, the General Accounting Office noted that “competition leads to lower cable rates and improved quality…where available [competition from a wire-based company], cable rates are substantially lower (by 15 percent) than in markets without this competition…in markets where DBS [Direct Broadcast Satellite

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service] provides local broadcast stations, cable operators improve the quality of their service.”18 Recent FCC data shows average cable prices are about 17 percent lower ($35.94 a month v. $43.3 a month) when the incumbent cable provider faces competition from a second wireline competitor.19 Economist Robert J. Shapiro, who was U.S. Under Secretary of Commerce for Economic Affairs from 1997-2001 during the Clinton Administration, emphasized the power of competition in his 2006 examination of how technology spreads. “Broad access to new broadband telecommunications services for Americans at every income level and geographical area can be achieved by encouraging competition itself, which drives down the prices of these services and promotes additional technological innovations that further drive down prices. This is precisely how large shares of Americans at every income level, race, and education, living in center cities and rural America as well as suburbia, achieved access to home computers and the Internet.”20

Moreover, because most providers of video now offer a suite of telephone, video and Internet services for about $100 a month, competition in this market effectively reduces the cost of broadband and drives adoption rates higher. The message for policymakers is clear – in order to promote the spread of broadband, they should invite video competition into their communities by eliminating antiquated franchise rules that restrict competition, limit choices and keep prices high.

In order to promote the spread of broadband, they should invite video competition into their communities by eliminating antiquated franchise rules that restrict competition, limit choices and keep prices high.

Excessive government regulation of broadband service models also could push up prices for broadband Internet access. For example, some proposals in the U.S. Congress that would limit network operators’ ability to use technology and management techniques to enhance efficiency and accommodate the explosion in Internet data. The legislative proposals, which proponents argue are necessary to ensure that all data – whether multi-player games or medical services – are treated the same and without costs to the supplying vendors, could shift a larger share of Internet costs to individual consumers. The reality is that if large content providers who are in the business of supplying bandwidth intensive Internet services do not

18 General Accounting Office, “Subscriber Rates and Competition in the Cable Television Industry,” GAO 04-262T, testimony before the Committee on Commerce, Science and Technology, U.S. Senate, www.gao.gov/cgi-bin/getrpt?GAO-04-262T 19 Federal Communications Commission, “Report on Cable Industry Prices,” December 27, 2006, available online at http://hraunfoss.fcc. gov/edocs_public/attachmatch/FCC-06-179A1.pdf 20 Robert J. Shapiro, “Creating Broad Access to New Communications Technologies: Build-Out Requirements Versus Market Competition and Technological Progress,” April 2006, p. 4.

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pay their fair share of network expansion costs, consumers will be left to pay the bill.

Economists Robert E. Litan and Hal J. Singer have argued that “the cost per customer of providing basic Internet access (and thus the price) would increase significantly if access providers were prohibited from using intelligent traffic control, including quality of service, to meet the demand for Internet traffic.” They calculated that under some scenarios, as many as one-third of broadband subscribers might disconnect from high-speed Internet because the price burden would be too great. 21 The risk

If large content providers who are in the business of supplying bandwidth intensive Internet services do not pay their fair share of network expansion costs, consumers will be left to pay the bill. Under some scenarios, as many as one third of broadband subscribers might disconnect from high-speed Internet because the price burden would be too great.

that lower-income consumers will be priced out of Internet service may be compounded by external economic events such as the emerging melt-down in the subprime mortgage industry or the recent spike in oil prices.

Perhaps the principal question is how to finance the necessary investment to deal with an explosion of online video and other data (dubbed “the exaflood” by some) that many commentators believe will soon create a critical online traffic jam unless Internet capacity is greatly expanded. For example, downloading a single half-hour television show consumes more Internet bandwidth than receiving 200 emails a day for a full year, and downloading a single high-definition movie consumes as much bandwidth as 35,000 web pages. These data-hungry applications mean that by 2010, 20 typical households could generate more traffic than the entire Internet did in 1995. Competitive forces would typically lead to new business models to pay for the needed investment that some say could exceed $100 billion. But public policy choices that restricts the implementation of innovative technical and business approaches would undoubtedly place a heavier cost burden on the backs of individual

21 Robert E. Litan and Hal J. Singer, “The Unintended Consequences of Net Neutrality Regulation,” Journal on Telecommunications and High Technology Law, 2007, January 2007, available online at http://papers.ssrn.com/sol3/papers. cfm?abstract_id=942043

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consumers that could conceivably slow the pace of broadband adoption nationally and force some of the newest adoptees to be dislodged, especially lower-income consumers who feel the most pressure from price increases.

Instead, policymakers should seek strategies that would encourage capital investments into underserved communities to ensure the delivery of affordable and sustainable broadband services to every consumer. Consultation with community-based groups can help policymakers better understand barriers to adoption and identify appropriate incentives to drive broadband deployment and adoption at the local level.

It has been determined that excessive taxes or other fees drive up consumers’ broadband bills. Typically at higher rates than on other goods and services, telecom taxes have historically been an attractive source of local government revenue. For example, The Chicago Tribune reported in October 2007 that Cook County was considering a $4 monthly tax on every phone line in Chicago – a hike of 10 percent or more in broadband access fees for every county resident who relies on DSL to connect to the Internet.22 That sort of regressive flat tax would have a disproportionate effect on lower income groups.

Public policy makers and network providers must work to find “common-ground” on the issue of “build-out” requirements that compel new competitors to extend video or broadband lines to entire communities on a fixed schedule. This was the case in the State of Florida in May 2007 with the passage of video franchising legislation. This legislation allows investigations of a discrimination claim under the state’s Deceptive and Unfair Trade Practices Act. This ensures prompt legal action initiated by the Florida State Attorney General against network providers that attempt redlining of communities based on race or income in the deployment of new services.

By the end of 2007, African-American and Hispanic consumers in the United States will likely have a combined purchasing power of $1.663 trillion, a figure greater than the GNP of many of the leading

22

Jon Van, “County Eyes $4 Phone Tax,” The Chicago Tribune, October 13, 2007

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developed countries. Moreover, economic reality would suggest that information technology purveyors can ill-afford to by-pass low-income consumers, who are often avid purchasers of new technology once the price falls to affordable levels. As the Connecticut NAACP noted in February 2007 testimony to the state legislature: “No company that is serious about entering the video market is going to ignore any community that is willing to buy their service.”

Moreover, economist Shapiro notes that build-out rules ignore what we know about how technology spreads: “Build-out requirements are based on the view that those providing competitive telecommunications services will systematically bypass areas that include large numbers of households with relatively low incomes. The economic literature and economic logic, as well as the data on the spread of computers and Internet access, all argue otherwise.”23

ThE pATh To EMpoWERMEnT

The path to broadband empowerment for America is clear – focus on affordability. Historically, falling prices drive the spread of technology and broadband is no exception. From $80 or more a month less than a decade ago, Americans can now buy high-speed services for as little as $20 a month or as part of packages that deliver phone, broadband and video for about $100 a month. At those levels, most budgets can afford a high-speed connection. As a result, more American homes are wired than ever before – and the gains are seen among every racial group and at all income levels.

Policies that open the door to new competition in video and broadband, encourage investment in new network infrastructure, stimulate demand for broadband services, or promote beneficial applications such as telemedicine are likely to speed deployment and adoption of broadband. Broadband advocacy initiatives that educate consumers about the economic opportunity, educational, and healthcare benefits that broadband can deliver to communities also will facilitate greater demands for high-speed services. In combination, these approaches should help America reach its national goal of universal

23 Robert J. Shapiro, “Creating Broad Access to New Communications Technologies: Build-Out Requirements Versus Market Competition and Technological Progress,” April 2006, p. 3.

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broadband.

But policy decisions – such as regulations that restrict business flexibility for broadband network providers, encourage regressive taxes, or fail to establish reasonable built-out criteria guidelines – could reverse the favorable trends by adding to the costs consumers pay. When that happens, the less affluent are severely marginalized – and the divide is not just digital.

The political clout that broadband delivers also lies beyond their grasp. With broadband, long shot candidates can enhance their viability and their fundraising. With broadband, America’s minority community can use the Internet to mobilize action against political or economic injustice when the traditional media remains silent. Broadband enables the less affluent to amplify their voices, draw greater attention to their pleadings, and enhance their ability to bring about political, economic or social change.

Broadband is among the rare technologies that can fundamentally transform the way people live by enlarging knowledge, tempering cultural differences and improving interpersonal relationships. When everyone has the chance to subscribe to broadband Internet access, America can become a fairer and more just society. In recent years, minorities and lower-income Americans have begun to close the gap with their more affluent fellow citizens. In so doing, they also have begun to close the gap in opportunities. As more Americans have greater access to broadband and prices decrease, broadband will be viewed as an affordable commodity within the economic reach of every single American. The long-term challenge is to resist actions that will make broadband more costly, price out the less affluent, and reverse recent progress against inequality by ensuring that those who have only recently signed up are not the last in and first out.

I am reminded of the prophetic writings of Dr. Martin Luther King, Jr. nearly 40 years ago in “Where Do We Go From Here: Chaos or Community?” in which he argued at the time that advancements in the civil rights movement in the United States would be attained with the recognition of a variety of diverse pro-active strategies being deployed to end economic and racial discrimination in America. Delivering broadband to every part of America is among the strategies that will enable us to continue 19

to advance towards Dr. King’s vision for an America in which individuals are judged on the content of their character and not on their socio-economic status.

Some 39 years after Dr. King’s assassination, our success or failure in delivering broadband to all will be an important part of the answer to the question poised by Dr. King : “Where Do We Go From Here: Chaos or Community?”.

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JABARI SIMAMA, Ph.D.
Executive Assistant to President & Vice President, Community Development/External Relations

Dr. Jabari Simama is currently Executive Assistant to the President and Vice President of Community Development/External Relations at Benedict College. He is also Vice President of the Division of Community Development. In this cabinet-level post, Dr. Simama supports the president in critical aspects of the presidency particularly fund-raising, external and political relations, budget and strategic planning, and communications.

Dr. Simama also founded national annual conferences on “Broadband in Cities and Towns.” This year’s conference was successful with attendees from 13 states plus the U.S. Virgin Islands.

Prior to Benedict College, Dr. Simama served as executive director of the City of Atlanta, GA Office of Community Technology where he was the chief executive officer for the Mayor’s $10 million initiative to address the education and workforce related digital divide between the city’s information haves and information have-nots. Dr. Simama served seven years in total heading up executive offices for two mayors of Atlanta (including Mayor Shirley Franklin, the current mayor). He was the former Chief of Communication and spokesperson for the City of Atlanta and a former (two-term) member of the Atlanta City Council. Dr. Simama was elected by his city council peers to serve as a member of the Metropolitan Atlanta Olympic Games Authority (MAOGA), the state authority that oversaw the 1996 Olympic Games committee.

Dr. Simama is a graduate of Emory University in Atlanta where he received a Ph.D. in American Studies. In addition to a Ph.D., he holds a M.A. from the former Atlanta University (now Clark Atlanta University) and a B.S. from the University of Bridgeport (Bridgeport, Connecticut). He also holds a certificate from the Institute of Educational Management (IEM) from the Harvard University Graduate School of Education.

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