U.S. Broadband Policy: An 'Alarming Failure' for Small Business

A savvy small business owner, or anyone running a large company for that matter, would never determine the strategic direction of the company without first thoroughly researching the market. It's one of the fundamental rules of business management . . . and life. Simply put: "Look before you leap."

But when it comes to the Bush administration, even that simple adage doesn't seem to apply. For the past six years the Federal Communications Commission (FCC) has been crafting policies on high-speed Internet access, also known as "broadband." Its decisions have had a profound effect on businesses large and small, not to mention the nation's global competitiveness. Yet, all along, the agency has been flying blind.

The startling revelation came during a hearing Wednesday, Sept. 26, before the Senate small business committee. FCC Commissioner Jonathan Adelstein told the committee that the agency collects "little reliable data" about the extent of broadband services available to small businesses. Information is just as scarce on the "general state of competition" among telecommunications service providers, he said.

Who knew? Certainly not the general public; but the General Accounting Office (GAO) was aware of the problem. Over a year ago, it told the FCC in a report that it needed to improve its data collection. The GAO made the same recommendation to the Small Business Administration (SBA). Yet neither has taken any steps since then to address the problem.

The situation is doubly troubling because the FCC is currently considering three critically important policy issues. The agency's decisions will have a huge impact on small businesses, which already face severe disadvantages in the broadband marketplace. Given its track record, there is a real danger the FCC will put the nation in an even deeper competitive hole compared with the rest of the world.

"Our current efforts are woefully out-of-date and out-of-whack," FCC Commissioner Michael Copps told the committee. "The commission is still calling 200 kilobits per second 'broadband' and assuming if one person in a ZIP code has broadband access, everyone else does as well."

By international standards, the FCC is acting like it's 1997, not 2007. International organizations rank the nation's broadband service anywhere from 15^th to 21^st in the world in terms of access, quality of service, and speed. A small business in Europe can choose from multiple access providers and get service that's 10 times the speed at half the price, according to Ben Scott, policy director of Free Press, a nonpartisan group that monitors the media.

The practical impact of the U.S. lag was highlighted in a recent study by the Brookings Institution and the Massachusetts Institute of Technology. Each single-digit increase in broadband penetration equals 300,000 additional jobs. If broadband penetration in the U.S. equaled world-leading Denmark's, it would mean an additional 3.7 million U.S. jobs.

"This is not merely a matter of national pride; this is serious money and a life-or-death situation for the small business market," said Scott, who also testified on behalf of the Consumers Union and the Consumer Federation of America. "The small business broadband marketplace is in a state of alarming failure."

Small businesses are not only hampered globally, but also face major disadvantages around the nation. The price for each one-megabit-per-second of service in San Francisco is $8 to $12 a month. But in smaller communities like Urbana, Ill., it costs as much as $320 a month, while in rural areas like Greenup, Ill., the price is $1,300 a month.

"By analogy, if a gallon of gas were $2 in San Francisco, it would cost $260 a gallon in Greenup," said Scott. "Is it any wonder where investment, jobs, and economic growth will go in such an environment?"

In a 2005 survey (the only one it's done on the subject), the SBA found that most small businesses are using the same Internet service that's provided to homeowners and paying between $40 and $50 a month. In France, a business can buy service that's up to 10 times as fast for the same price; in Japan the service is up to 30 times faster.

To get the same level of service in the U.S., businesses would have to buy what's known as a dedicated T1 line. Small businesses, however, would have to pay at least $750 a month for the service. It should come as no surprise that only 4 percent of all small firms with Internet service currently use T1 lines, according to the SBA study.

The major telecom providers, of course, paint a completely different picture. In fact, Scott Wallsten, a policy director with the Programs & Freedom Foundation, which describes itself as a "market-oriented" think tank, testified that there was no problem at all. He noted that cable companies were expected to spend $15 billion this year upgrading service. Verizon, he added, is planning to spend $23 billion on its fiber-optic network over the next few years. He warned lawmakers not to enact any policy that might hinder investment.

He also said international comparisons were flawed because they don't take into account real broadband speeds, only "advertised" speeds. Based on tests of real speeds, the U.S. compares favorably, ranking about fourth in the world. He also said small businesses don't have faster speeds simply because they don't need it and are unwilling to pay for it.

Let's give everyone the benefit of the doubt and say the truth lies somewhere in between. The fact is, no one really knows for sure, because the government has never bothered to collect the data. The only thing that is certain is that the nation can no longer afford to be flying blind on something like broadband service.

The government needs to conduct a definitive national study of the state of Internet service across the country and around the globe. The study, in turn, should provide the foundation for a national summit on broadband policy. Then, hopefully, we'll have a clear idea where we need to go next.