Beyond Taxes and Regulation

Published January 1, 2007

Last October, Google announced that it would pay $1.65 billion to acquire YouTube, a video-sharing Web site started only 23 months ago. At the same time, CBS announced a content-sharing arrangement with YouTube. This is the new world of interactive television, all made possible by fast broadband connections streaming video over the Internet.

Television is becoming a two-way, interactive experience that offers viewers the digital agility of the computer, the display quality of a movie theater, and content that can be summoned on demand. It will take us from what one Federal Communications Commission chairman, Newton Minow, referred to 45 years ago as a “vast wasteland” to a vast interactive world of limitless content–a long way from our couch-potato past.

Any serious discussion of the future of the Internet should start with a basic fact: Broadband is transforming every facet of communications, from entertainment and telephone services to delivery of vital services like health care. But this also means that the digital divide, once defined as the chasm separating those who had access to narrowband dial-up Internet and those who didn’t, has become a broadband digital divide.

Needed: Full-Scale Policy Debate

The nation should have a full-scale policy debate about the direction of the broadband Internet, especially about how to make sure that all Americans get access to broadband connections.

Unfortunately, the current debate in Washington is over “network neutrality”–that is, should network providers be able to charge some companies special fees for faster bandwidth. This is essentially a battle between the extremely wealthy (Google,, and other high-tech giants, which oppose such a move) and the merely rich (the telephone and cable industries). In the past year, collectively they have spent $50 million on lobbying and advertising, effectively preventing Congress and the public from dealing with more pressing issues.

As chairman of the FCC, I put into place many policies to bridge the narrowband digital divide. The broadband revolution poses similar challenges for policymakers. America should be a world leader in broadband technology and deployment, and we must ensure that no group or region in America is denied access to high-speed connections.

We are falling short in both areas. Since 2000, the United States has slipped from second to 19th in the world in broadband penetration, with Slovenia threatening to push us into 20th. Studies by the federal government conclude that our rural and low-income areas trail urban and high-income areas in the rate of broadband use. Indeed, this year the Government Accountability Office found that 42 percent of households have either no computer or a computer with no Internet connection.

Two promising policies in particular would significantly expand broadband access.

First, to ensure that broadband reaches into rural, low income, and other underserved communities, Congress should reform the Universal Service Fund, the federal subsidy paid to companies that provide telephone service to rural areas. For decades, the fund has been financed by a federal fee or surcharge that consumers pay on interstate phone calls.

But the fund in its current form is not an effective way to support expanded broadband access. It is not fair to expect telephone consumers to bear the sole burden of the subsidy, and the decline in revenue from traditional long-distance calling is shrinking the base for contributions to the fund.

Revenue Sources Other than Taxes

We must find a new source of revenue for the fund that does not exclusively tax users of the phone network. And we should adopt a much more efficient way to distribute precious fund dollars. All communications companies–telephone, cable TV, or wireless network operators–that want government financing to provide broadband services to specific underserved communities should submit competitive bids to the fund.

The FCC’s chairman, Kevin Martin, has opened the debate on this proposal, called a reverse auction, which would ensure that only the most efficient companies would be granted subsidies to provide service to rural areas. This is a step in the right direction.

Second, Congress should put all broadband providers on a level playing field. Both the cable and telephone industries are racing to provide a bundle of services to consumers. Each wants to be the consumer’s one-stop shop for video, voice, and data services. Unfortunately, the legacy of historic regulation puts the telephone companies at a serious regulatory disadvantage in quickly deploying video services.

Both industries could benefit from national franchising legislation that would streamline the franchising process and promote innovation and competition. (Disclosure: Some companies in which I invest at The Carlyle Group could also benefit from the wave of investment that would result from such legislation.)

Congress punted on both of these issues this year in large part because of the polarizing net neutrality debate. Now the combatants are set to throw millions more dollars into the fray when Congress revisits new telecommunications legislation.

Policymakers should rise above the net neutrality debate and focus on what America truly requires from the Internet: getting affordable broadband access to those who need it.

William E. Kennard was chairman of the Federal Communications Commission from 1997 to 2001. This article is reprinted by permission of The New York Times, copyright 2006.