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It's a crisis, we're told. Not only are telecom firms going bankrupt, but the entire high-tech industry is suffering a depression — not because of failed, grandiose business plans but because too few Americans are hooked up to the Internet through broadband — a fast connection that can bring the benefits of telemedicine, distance learning, online entertainment, and services not yet imagined. But these critics — many of them Bell officials and their high-profile consultants — have it all wrong. First, broadband is spreading at an impressive pace. Second, when a company fails it's not the same thing as the competition failing. The assets of weak or bankrupt firms pass into stronger hands — that's a good thing. Third, if there were truly a high-tech crisis caused by a lack of broadband, the solution would not be to extend monopoly but to do the opposite — increase competition. Truth is, Americans are adopting broadband faster than they adopted TV or DVDs. Four out of five homes can now get broadband service if they want it. Over the past year and a half, subscribers to the DSL broadband service of SBC Communications tripled to 1.5 million. At BellSouth, DSL subscribers have risen 140% in a year. Through the end of March, total broadband subscribers nationwide had reached 11.8 million, up from 6.6 million a year earlier. That increase is all the more impressive because the growth has occurred despite broadband's high cost. Broadband is working because an overwhelming bipartisan majority in Congress laid down a solid blueprint for reform six years ago. The idea was to move telecom to complete deregulation by allowing the Bells, which held a monopoly on local service, to get into long distance if they opened up their networks to companies called CLECs, or competitive local exchange carriers. Unfortunately, the Bells stalled for years, and federal authorities failed to enforce the law vigorously. As a result, the Bells — seven companies now merged to just four — still have 95% of the residential and small-business market. Which brings us to broadband. If monopolies control the local loop (the so-called "last mile"), then CLECs can't offer their high-speed services smoothly and inexpensively. Consumers don't have choice; competition can't drive down prices; quality stagnates. The Bells, however, continue to claim that if only they didn't have to lease their networks to competitors, they would invest even more in broadband. Lately, they have been exploiting the WorldCom debacle — just as they used the terrorist attacks of Sept. 11 — to make their case. But an econometric analysis by Robert Willig of Princeton shows just the opposite. "Pricing that encourages entry by CLECs," Willig wrote, "also encourages enhanced investment by ILECs" — that is, the incumbent Bells. Competition boosts all investment. The Bells want to restrict the access of the CLECs for one simple reason: to kill them off. If the Bells succeed, don't expect them to increase investment. Instead, they'll act the way monopolists always have - they will reduce supply and raise prices. Higher prices are what they crave. Knight Ridder/Tribune News Service reported that Lawrence T. Babbio Jr., president of Verizon Communications, told an audience in Atlanta last month that "digital subscriber lines, which cost about $50 a month today, should conceivably be 40 to 50 percent more expensive." Said Babbio, "The industry started out too low." We're at a critical juncture. Despite fierce lobbying, the Bush administration remains unconvinced of the Bells' claims that the 1996 Act needs to be reversed — either by legislation, such as the Tauzin-Dingell bill (now bogged down in the Senate), or by new regulations from the Federal Communications Commission. It's not that President Bush ignores the importance of fast Internet access. "This country must be aggressive about the expansion of broadband," he said last month. The president and his advisors simply believe that competition, not monopoly, is the answer. And they're right. Still, if the administration buckles, it runs the risk of presiding over a reversion of the U.S. telecom system back to stultifying monopoly status. If Bush hangs tough, he can take credit for helping to spread lower phone rates and a sharp new technology to tens of millions of Americans. Backing down now, as the fruits of victory are just beginning to appear, would be a terrible mistake. Competition is finally spreading around the country as states like New York, Michigan, and Illinois get serious about opening local markets. And investors are discovering the business plans and the assets that can work. For instance, on Monday [July 8], Warren Buffett, the most successful investor of the 20th century, announced he would invest $100 million in Level 3 Communications, one of the long-haul fiber carriers established in recent years, thanks in large part to telecom reform. IBD, another competitive carrier, has bid $5 billion for the assets of WorldCom. This is precisely the way competition is supposed to work: The fittest companies survive and thrive, and consumers benefit from lower prices (just as they have in the long distance category, which was also reformed by allowing competitors to lease the incumbent lines). What's sad is that people who should know better are advocating reduced competition as the way to enhance broadband. Tech guru George Gilder said recently on Fox's Your World with Neil Cavuto that "there's too much competition" in telecommunications. In fact, there's far too little. Gilder's view — that the 1996 Telecom Act has crippled high tech in general — may have been colored by his own troubles, detailed this month in Wired magazine. The Gilder Technology Report, which touted such high-tech disasters as Global Crossing, once took in $20 million yearly in subscription revenue. Now, Wired reported, Gilder "confesses he's broke and has a lien against his home." There's no shame in that. What's troubling, however, is that Gilder is blaming the tech slowdown that destroyed his chosen stocks on current broadband policy. Nonsense. Broadband is already widely available. What's missing is value for money. What's needed is better content. Television did not become a hot item until programming improved in the 1950s. Personal computers did not catch on until sophisticated word-processing and spreadsheet software appeared. Here, government has a role. The Bush administration has already achieved accelerated depreciation for investments and extended the tax moratorium on the Internet. It needs to reassure entertainment firms that their products won't be stolen and make e-government an even bigger priority. Finally, public officials everywhere must reaffirm that the 1996 blueprint for telecommunications reform will stay in place. Investors have enough uncertainty on their hands without adding turmoil by changing the rules of the high-tech road. As the economy recovers, so will telecom. Mergers, new management efficiencies, technological innovations, lower prices, and better products are all inevitable, but only if competition reigns. — James K. Glassman is a fellow at the American Enterprise Institute and host of TechCentralStation.com, one of whose sponsors is AT&T.
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some, the collapse of WorldCom provides a great excuse for abandoning
reform of the telecom system. Forget the havoc of competition, say Bell
executives and their allies. Gut the Telecommunications Act of 1996. Turn
the system back to the monopolies that ran it for a century. Trust them
to unleash broadband. 
