Washington Pols Jump On Digital-Divide Bandwagon

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Washington - Policymakers here are taken with the notion that the joys of broadband-Internet access are the preserve of wealthy Web surfers clicking up a storm in big cities and their suburban enclaves.

Among those left out of the broadband revolution, the refrain goes, are inner-city poor and rural Americans who will be trapped on the wrong side of the "digital divide" unless the federal government steps in to relieve the kilobit congestion.

Although few disputed that some segments of the country will benefit from high-speed Internet access before others do, there is no consensus here on what steps to take, if any, to rapidly stimulate coast-to-coast broadband deployment.

Judging from the some of proposals that have surfaced on Capitol Hill in the past 16 months, lawmakers remain far apart both in concept and design-an indication that they need to bridge a policy divide just as real as the technical one they have identified for repair.

At least three camps have emerged.

Some lawmakers want to use tax credits and cheap loans to drive broadband into the far reaches of North Dakota and the Upper Peninsula of Michigan-remote places where private investment is expected to flow last, if at all. Other lawmakers-even some from districts with rural profiles-abhor the idea of government subsidies. Instead, their focus is on deregulation, recommending that either Congress or the Federal Communications Commission remove restraints that they said impede broadband deployment by the four Baby Bell phone companies.

"I look at the proper incentivizing of the deployment of broadband services into rural areas as perhaps one of the key issues, if not the single most important telecommunications issue, that we will face this Congress," said Sen. Sam Brownback (R-Kan.), who is sponsoring a bill (S. 877) that would ease Bell regulation.

The cable industry falls into a third category-one that calls for no government action at all.

At least six bills bearing the digital-divide insignia have been introduced. None of them has been endorsed by the National Cable Television Association, which stands by its conviction that the private sector is responding massively to incentives in the Telecommunications Act of 1996 to provide millions of consumers with high-speed Internet access.

"Advanced services are here, they are real and they are exciting. The so-called digital divide, in my view, is a myth," Cox Enterprises Inc. vice president of public policy Alex Netchvolodoff said.

BLILEY AGREES

On that point, cable has good company. House Commerce Committee chairman Tom Bliley (R-Va.) embraces the view that the four-year-old law struck the right balance between competitors, and that overhaul proposals are premature. But Bliley is retiring, so he won't be around next year to enforce his point of view.

Sen. Byron Dorgan (D-N.D.) is an ardent supporter of government action to extend broadband into communities as small as his boyhood hometown of Regent, N.D., population 216.

In late March, Dorgan introduced a bill (S. 2307) that would provide $3 billion in loans to any company willing to deploy broadband in cities and towns with 20,000 people or fewer. The bill is specific in terms of its broadband prescription: 1 megabit per second downstream, 500 kilobits per second upstream.

In offering the bill, Dorgan said his premise was that no company can expect to make money in rural America without government assistance, and to wait a decade for the market to confirm the obvious is pointless.

"I have been talking with Democrats and Republicans from rural states, [saying] that this is not going to happen automatically, that we are going to have to prime the build-out some," Dorgan said. "It's an acknowledgement that the market system is not going to build this out the way we hope it will be built out in rural areas."

To some extent, Dorgan's plan is a legacy of last year's Satellite Home Viewer Improvement Act-a law that allowed direct-broadcast satellite carriers to provide dish owners with their local TV signals for the first time.

DBS-industry leaders DirecTV Inc. and EchoStar Communications Corp. have no immediate plans to serve small communities, citing cost-benefit realities and channel-capacity constraints. Some 16 states-with 32 Senate votes-will have no local-into-local service.

Congress is now hurrying to pass a bill to provide at least $1 billion in loan guarantees to spread local-into-local TV service to all 210 markets designated by Nielsen Media Research.

Evidently, Dorgan wants the $3 billion in his bill to do for the 1996 law what proponents say the loan-guarantee bill will do for the SHVIA-namely, patch holes left by the private market. "Doing nothing is not an option at this point," Dorgan said.

Under the Dorgan bill, the FCC would be authorized to expand universal service-already a $20 billion subsidy program that keeps local phone service affordable for all-to include cable modems, digital-subscriber-line service and wireless and satellite services.

The providers could tap into the fund-which is overseen by the Agriculture Department's Rural Utilities Service-to secure 30-year loans at 2 percent interest.

"It's an idea. It's a little early to know what kind of propulsion I get here," Dorgan admitted.

U.P. UP FOR IT

Nevertheless, Dorgan's bill won early support from a key lawmaker: Senate Minority Leader Tom Daschle (D-S.D.), who was also a strong backer of the satellite-loan-guarantee bill.

Dorgan's bill had something of a trial run in the House in late March. Rep. Bart Stupak (D-Mich.)-who represents Michigan's Upper Peninsula-tried to add it as an amendment to the House version of the loan-guarantee bill. But Bliley ruled that the amendment was not germane, barring Stupak from offering it.

Another approach taking shape in the Senate involves the use of tax credits.

Sens. Jay Rockefeller (D-W.Va.) and Olympia Snowe (R-Maine) backed a bill (S. 2321) that would give 10 percent tax credits for three consecutive years to broadband providers in communities located at least 10 miles from cities with 25,000 people or fewer.

The credits would be available for "broadband local-access facilities," meaning that cable operators and phone companies would be eligible, but satellite carriers probably wouldn't.

The Rockefeller-Snowe bill would tie eligibility for the credits to the provision of 1.5 mbps downstream and 500 kbps upstream. Those providing 10 mbps in both directions would get 20 percent tax credits.

"What our bill addresses is really the even more rural areas, where companies are less likely to bring high-speed services because of the cost," Rockefeller spokesman Don Marshall said.

Cost estimates for the Rockefeller-Snowe bill were unavailable. The two lawmakers led the effort in 1996 to expand universal support to include wiring 2 million classrooms to the Internet-a subsidy program that will cost $4.2 billion by the end of the year.

Meanwhile, Sens. John Kerry (D-Mass.) and Daniel Patrick Moynihan (D-N.Y.) are preparing a tax-credit bill that would partly target unserved urban areas.

At a recent Commerce Committee hearing, Kerry stressed that the digital divide had an urban component that needed government attention just as badly as rural areas.

"Maybe I am the sole member of the urban caucus here, but I just want to underscore that the same problem exists in low-income inner cities across the country," Kerry said. "We have the exact same problem, and we cannot think of this exclusively as a rural issue."

The cable industry hasn't rushed to embrace the subsidy approach.

In Senate testimony and FCC filings, the cable industry has insisted that the evidence is overwhelming that private investment is meeting demand as quickly as possible. Cable sources said the tax credits would be worthless to cable companies that have already made their investments.

The NCTA estimated that operators have poured $31 billion into broadband, serving urban and rural communities alike. According to Paul Kagan Associates Inc., about 51 million cable subscribers will have access to two-way broadband facilities by the end of the year.

BROADBAND RISES

"In 1997, there was no broadband service in this country to speak of. It didn't exist. In 1999, there are over 2 million broadband customers. I do not think you can conceive of a faster rollout of new technology than is occurring in this area," Netchvolodoff said.

Kagan estimated that cable-modem subscribership would hit 3.6 million by the end of the year, up from 1.5 million at the end of 1999 and 550,000 at the end of 1998.

"To say that broadband grew in 1999 would be a gross understatement. Broadband exploded," Kagan's report concluded.

Kagan predicted that the hockey-stick growth curve would continue in 2000. Some 6 million people-or 12.5 percent of all computer owners with Internet access-will be connected to broadband over the next nine months, Kagan said, taking service from cable, phone companies, competitive DSL providers, fixed wireless operators and satellite carriers that have attracted a total of $200 billion in financing.

Kagan's report also provided evidence countering the pervasive view that broadband is bypassing small cities. The report said cable and local phone companies are penetrating small markets like Augusta, Ga.; Nashua, N.H.; Portland, Maine; and Plano, Texas.

Dr. Tomas J. Duesterberg, a broadband-policy expert formerly with Indianapolis think tank the Hudson Institute, said tax credits and loan programs are unnecessary in today's market environment. He believes government intervention would skew the market in terms of companies and technology.

"The forces in the private marketplace are so strong that we are going to see a very competitive situation in broad-band service. It's already unfolding," Duesterberg said. "What is being fought out in the marketplace between satellite, cable, copper wires and [wireless-phone services] is a good thing, and we ought not to artificially impose choices on the marketplace."

At least one group is giving the Dorgan and Rockefeller-Snowe bills a close look. A spokeswoman for the Association for Local Telecommunications Services-which represents competitive DSL providers like Covad Communications Group Inc. and Rhythms NetConnections Inc.-said the idea of a boost from government to help rural areas ought to be examined.

"From our point of view, I think anything that would build in some economic incentives would help. Without the incentives, we're still going to do it, probably. Who knows how long that will take, but we are doing it as fast as we can," ALTS director of congressional affairs Hollye Doane said.

Most of the discussion in Washington has centered on wireline providers, ignoring the universal coverage that satellite providers would have if they develop two-way broadband services.

DBS GOES TWO-WAY

Last month, EchoStar announced a $50 million investment in Gilat-To-Home, a Ku-band service that will provide two-way broadband to consumers later in the year. The service will combine video and data for delivery to a single dish.

That announcement came on the heels of a similar $50 million investment by EchoStar in iSky Inc., but that Ka-band service won't be ready until late next year.

And DirecTV-the leading DBS provider, with 8.3 million subscribers-isn't standing still. The company plans to launch "AOL via DirecPC" this summer. While Hughes Network Systems' stand-alone "DirecPC" requires a telephone-return path, the America Online Inc.-enhanced product will be two-way. Despite these market moves, Washington is aggressively promoting its digital-divide agenda, with new emphasis coming from the White House.

In the past few months, President Clinton embarked on a multicity "digital-divide tour" to emphasize the lack of access by poor and rural Americans and by Native Americans.

In April, the Clinton administration released a report showing that a disproportionate amount of broadband deployment by cable and phone companies is going to heavily populated regions. It noted that less than 5 percent of towns with fewer than 10,000 people had access to broadband provided either by cable or phone companies.

The report supported the consideration of new federal subsidies to make broadband both universal and affordable and to continue spending $2.25 billion per year to wire schools and public libraries.

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