Let’s Underwrite Broadband-Every American home should be connected to the information superhighway.

The problem? The toll is too high. Ten bucks a month from Uncle Sam will help.

By Ned Desmond, February 2003 Issue

It’s time for the U.S. government to subsidize broadband connections to the home. I never thought I’d say that, but I’ve gotten over my free-market puritanism. The Bush administration should write a check to cover about a quarter of the $40 per month that households pay for their cable or DSL connections, and be ready to pick up even more if Americans don’t get with broadband fast enough.

The idea comes from Reed Hundt, former chairman of the Federal Communications Commission, who now consults on telecommunications and works as a venture partner at Benchmark Capital. You probably remember Hundt for his elegant if controversial efforts to use regulation as a way to create more competition and lower prices for broadband, among other services. The telecom implosion interrupted that experiment, and today the surviving providers of cable and DSL service can’t drop prices below the $40-to-$50 range and cover costs. That’s too steep for most families.

So forget about elegant regulations, Hundt argues. Let’s follow the proven, all-American approach of using taxpayers’ money to underwrite a civic and economic good. "Broadband is like paper or clay," Hundt says. "It will be written upon by any number of value providers — just like TV was." The United States will lose a critical part of its technological leadership if it can’t find a way to increase the broadband penetration of American homes.

Just 16 percent of U.S. households now connect through a big pipe, compared with 35 percent or more of those in South Korea, Taiwan, and Hong Kong. And we’re falling further behind every year. The rate of growth in countries as diverse as France and India is far greater than in the United States, where no more than 33 percent of households will have broadband by 2006. In South Korea the government set up a three-way competition among phone, cable, and power companies to outfit consumers with broadband. The result: Consumers pay $25 a month, on average. More than half the homes in South Korea that can get broadband do so, and the government recently lent broadband providers $120 million to reach the remaining 45 percent that lack connections for high-speed Internet. Broadband will be a giant engine of commerce that creates businesses we can’t even imagine today. TeleNomic Research in Virginia, for example, estimates that if we got most of America’s households online we would see 1.2 million new jobs — 230,000 in the telecom sector alone. The Brookings Institute projects $500 billion in economic growth.

Broadband will do for the economy what the railroad, electrification, telephone, and interstate highway systems did in their own times. They created new industries, and so will broadband in arenas such as security, education, health care, entertainment — and others we can’t fathom.

There are countless proposals to stimulate broadband adoption stacked up over Washington, but none share the simple directness of Hundt’s proposed subsidy. Use tax dollars to knock subscription rates down to $30 per month and subscriptions will increase. We’ve seen that price-subscription rate two-step with other technologies, such as telephone and cable TV.

How much will this cost taxpayers? About $6.6 billion per year, assuming 55 million households sign up. Hundt proposes that Washington start slowly and provide an average of $10 per month (the amount could vary with household income), and then increase it as necessary until broadband reaches 60 percent of households — roughly the same percentage that have PCs. Whether it’s $6 billion or $18 billion, the sum is modest by the standards of Washington’s favored projects. For example, FCC and state regulations subsidize local phone service to the tune of $30 billion a year. Our interstate highway system, which President Eisenhower kicked off in 1956, cost $330 billion by 1996. Both examples provide priceless social and economic dividends. So will broadband.

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