Australia, Indiana and the Internet.jap

September 7, 2010

For release noon Sept. 7 and thereafter (856 words)

A USTRALIA is a long way from Indiana, but Hoosiers can learn a valuable lesson by observing the debates from the recent national election in Australia. One of the principal topics in their electoral campaigns this summer has been the provision of Internet broadband services to households. The debate has centered on who will provide the Internet service and who will pay the bill.  This Australian debate has been mirrored in the United States with the proposal recently announced by our Federal Communications Commission (FCC) to include broadband Internet in their regulatory family (up to now Internet services have not been under the direct purview of the FCC).

So, what does this have to do with Hoosiers? It means Indiana is likely to have the same debate the Australians have already had, and every resident of Indiana will be affected directly or indirectly by the result. The result of the debate will be the answer to two questions. First, who will provide Internet connections? Secondly, who will pay for the Internet service and how much will they pay?

Over the past 25 years, the Internet has flourished in the United States in large part due to the extremely limited role that government has played. In less than a decade, the private sector has expanded broadband Internet access to over 91 percent of Indiana households. (1) Some Hoosiers get their Internet through a cable (perhaps bundled with television service like Comcast), others receive the Internet through unused wires in their household telephone line (called DSL as AT&T provides), and yet others receive it directly through a satellite service (such as WildBlue). In addition to these three primary means of receiving the Internet to households, many Hoosiers receive Internet services on their mobile devices (iPhone, Blackberry, Android, laptop, etc.). In fact, Indianapolis is one of the top five cities in the country in terms of the speed of its 3G network (a 3G network provides Internet service wirelessly to these mobile devices). (2) Indiana also has speedy Internet connections when compared to other states; a 2009 study shows the average Internet connection speed in Indiana to be 5.7 megabits per second while the average for the entire United States is just 5.1 mps.

Since 2004, the price to access the Internet has dropped by 23 percent in America, while during the same period overall consumer prices have trended upward. Of households in Indiana presently lacking broadband access, many have Internet access through cell phones and smart phones. These mobile users access the Internet, send and receive e-mail, and play games just like “wired” broadband households. Many of the seemingly “unconnected” Hoosiers are not “hardwired” at their residences but are well connected otherwise. Less affluent households may benefit more from using less expensive currently existing technology rather than by being taxed for the provision and regulation of static last generation technology. For example, “African-Americans and English-speaking Latinos continue to be among the most-active users of the mobile web. Cell- phone ownership is higher among African-Americans and Latinos than among whites (87 percent versus 80 percent) and minority cell-phone owners take advantage of a much-greater range of their phones’ features compared with white mobile- phone users.(3)”

All of this sounds much like a success story for Indiana; a large percentage of Hoosiers have Internet access of one type or another, our access speeds are above average, and, as the percentage of connected individuals continues to grow, the price of access continues to fall. Such are the benefits of private provision and competition. The FCC, however, would like to go the route that Australia has recently chosen: control of the Internet by the central government.

Despite universal acknowledgment that we enjoy a free, open and vibrant Internet, the FCC is relentlessly pursuing a massive regulatory regime that could actually stifle broadband expansion, create congestion, slow Internet speeds, jeopardize job retention and growth, and lead to higher prices for consumers. The FCC has mandated that they legally have the right to control the Internet because Congress in 1934 gave them the right to regulate telephone monopolies. The Internet is viewed by the FCC as a public utility requiring regulation because it is naturally a monopoly. But is there true monopoly power in providing Internet services in Indiana? That’s hard to believe when I receive mail each day requesting me to change my Internet provider.

Hoosiers should consider opposing the FCC’s effort to regulate the Internet under Title II of the Communications Act of 1934; it was written during the depression era to regulate now-obsolete telephone monopolies – 60 years before the Internet was ever conceived. These proposed regulations would permit the FCC to dictate how the networks that serve as the backbone of the Internet are managed, thereby removing incentives for further investment and opening the door for price setting or future regulatory action.

Placing Indiana’s 21st-century communications system under a pre-World War II law is perhaps a misguided approach to continuing broadband Internet expansion and adoption. The Internet has never been a regulated utility and state legislators could ensure, rather than retard, communication technology by rejecting so-called “Net Neutrality” regulations on the Internet.

Barry Keating, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, is the Jesse H. Jones Professor of Finance at Notre Dame University.

 Endnotes

1. High-Speed Services for Internet Access: Status as of June 30, 2008, Industry Analysis and Technology Division, Wireline Competition Bureau, Federal Communications Commission, Washington, D.C., 2009. (www.fcc.gov/wcb/stats).

2. “News Release: NIELSEN ANNOUNCES TOP U.S. MARKETS FOR MOBILE VOICE AND DATA SERVICE,” The Nielsen Company, Paul M. Okimoto, April 2, 2008.

3. Mobile Access 2010, Aaron Smith, Pew Internet and the American Life Project, July 7, 2010. (www.pewinternet.org <http://www.pewinternet.org> )

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