Staying Ahead of the Broadband Curve

Thomas J. Tauke
PFF Aspen Summit Conference
August 22, 2006

Five years ago at this conference we spoke of the need for policies that were forward-looking for broadband. To get new wires we needed new rules that encouraged growth and increased innovation in high-speed network products and applications.

Instead of the stifling rules and government control of the telco world, we needed rules for the expanding broadband world. After a lot of hard work by many of the people in this room, that's more or less what happened. The result – what we've seen over the last 60 months – is truly remarkable.

Five years ago dial-up was the mode for online transport. Today almost 70 percent of people online use broadband.

Then, there was limited competition in voice and data, and none in video. Today, there is competition across all the broadband platforms: wireline and wireless, satellite and power line, with emerging platforms like Wi-Max.

Then, Silicon Valley was calling for ten megabit speeds. Now, we're meeting that demand … and some of us are exceeding it. Verizon's fiber to the premises network, FiOS, is delivering the fastest Internet access in the marketplace. Customers go online at speeds up to 50 megabits per second on a network capable of evolving to 100 megabits and beyond.

Then, investment in the Internet space was stagnant. Now, the capital investment unleashed by the market-driven approach to broadband is unmatched by any industry, and it is a key driver for jobs and economic growth in America.

The result of this dynamic marketplace is that broadband networks are the disruptive forces in the communications marketplace today. Consumer use of "always on" broadband is driving new business models, re-shaping the Internet, and enabling innovations at the core, along the edges, and in software and hardware.

Sometimes I think we forget just how young the broadband industry is, how much we have achieved, and how quickly and dramatically innovation is taking place. But because change is now constant, we can't afford to view broadband's future as simply an extension of the present. It is critical that we be ahead of the curve.

Five years ago the debate was about how to start the broadband revolution. Today the debate is about how to sustain broadband's revolutionary growth. We can return to the old world of government control, limited innovation and competition, or we can fully commit to the new world of advanced networks, consumer-driven business models and competitive marketplaces.

A big difference from five years ago is that we have the experiences of the broadband market to inform our discussion. The result? We're seeing consensus build around what policy works – and what doesn't – for broadband.

In state capitals, and in Congress, policymakers are turning away from old-world regulatory solutions for the broadband world, and coming down on the side of consumer-driven markets. They are siding with choice, rather than preferred business models. They are moving forward with innovation, rather than stepping back to the status quo.

We saw this recently in the debate over video choice and "net neutrality."

First, video choice. Consumers want choice in video. They like the lower prices and improved services that competition brings. As a result, video choice is a political winner.

Video is also a big part of the business case for investment in fiber networks. It helps drive the deployment of high-speed broadband.

In the past year, seven states have approved statewide video choice legislation, with several more debating it right now. In Congress video choice passed the House and is pending in the Senate.

On every level, where there is a vote video choice – and consumers – win. So, there is now consensus that lowering the barriers to video entry and giving consumers video choice are the right policies.

"Net neutrality" is a different debate altogether. It's more confusing … less clear cut. It's a battle over definitions and hypothetical business plans. And it's a debate many of us have participated in at least twice before, a kind of "Groundhog Day" for broadband. Yet the outcome, I believe, is becoming clearer.

We first debated the issue in 1999, when it was called "open access." At the time, cable companies that owned Internet Service Providers were denying access to other ISPs. Those ISPs asked the government to force cable to "open up."

Then-FCC Chairman Bill Kennard refused to intervene. He insisted rule-making for open access would impede investment in a market moving in the right direction. The FCC wisely concluded that consumers would benefit from a market-driven policy. And guess what? The market did work for consumers.

Then, a few years later, the FCC was considering how broadband services should be regulated. To show that the market could work – and that the Internet industry could be responsible – the High Tech Broadband Coalition developed a set of Connectivity Principles.

The principles provided that 1) consumers should have full access to any legal content, website, or service on the Internet, 2) they should be able to use any device that didn't harm the network, 3) they could use any application of their choice, and 4) they should receive from any access provider full information about any limitations on that access.

The industry embraced the Connectivity Principles. FCC Chairmen Powell and Martin used the principles as a standard for the industry as they moved to treat broadband as an information service rather than as a telecom or cable service. Again, we've seen the market work.

This year, under the banner of "net neutrality", we're debating the issue once more. The "old rules" advocates call for non-discrimination, and demand that business models be shaped by regulation. They want government to act pre-emptively to protect consumers from bad things that might happen.

But policymakers continue to reject that approach. They see competition breaking out all over. They see that consumers go where they want to go on the Internet, with no blocking or degrading of services. They see companies making huge, new investments and innovations in broadband. And they see that all of these good things are happening with no government regulation. In other words, the market is working.

For all the fireworks over "net neutrality" I believe there is now an emerging consensus that "net neutrality", specifically, and broadband policy, in general, is all about consumers. It's about putting more technology, capacity, control, and choices in their hands. It's also about allowing relationships between and among players to be resolved in the marketplace.

I've been around the industry long enough to know that this issue may come back in another form. But I also think that when we look back on 2006 it will be the year of the "consumer coup" … as the "old rules" view of the communications world gave way to "new rules" that put the consumer in control and broadband on a path of growth and innovation.

It's good that the video choice and "net neutrality" debates are gradually being resolved in favor of consumers, because we need to bring that same consumer focus to the next set of issues that will affect the future of broadband.

With smarter networks that connect everyone and everything all the time, there are emerging issues that will affect consumers' appetite for broadband and their willingness to migrate more and more of their lives online. Innovation and the kind of cooperative effort we have exhibited over the past five years will be critical to meeting consumer needs and sustaining broadband's growth.

Today I'd like to focus your attention on four issues: access, privacy, protecting intellectual property, and taxes.

First, access to broadband. This is the elephant in the room, so we ought to deal with it directly. As broadband becomes increasingly embedded in our lives, it will be considered essential for economic health, for personal health … for education … and entertainment. Consumers will expect to have broadband connections. No community will want to be left out of the broadband world.

Yet the economic reality today is this: it's not feasible to provide every type of broadband that consumers may want in some parts of the country, and it won't be tomorrow, or next month, or even next year.

Not surprisingly, the calls grow louder for government to step in to ensure broadband access for all. Before government steps in, however, we should permit the marketplace to work. And the industry should do all it can to provide access to as many as possible as quickly as possible.

What can we expect from the market? As demand grows and costs decrease, the economics of deployment will improve. New technologies – Wi-Fi, Wi-Max, satellite, broadband over power lines – will fill the gaps and meet consumer needs. New services will generate more traffic and increase the revenue generated by broadband networks. Innovations that allow everyone – whether they have disabilities affecting hearing, vision or mobility – the use of broadband to participate fully in society will continue to be encouraged. Business plans that don't appear viable today will become sustainable.

As an industry, we should recognize that the economic and technology challenges in some areas may require different models for deployment. We should encourage local experimentation and partnerships, including public-private partnerships. And we should be mindful that if we don't focus on providing widespread access to broadband, the political pressure to address the issue will cause government to act prematurely.

If government does address the broadband-access issue, it should do so only after it is clear that the market is not meeting – and is unlikely to meet – legitimate societal interests in bringing access to consumers. I'd also add that any government solution should not distort the dynamics of the marketplace.

Second, privacy. Instant and text messaging, blogs and sites like MySpace and YouTube, are quickly creating new online social standards. The notion of just what constitutes privacy is less than clear in a world where anonymity is increasingly difficult for anyone to achieve. But what's clear is that the digital economy will flourish only if consumers can trust their online experience.

Add to that the large amounts of personally identifiable information of the hundreds of millions of people online in every imaginable form – text, picture, and video – that are being stored in data bases and Web portals and shared across networks.

These billions of pieces of data in the right hands can be used for the legitimate delivery of personalized services. In the wrong hands they are tools for invasive or even predatory, criminal behavior. The last thing any of us in this room wants to see is Internet usage decrease because of fears and growing threats.

Our industry has taken these concerns seriously, and we have moved pro-actively to provide consumers and the marketplace with privacy policies, seal programs, and consumer and business education initiatives that address the issue of online privacy. Policymakers have put these efforts at the forefront of America's response to the privacy challenge.

But as people move more of their lives onto the networks, whether it's using financial planning or utilizing telemedicine applications, the question is can we do more? My sense is that we in the industry will have to constantly do more as the market develops. This is something our customers will expect from us as the new broadband-enabled world continues to evolve.

I'm not sure exactly where we in the industry go from here, but I'd point to three areas of focus: First, it's important that there be strong enforcement of privacy laws, and where necessary, improved criminal statutes. Second, there must be ongoing consumer education in the area of privacy. And third, there should be more aggressive efforts by the industry to use technology to protect the more vulnerable who go online.

This focus moving forward will build on the sound, fundamental privacy principles now in place.

Another issue of importance is one being discussed here at the conference – the protection of intellectual property. Protecting this critical resource for broadband's growth, is very important to Verizon. Without content even the best networks won't be very helpful to consumers.

There is no clearer example of just how much the world has changed and how disruptive a technology broadband is than in the creation and distribution of content. In the old world, you had the creator of content on one end of the value chain and the consumer of that content on the other end. In the middle was the distributor, and the distributor was the dominant player.

Suddenly with broadband, the distributor is no longer dominant. In fact, there may be no publisher or studio. Instead, the creator becomes the distributor. Put simply, the technology is enabling new business models.

It may be that one rock band will want a free download of its latest song widely shared among fans as a way to sell tickets to its concerts. Another band, however, might want its song sold online with full copyright protections. Either model works.

The industry has to come to terms with the diverse expectations that broadband is creating among both content creators and consumers, and we must be both responsive to consumers, while acting responsibly in the marketplace. The challenge takes on greater weight when you factor in the global dimension of broadband. Content distribution and copyright protection aren't U.S. issues alone, but have international legal and economic implications that must be accounted for.

In the past year network operators and varied content creators have made strides in addressing data-rights management issues. But as screens and browsers proliferate around the world and become more mobile, the challenges that all segments of the broadband industry must address will only become more complex.

Finally, communications taxes. In the past five years, wireline and wireless broadband technologies have become the central nervous system of the digital-age economy, critical to employment, productivity and economic growth.

The wide use of mobile phones and broadband has not gone unnoticed by government. In fact, broadband and, in particular, wireless services are increasingly viewed by state and local governments as the golden goose for raising new revenue. The state and local tax burden on communications is now two and a half times what it is for other businesses. That's not only a discriminatory tax burden on our industry, it's a regressive tax increase on every user of our services. Today in some states, taxes on cell phones exceed that of liquor and tobacco. That's just not right.

In addition to being unfair, the tax process itself is overly complex and burdensome. Compared to other businesses, communications providers have an additional six thousand taxing jurisdictions to contend with, and about 40,000 more returns to file each year. In a world where voice, video, and data communications are merging into almost indistinguishable packets of electrons, tax policy remains in the rotary phone era.

Just as with overly burdensome regulations, overly burdensome taxation has a negative effect on demand and drags down the Internet economy's growth. For example, the CTIA found that, when states imposed a 16 percent tax on wireless services, demand went down by 18 to more than 20 percent.

As an industry, we need to work with all levels of government to develop a tax structure for communications that is fair, non-regressive and easy to administer. And we need to do it now, before governments get too used to this high-tax diet.

There are dozens of other issues we could and should be addressing, from online gambling to online voting to Internet taxes. But the issues I've raised are critical to the shaping of the broadband world, and if we don't meet the challenges, we risk having the promise of the technology stifled by continued regulations that impede the creativity and innovation of the marketplace.

Broadband is a technology that connects people, but the debates we've had over the past year have seen the broadband industry become more fragmented. We have a technology that enhances communications, but we're an industry that hasn't had enough dialogue of late.

Broadband may be a disruptive technology, but it also presents us with opportunities to work together on solutions. The broadband industry has a history of being responsible in the marketplace and responsive to consumers. Those twin goals are going to be important to broadband's future growth moving forward.

It's been said that in the broadband industry you can define an optimist as someone who believes that the future is uncertain. It's not surprising that there are those who look at the ever-changing broadband world with a sense of apprehension. But what we've seen of broadband over the past five years shouldn't inspire uncertainty, but a spirit of innovation and a sense of limitless possibilities.

After all, innovation and opportunities are two big reasons why we are so committed to broadband and to seeing it thrive. It is why we are committed to building networks and competing to offer unique products and services that will enhance our lives, our culture and our communities. And it is why we should be committed to working together to put policies in place that meet the needs of consumers, and thus the industry, for the future.

Thank you.