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Broadband's Slow March Can't Drag On


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Broadband's Slow March Can't Drag On

Providers of interactive cable and high-speed DSL phone lines are clearly off to a poor start in rolling out broadband to the masses. The service is slow and often bad, and the technology is quirky and often disappointing. Despite huge demand, the promise of an always-on, superfast connection to the Internet appears to be, at best, delayed. To anyone working in an office where fast access to the Net has been available for years, the wait to have it at home is increasingly frustrating. The worry is that what may now be merely irritating could develop into a serious economic problem.

Broadband is a major key to future growth. So much is riding on it. Without a mass consumer market, it will be much more difficult for corporations to realize gains from their enormous investments in the Net. A small delay in its rollout to consumers won't amount to much, but a much longer wait of many years could pose real problems down the road for the New Economy. Cable operators, phone companies, and Washington policymakers alike should consider whether some midcourse correction is needed at this time.

Take the financing. Enormously expensive overhauls of the cable- and copper-line infrastructures are required for broadband, but the capital markets are increasingly unwilling to put up the money. Both the telecom and cable companies are financing their Internet forays with huge issues of junk bonds, and now that market is shouting "no more." Telecoms have the largest share of the high-yield bond market, and cable companies come in second. Interest rates on these junk bonds are soaring as investors retreat in the face of greater-than-anticipated expenses and lower-than-anticipated profits. Even AT&T is being forced to reduce its debt load--and abandon its dream of providing voice and data services over one cable pipe--by spinning off broadband. Will the junk-bond markets or the banks finance this new broadband company? It's unclear at this juncture (page 42).

The technology is not in great shape, either. Both DSL and interactive cable have problems. People have to live within three miles of a high-speed link for DSL to work on their old copper phone lines. A good percentage, perhaps up to half the population, will never qualify for DSL, as a result. Those who do will often have to work with three or four separate companies if they order DSL from an independent Internet service provider. It can be a nightmare. Cable technology is problematic, too. Cable modems link users together within a small area. The more people within that area use the Net, the slower the connection.

It may simply be that most new technologies are overhyped when introduced and take an unexpectedly long time to take hold. Broadband may be but the latest example of this. And after all, broadband is spreading like wildfire within the business world as corporations everywhere use the Net to cut costs, innovate, and globalize. Continued rapid productivity gains in the U.S. testify to this fact.

But the slow spread of broadband throughout America's households remains troublesome, if for no other reason than it prevents individuals from fully taking advantage of one of the greatest technological advances of our time. Education suffers. Opportunity suffers. In the end, economic growth may suffer. We don't know the answers, but the key questions are clear: Will cable and copper really do the job of linking the public to broadband access to the Net, or will optic fiber have to go into each and every house and apartment across the nation? Can some way be found to make the financing of broadband more palatable to the credit markets?


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