WATPA: FW: After Global Crossing, Is There Any Hope for Broadband?

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From: Norm Jacknis (norm@jacknis.com)
Date: Tue Feb 05 2002 - 20:52:23 EST

Interesting article.


-----Original Message-----
From: Business 2.0 - eBusiness Dispatch <newsletters@business2.com>

After Global Crossing, Is There Any Hope for Broadband?

By Eric Hellweg

Bankruptcies in Beverly Hills don't happen every day. But when Global
Crossing, which maintains a big office on Crescent Drive, filed for
Chapter 11 bankruptcy on Jan. 28, it became the latest
telecommunications company to go belly-up in an ongoing industry
shakeup. Global Crossing couldn't bring in enough revenue to offset the
massive debts it incurred while laying high-speed pipes between 200
cities in 27 countries. So in the end, the company was forced to throw
in the towel.

Global Crossing's demise came amid anemic customer-penetration rates for
high-speed (or "broadband") Internet access services in the United
States. According to the Federal Communications Commission, fewer than
10 percent of American households have signed up for broadband Net
access, despite the fact that it is available to 81 million homes via
cable and 51.5 million homes via phone lines. Only 6 percent of small to
medium-size businesses have signed up for high-speed access.

These figures are even more striking when set against a new Department
of Commerce report that shows Internet use in U.S. households crossing
the 50 percent line for the first time ever -- up 26 percent from last
year. More Americans are online than ever before, yet broadband hasn't
been able to gain significant traction in U.S. homes or in small and
midsize businesses. Meanwhile, the roster of broadband failures is
getting longer than the faces of the St. Louis Rams. (Sorry, couldn't
pass that one up -- I grew up in Boston, after all.) Global Crossing now
sits in the Broadband Hall of Infamy alongside NextWave, which made an
aborted bid at wireless; MobileStar, another wireless play;
ExciteAtHome; and many others, including OmniSky and Yada Yada.

In a move that signals how desperate the situation has become, TechNet,
a Silicon Valley-based lobbying group whose members include Cisco,
Intel, Microsoft, 3Com, and others, has asked the government for help.
That's right, the Valley's Ayn Rand Fan Club is looking for government
assistance to jump-start broadband penetration. On Jan. 15, the group
asked the Bush administration to establish a goal of getting
100-megabit-per-second broadband access into 100 million homes and
businesses by 2010 and offer tax credits to consumers and small
businesses to help spur broadband adoption.

"People haven't picked up on broadband in general, because it's not that
great of a technology," says TechNet executive vice president Connie
Correll. "It still has a long ways to go in improvement."

With rave reviews like that, no wonder consumers haven't been all that
eager to shell out $45 a month for broadband. Nevertheless, Senate
majority leader Tom Daschle, D-S.D., issued a statement saying, "I
applaud TechNet's commitment to bring broadband services to all
Americans.... I share TechNet's goal of working to see that broadband
service is as universal tomorrow as telephone service is today, and look
forward to working with TechNet as we debate how best to achieve this

Why is the broadband panacea so attractive to some in Washington?
According to a study by Robert Crandall and Charles Jackson of the
Brookings Institute, if every household in America picked up broadband
service, it could mean as much as $500 billion more for the economy.
Even 50 percent adoption would bring an additional $140 billion to the

But as nice and as noble as the TechNet proposal sounds, it simply won't
work. The group presents solutions for part of the problem (like easing
regulations to encourage "last mile" development and opening up spectrum
to bring broadband to rural areas), but it completely ignores the larger
issue: a lack of compelling broadband content and, subsequently, a lack
of consumer demand.

According to Jupiter Media Metrix, the number one Internet application
for both dial-up and broadband users remains e-mail. And unless you
regularly use it to swap movie files with friends, e-mail works just
fine over a dial-up connection. Meanwhile, broadband service typically
costs twice as much as dial-up. For many consumers, the cost/benefit
ratio simply doesn't add up. Finally, broadband installation horror
stories abound -- mainly for DSL service. Faced with such obstacles,
it's not surprising that broadband growth during the previous quarter
slowed from 27 percent in Q1 2001 to 13 percent in Q3 2001, according to

When asked what kind of killer apps a TechNet-endorsed broadband future
might include, Correll quickly mentions Napster. "That was a real
driver," she says. "When that shut down, you lost some of the interest
in broadband."

Indeed, Napster was the first true "killer app" of the broadband world
-- a form of content that was compelling enough to justify the expense
associated with upgrading to a high-bandwidth Net connection. But the
recording industry's court-ordered neutering of Napster also highlighted
how much influence Hollywood has over broadband's commercial

It's clear that consumers want to download music and movies. But to
legally distribute music and DVD-quality movies via the Internet,
copyright holders need to relinquish their ironfisted hold over content
distribution. Lawrence Lessig, a Stanford law professor and the author
of The Future of Ideas: The Fate of the Commons in a Connected World, is
disappointed with TechNet's silence on this subject. "Copyright policy
is a substantial impediment to broadband growth," he says. "TechNet has
not addressed this issue, but it should push for a broad compulsory
license for Internet content, for a limited time -- say, 15 years -- to
get broadband moving."

This "compulsory license," Lessig explains, would be a
government-sponsored license that would allow distribution of content
without prior consent from the copyright holder for each piece of
content. Instead, royalties would be paid, and those funds would be
distributed to copyright owners. This has been done before: The
government assigned a compulsory license to the cable television
industry in 1976, allowing it to broadcast network television shows
without negotiating rights for each individual episode of, say, Love
American Style.

Correll disagrees with Lessig, countering that TechNet is "vehemently
opposed to the federal government telling us what to do by mandating the
copyright solution."

And that's the rub for TechNet and the broadband industry: You can't
succeed by asking the government to help you in one way while shunning
it entirely in a more important area. If broadband providers hope to
ever match the penetration rates of the Internet as a whole, and if
companies like Global Crossing ever want to start making money, the
ironclad lock on content has got to give.

It appears that only the government can make this happen. Look at the
music industry. It has had nine years -- since the first digital music
lawsuit in 1993 -- to devise a means of licensing its content online.
Yet to date, the industry's progress has been laughable. Elsewhere in
Hollywood, the movie industry, under the bulldog auspices of Jack
Valenti (with whom TechNet is working), seems poised to follow a
similarly reactionary path.

Yes, broadband technology needs an upgrade. But unless there's enough
high-quality broadband content available to make it worthwhile, you
won't see Joe Six-Packet demanding a faster Net connection anytime soon.
And without consumer demand, it's going to be very hard for anyone to
build a viable business around broadband delivery.

If you have any questions, comments, or would like to send feedback to the
author, send an e-mail to: ebusiness_dispatch@business2.com

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