ZDNet UK / News and Analysis / Business of IT / IT Strategy

'Subsidise broadband', says US ex-regulator

By Graham Hayday, Silicon.com, 19 September, 2002 09:53

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Risk, goverment, Rollout, Private sector, subsidy, Broadband

NEWS
The former head of the US equivalent of Ofcom believes the UK government should subsidise the rollout of broadband. Reed Hundt, the ex-chair of the Federal Communications Commission, has contributed to a major new study into the future of television published on Tuesday by the Independent Television Commission (ITC). In it, Hundt says that the true value of ubiquitous broadband networks will only be realised once they're in place -- and that the private sector is unlikely to take the risk of building them without knowing how much demand there will be. While acknowledging that governments have more pressing priorities for their budgets, such as the war on terror, he said: "In many national economies it does seem that such a plan (government subsidy of broadband) is superior to a pure market-based approach to providing the physical link for communications." His reasons are twofold. First, Hundt believes that fibre connections "probably" stimulate demand for the use of fibre-based services -- in other words, supply creates its own demand. But private investors are not going to be willing to pay for such networks in the absence of proof of such demand. "The conundrum perhaps can only be broken by government funding of the network's physical layer," he said. Furthermore, "The physical link to the user, the so-called 'last-mile', does appear in some geographic and demographic markets to have elements of natural monopoly such that rigorous competition is not likely to be sustained in this market for most users," he added. And he's in no doubt as to the need for such networks. "Experiments to date have demonstrated the productivity gains and social benefits of the very fast sharing among many people of vast amounts of pictures, words, numbers and sounds." "Whether the sharing is of educational information, health care, or music depends on the demographic group under examination, but it is probable that economies and societies that have this capability, like those with airlines or roads or trains, are better off than those without," he said. Last week, BT chief executive Ben Verwaayen told reporters that government subsidy was not the way to go. He said: "Subsidies are never a good idea in the long-term. The best thing to do is use the stuff. That's a much better way to spend money than subsidies." The government and European Union are giving limited funds to the rollout of broadband in rural areas, but are certainly not subsidising it to the extent Hundt believes is necessary. For more information, see the ITC Web site.
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