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Broadband Investment and 100 Percent Adoption: Who Pays?

A broadband connection to the Internet is quickly becoming essential to those who want access to jobs, education, government services and other private activities. A growing number of job and school applications are available only online. Renewing a driver�s license, buying a plane ticket and other common services also are easier and often cheaper online. More of our personal communications are going digital as well.[IMGCAP(1)] Put simply, to fully participate in contemporary life, every American needs broadband. The question for public policymakers is how to make this happen as quickly and equitably as possible.There�s a big catch: As the Internet becomes a place to watch video, its capacity is increasingly stretched. And that means the cost of building and maintaining the network infrastructure is rising rapidly as well. Experts now estimate that building the networks we need to handle the fast-growing bandwidth demand with every American online will require some $350 billion in additional, new investment by Internet providers. Under this scenario, everyone could receive transmissions at 100 megabytes per second. Even at slower speeds, the Federal Communications Commission says that reaching every American will cost tens of billions of dollars more.Reaching universal broadband may well depend in large part on who pays for that additional investment. One option is to raise the monthly fees of all broadband subscribers. But a new study we conducted with support from Georgetown University�s Center for Business and Public Policy found that this approach would make broadband too costly for many Americans, especially many of those with lower incomes who are not yet online, and so would delay universal broadband access.A better solution can be based on more flexible pricing strategies that collect a greater share of the additional revenues needed for the additional investment from those consumers and content providers who account for most of the fast-rising bandwidth demand. That would be fairer, too. After all, some 10 percent to 20 percent of Internet users are said to consume about 70 percent to 80 percent of available bandwidth.Research shows that most of these high-volume bandwidth consumers � people who play interactive games online, for example, or who use the Internet to watch TV or a movie � value their access to the Web so much that they�d be willing to pay higher prices. Alternatively, a greater share of costs could be borne by content providers such as YouTube, Hulu and Netflix, whose applications can require as much as 1,000 times the bandwidth, per minute, than that of text-based sites.In every other part of our economy, those who consume more, pay more. Applying that standard model to the Internet would enable more Americans to get online sooner, and close our digital divides. Our research found that under a flexible pricing approach, in which 80 percent of the additional investment costs would be shifted to the 20 percent of users who account for most bandwidth demand, we should achieve universal access by 2016.By contrast, only 80 percent of Americans will have broadband access that same year if the regulatory environment requires flat-fee pricing � an approach under discussion in Congress and in some proposals for net neutrality. And such pricing flexibility would not preclude sensible rules to deter Internet providers from discriminating in the access they offer to different Web sites.Sensible pricing flexibility, strong competition and technological advances are the precise way we achieved universal access to other critical technologies, from television to computers. A declining real price coupled with these technologies� growing usefulness enabled more people to adopt them. The same dynamics should deliver universal access to broadband within just six or seven years, unless policymakers get in the way.The question is not whether we will need significant additional investment in broadband infrastructure � that�s now a given. Rather, the issue is which policy approach can support the required investment while ensuring the fastest possible path to universal broadband.Robert Shapiro is a fellow at the Georgetown Center for Business and Public Policy, and Kevin Hassett is a senior fellow and director of economic policy studies at the American Enterprise Institute. Both advise AT&T on economic matters.

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