Point of View

What Goes Down Must Come Up

by / July 17, 2001
Were used to seeing prices for technology come down, and that should include broadband access. There are cable providers competing with DSL services, and within that sphere, regional telephone companies competing with independent providers. Everywhere you turn, every street you drive down, companies are laying cable and wires to complete that legendary last mile. With so much broadband going into the ground and into homes, surely costs will continue to drop -- kind of like Moores law, right?

Guess again. The price for broadband Internet service is on the rise, just as its beginning to become widely available. Meta Group researchers are predicting a 20 percent increase for now and expect continued increases until the industry reaches profitability. The days when high-speed access cost $40 a month will soon be gone, experts say. Already SBC Communications and Earthlink have raised their rates to $50 per month.

Whats going on here? You can blame it on Wall Street, which has turned off the money spigots that fueled the growth in independent DSL providers. You can also blame it on a slowing economy. Analysts speculate that DSL prices have been set artificially low to compete with cable. With more independents dropping out of business, cable firms see a chance to raise their rates.

Independent DSL providers have also been hurt by the fact that they must rely on regional phone companies -- their competitors -- to provide access to the necessary switches for delivering DSL into homes. They have accused the phone companies of anticompetitive behavior, of locking them out of their neighborhood switching offices. One independent provider claims difficulties with the local phone company led to trouble with 80 percent of their installations. AT&T has accused SBC in Texas of driving out DSL competition and raising prices more than 20 percent.

The phone companies refute these claims and say they have done their best to work with the independents. But the fact is regulators have occasionally fined regional phone companies for hindering independent DSL services. Meanwhile, the phone companies now serve 76 percent of all DSL subscribers, while several major independents have gone under.

All this comes at a time when demand for DSL has never been stronger. Last year, the number of DSL subscribers rose by 500,000 to 2.4 million, according to research firm TeleChoice Inc. That number is expected to shoot up to 5.7 million this year.

But fewer choices means less competition and higher prices for broadband service. This is not good news for the public sector, which is investing heavily in e-government. Hundreds of millions of tax dollars have already been spent on revamping plodding government services into point-and-click online experiences that work best with broadband access.

If prices rise as expected, the average taxpayer might think twice about paying for broadband and might find his existing dial-up connection too slow for government portals and opt out of e-government altogether. Cities, counties and states may end up with highly functional, but little used, portals. Instead of watching the digital divide recede into history, we could see it grow worse among the lowest-income groups.

Can state and local governments justify spending tax dollars on electronic services if only the highest income brackets can afford to pay for broadband access? Thats a question many officials may have to answer as the sobering reality of rising fees hits home and the pocketbooks of taxpayers everywhere.

Our nations broadband industry is in danger of being controlled by what Meta Group calls an oligopoly of large players, including the phone companies, cable operators and AOL Time Warner. State and local governments need to encourage a level playing field, fair competition for the remaining independent DSL providers and, most of all, affordable prices for broadband access to all citizens, rich and poor, urban and rural. The future of e-government counts on it.
Tod Newcombe Features Editor