BUSH ADMINISTRATION FOCUSES ON INCREASING DEMAND FOR BROADBAND

When Atlanta’s municipal leaders offered free broadband service to some of city’s neighborhoods, only half of residents signed up. “In econ-speak, that’s a demand side problem,” said Columbia U. economics professor Glenn Hubbard Tues. Hubbard also is chmn. of President Bush’s Council of Economic Advisers, and he was speaking at meeting in Washington of President’s Council of Advisers on Science & Technology (PCAST). PCAST Co-Chmn. Floyd Kvamme of Kleiner Perkins Caufield & Byers began meeting by noting that Bush had tasked PCAST with focusing on broadband as one of his 4 top tech priorities, with demand side being approach on which Administration should concentrate. That approach was echoed by Hubbard and Commerce Secy. Donald Evans, who outlined many ways his agency was trying to get broadband acceptance rates to approach percentage of broadband availability in U.S.

NCTA estimates broadband is available to at least 70 million homes and Morgan Stanley predicts 90% of U.S. homes will be passed by at least one broadband provider by the end of 2002. Yet less than 10% of U.S. homes choose to subscribe to broadband, which Hubbard called “bad news.” “Many consumers don’t yet see the value of broadband,” he said, pointing to fact that in Atlanta, price point of zero still wasn’t sufficient motivation for half of consumers. As far as Bush Administration is concerned, he said, policy decisions can have “bigger impact on the demand side,” and as result it’s examining ways intellectual property and digital rights management can be reformed to allow more “killer apps” on broadband networks.

Demand-side focus of Administration is in stark contrast with supply-side focus of Congress. House just passed HR- 1542, bill by House Commerce Committee Chmn. Tauzin (R-La.) and ranking Democrat Dingell (Mich.) that would lift regulations on Bell companies to encourage them to build out networks. During extensive debate on economic stimulus legislation, only discussion of broadband involved possible inclusion of S-88 by Sen. Rockefeller (D-W.Va.), which would offer tax incentives to telecom providers to build out broadband connections to rural areas. Hubbard and Evans were dismissive of supply-side approaches, and Kvamme and PCAST Co-Chmn. John Marburger, dir. of Office of Science & Technology Policy, both said Tues. that PCAST would focus on demand-side concerns.

“I don’t know when it is going to happen,” Evans said of economic boost that he predicted broadband would bring. Because adoption of broadband isn’t keeping pace with deployment, he said, Commerce Dept. would be “proactive” in stimulating demand. He promised action at Patent & Trademark Office (PTO) on digital copyright rules, “critical area you will see us focus on,” and he promised more panel discussions like one agency’s Technology Administration (TA) held in Jan. on digital rights management. TA Dir. Phillip Bond attended the PCAST meeting with Evans and promised to work with PCAST members on all of their agenda items.

One of PCAST’s 4 working groups is on broadband, and group’s chmn., N.C. State U. Chancellor Marye Anne Fox, decried “dichotomy” between broadband availability and adoption. She also emphasized that PCAST would examine demand-side policies, including whether problem was lack of killer application. After reviewing existing literature on subject, she said group would hold focus groups or conduct study with goal of determining what hindrances to broadband adoption existed. She and Kvamme referred to mandate they were given by Bush himself -- that broadband was important not only because of its aid to economy but also because of benefits it could provide to homeland security.

PCAST member Ralph Gomory, pres. of Alfred P. Sloan Foundation, said “we may have to be more patient” on broadband adoption. “There’s a considerable lag time before [broadband’s] full potential will be realized,” he told Hubbard: “We're just a few years too early.” “I would agree with that 100%,” Hubbard replied, adding that Administration still had role in encouraging use of broadband technology. Hubbard was less enthusiastic about Marburger’s suggestion that federal govt. could offer tax incentives to encourage broadband adoption. “We don’t pick winners and losers” in tax policy, Hubbard said, saying Bush preferred “broad” tax reforms that would promote increased capital investment across industries.

AT&T said Tues. it “applauds the Administration for its recognition of the need to drive up demand for broadband services, which is the real issue.” Company spokesman said “today’s statements show the Administration has a high-tech vision and is willing to use its influence to promote broadband usage, which will benefit consumers, government and business.”