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RobertD.Atkinson,ShaneHam,andBrianNewkirkProgressivePolicyInstituteTechnology&NewEconomyProjectSeptember2002UnleashingthePotentialoftheHigh-SpeedInternetStrategiestoBoostBroadbandDemandContentsIntroduction3TheBroadbandDemandGap6Table1:BroadbandDemandGap7Table2:Differencesinbroadbandanddial-uphouseholds’useofcomputersandtheInternet8EncouragingGeneralInternetUsage10EliminateRegulatoryProtectionforMiddlemen10FosterE-TransformationinKeySectors12BoostE-Government13ProvideProtectionsforInternetUsers14EncouragingDigitalContent17DetermineFairMusicRoyalties17EncouragePublicBroadcastingtoTaketheLeadinPuttingContentOnline19BuildOnlineLibraries20BuildDigitalMuseums22EncouragingTransformativeApplications24PromoteTelework24SupportandExpandDistanceLearning26TransformHealthCarewithTelemedicine28Conclusion31Endnotes323ProgressivePolicyInstituteAsrecentlyas10yearsago,itwouldhavebeenhardtoimaginethephenomenalgrowthoftheInternet.TheInternethasledtoahostofnewandexcitingapplications—email,theWorldWideWeb,instantmessaging,digitalfilesharing,e-commerce,andmanymore.Yetforallthechangesthatthedigitaleconomyhasbrought,thepotentialoftheInternetisgreaterstill.TheInternethasyettofulfillitspromiseofatruerevolutionasmoreubiquitoususeandthedevelopmentofpowerfulnewapplicationsandservicesarelimitedbyalackofbandwidth.Bandwidth,simplyput,isthesizeofthe“pipe”orcablefeedingdataintoacomputer.Whilemostworkplaceshavehighbandwidthconnectionsandfastdatatransferrates,mosthomecomputersstillconnecttotheInternetthroughlowbandwidthconnectionsthatuseamodemconnectedtoatelephoneline.Thebandwidthofadial-upconnectionisafractionofhigh-speedbroadbandconnections,suchascablemodems,digitalsubscriberlines(DSL),ortheT1/T3connectionsusedbyofficebuildings.Attheslowspeedsofferedbydial-upconnections,forinstance,itcantakeanhourtodownloadanemailwithafewphotosattached.Visitingwhatsomepeoplejokinglyrefertoasthe“WorldWideWait”canbecomeafrustratingexerciseinpatience,andthepoorqualityofthestreamingaudioandvideoaccessedbytelephoneInternetconnectionsrenderstheseapplicationsuseless.WhilegreaterbandwidthiskeytothefuturedevelopmentoftheInternet,mostpeoplewhoareabletosubscribetoahomebroadbandcon-nectionchoosenottodoso.Thereasonissimple:MostAmericansfeelthatthecurrentofferingsontheInternetdonotjustifypayingtwoorthreetimesmoreforabroadbandconnectionthantheydoforadial-upconnection.Becauseofthelowtake-uprate,providersofadvancedbroadbandconnectionshavelittleeconomicjustificationtoengageinthelarge-scalerolloutthatcoulddrivepricesdown.Likewise,providersofservicesre-quiringbroadbandconnectionshavelittleincen-tivetorolltheseout,giventhelowtakeuprateofbroadband.Solvingthischicken-or-eggconundrumlimitingbroadbandneedstobeakeygoalofpublicpolicy.TheslowdowninthetechnologysectorisatleastpartlyattributabletothefactthatInternetapplicationshave“hitthewall”atcurrentconnectionspeeds.Withoutdemandforhigh-speedonlineservices,thereislittledemandforincreasinglypowerfulhardwareandsoftwaretodelivertheseservices.GettingbroadbandconnectionsintoU.S.homeswillbeamajorboosttotheflaggingeconomy.That,however,isnottosaythatthegoalofexpandingbroadbanduseissimplytosellmoretelecommunicationsservicesorevencomputingdevices;thatismerelythemeans.TheultimategoalistotakefulladvantageofthepromiseoftheInternet:greaterproductivityandeconomicefficiency,empoweredconsumers,andabetter-educatedandmoreopensociety.Inparticular,theeconomicimpactofbroadbanddeployment—inimprovedproductivity,newjobs,andsoon—willbehundredsofbillionsofdollarsannually.1Whilethisreportfocusesonthedemandsideofthebroadbandequation,thesupplysideisalsoimportant.Thoughincreasingdemandforbroadbandservicesiskeytodeploymentofhigh-speeddatanetworkstoresidentialareas,thefactremainsthateventhemostcompellingapplicationorserviceisofnousetoahouseholdthatcannotsubscribetobandwidthbecausetherearenocompaniesthatprovideservicetothearea.Moreover,mosthouseholdscanonlygetlow-speedbroadband,andnotthehigh-speedbroadbandthatwouldenableserviceslikestreamingvideo.Thesupplyquestionisthereforeakeypieceofanybroadbanddeploymentpolicy.TherearecurrentlyintensedebatesoverthisinWashingtonandinthestates,particularlytheconditionsunderwhichincumbenttelephoneIntroduction4UnleashingthePotentialoftheHigh-SpeedInternetcompaniesprovideaccesstotheiradvancedbroadbandinfrastructure.Inadditiontothisregulatorydebate,thereareproposalsforstimulatingbroadbandsupply,includingtaxcreditstobroadbanddeployment,particularlytoruralareas.Finally,thereareseveraltechnologypolicyissuesrelevanttobroadband,includingfundingfornextgenerationInternetresearchprojectslikeInternet2anddeploymentofwireless“lastmile”broadbandtechnologies.Whiletheseissuesareimportant,andinfactreinforcethemarketasmoredemandleadstomorerobustsupplyandvice-versa,thefocusofthispaperisonthedemandside.WhilethemainresponsibilityfordevelopingcompellingInternetservicesfallstotheprivatesector,publicpolicycanplayakeyroleinfacilitatingtheprocess.Asaresult,tostimulatebroadbanddemand,governmentsatalllevelsshouldpursuepoliciesthat:EncouragegreaterInternetpenetratio