America’s regulators need to respond to people ditching landlines
In The Economist: IF YOU want to save money, cut the cord. In these difficult times ever more Americans are heeding this advice and dropping their telephone landlines in favour of mobile phones (see article). Despite some of the flakiest mobile-network coverage in the developed world, one in four households has now gone mobile-only. At current rates the last landline in America will be disconnected sometime in 2025.
Good. Mobile phones offer individuals more freedom. Yet confronted by the inexorable march of progress, America’s telecoms regulators have failed to respond.
In many ways the landline network is still an essential utility. Maintaining landline networks provides thousands of jobs (the landline operators support more pensioners than even the car industry does). Landlines are the platform for many public services, such as emergency response. And taxes on landlines are the basis of the complex system of subsidies to ensure universal service, meaning an affordable phone line for all.
The phone network is thus not just a technical infrastructure, but a socioeconomic one. The more Americans abandon it to go mobile-only or make phone calls over the internet, the more fragile it becomes: its high fixed costs have to be spread over ever fewer subscribers. If the telephone network in New York State were a stand-alone business, it would already be in bankruptcy. In recent years it has lost 40% of its landlines and revenues have dropped by more than 30%.
But copper landlines are now an obsolete technology. Telephony, once the mainstay of the industry, is just one service that can be offered over broadband connections, which will increasingly depend on new fibre-optic and wireless technology, not copper. Rather than trying to keep a 19th-century technology alive, America’s telecoms rules must be updated to foster the roll-out of this new, 21st-century infrastructure. Alas, attempts to reform the notoriously bureaucratic Universal Service Fund, the main source of subsidies to make landlines affordable, have gone nowhere. Everyone agrees on the importance of expanding access to broadband—until it is time to hammer out the specific details. Now Barack Obama wants a national strategy. He would do well to concentrate on two things his country needs in the future, not the past: better and more reliable wireless coverage; and more broadband connections, through fibre-optic cables and high-speed wireless links (for both voice and data). America ranks 15th in broadband penetration among OECD countries.
Kept on hold
America’s advantage is that so many people have gone before it. To extend wireless coverage to rural areas, where subsidies are inevitable, India has an elegant reverse-auction scheme, under which the supplier who asks for least cash to supply a particular area wins the contract. With broadband networks, the role of the state has less to do with limiting handouts than increasing choice. Fibre-optic networks can be run like any other public infrastructure: government, municipalities or utilities lay the cables and let private firms compete to offer services, just as public roadways are used by private logistics firms. In Stockholm, a pioneer of this system, it takes 30 minutes to change your broadband provider. Australia’s new $30 billion all-fibre network will use a similar model. There are hard choices for Mr Obama’s people to make—but sticking with old rules devised for copper wires is not one of them.
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