Internet service customers paying for inefficiency

Lee Post signed up for high-speed Internet service from AT&T in 2009 for $10 a month. He knew this was an introductory rate and that, come 2010, the monthly cost would rise to $14.95.

What Post didn’t know was that this rate wasn’t very permanent either. When 2011 rolled around, his Internet bill jumped 33% to $19.95.

Now we’re in 2012, and what’s happened? Post, 71, of Torrance, said his monthly Internet bill has climbed 25% more to $25.

All in all, that means AT&T has jacked up his Internet service rate 150% in just three years. By way of comparison, the inflation rate rose 7.3% over the same period.

“I called AT&T and told them this was like the Mafia, nothing personal,” Post said. “I told them if these prices keep rising, I may have to go back to dial-up for my Internet.”

What did AT&T say to that?

“They said their dial-up now costs $22.95 a month.”

Is it any wonder the United States lags behind the rest of the world in broadband Internet cost and service? We’re home to Google, Apple and other tech trendsetters, but when it comes to wiring people for Net access, we’re the tortoise to Europe’s and Asia’s hare.

The Federal Communications Commission issued a report last year showing that the U.S. ranks 12th for broadband service such as cable and DSL connections, outpaced by South Korea, Iceland, Sweden, Norway, the Netherlands, Denmark, Finland, Luxembourg, Britain, Canada and Germany.

Meanwhile, a 2010 report by the Technology Policy Institute found that while broadband prices had dropped overseas as much as 40% in recent years, prices in the United States were barely budging.

Pretty sad for the country that invented the Internet.

So why are we such slowpokes? A 2010 report by Harvard University’s Berkman Center for Internet & Society came up with a ready answer: government regulation, or a lack thereof.

Public officials in Europe and Asia were quick to realize the economic and social opportunities that broadband afforded. So they adopted policies designed to ensure highly competitive markets that would foster innovation and lower prices.

One key element of these policies is requiring that broadband capacity — the actual pipes and wires — be shared among competing service providers, thus doing away with the necessity for every company to dig its own trenches and string its own cables.

“By requiring that capacity to be shared, through leasing, with competitors, open access rules are intended to encourage entry by those competitors, who can then focus their own investments and innovation on electronics and services that use that basic infrastructure,” the Harvard report found.

This runs contrary to the American approach, which was based on the notion that telecom companies wouldn’t invest in new technologies unless they could keep their networks to themselves.

Harvard’s researchers concluded that virtually without exception, countries with “open access” policies for broadband benefited from the increased competition, with Internet speeds consistently rising and costs to users going down.

The U.S., meanwhile, muddled along as best it could with “the highest prices for the lowest speeds.”

Lane Kasselman, an AT&T spokesman, said the company’s rising Internet rates reflect ongoing improvements to service. For example, he said, DSL customers can now access the Net on the go through Wi-Fi hot spots.

“In 2009, you didn’t have 29,000 hot spots,” Kasselman said. “Now you do.”

All well and good. But additional bells and whistles don’t address the core problem: How do you make broadband faster and more affordable to more people?

The FCC voted in October to channel money once intended to expand phone service everywhere to expanding broadband service. The so-called Universal Services Fund was established in 1997 and raises billions of dollars annually to defray phone companies’ costs for running lines to far-flung areas.

“Broadband has gone from being a luxury to being a necessity for full participation in our economy and society,” FCC Chairman Julius Genachowski said when the change was approved. “This plan will bring enormous benefits to individual consumers, our national economy and our global competitiveness.”

It’s a step in the right direction, that’s for sure. But it doesn’t go far enough.

The Harvard researchers got it right: For broadband to be universally accessible and affordable, and for market players to be constantly innovating and improving, you need to guide the market to operate more efficiently.

The barriers to would-be competitors entering the broadband market are too great if every player is responsible for building and maintaining its own multibillion-dollar network. Moreover, such network owners have little incentive to upgrade services or reduce prices.

As Post and other broadband customers have found, the more likely scenario is that your bills will keep soaring and your access speed won’t get any faster.

Here’s an idea: The FCC should experiment with open access by seeing how it works in a handful of states (among them, cyber-savvy California). If a more competitive market results in tangible benefits for business and consumers, the FCC could consider rolling out the policy on a nationwide basis.

Phone and cable companies would blow a gasket, of course, as was the case when open access policies were introduced abroad. But European and Asian telecom companies survived and thrived, and I suspect the same would happen here with the likes of AT&T and Verizon.

Besides, what could it hurt? Unless you think being in 12th place is a good thing.

David Lazarus’ column runs Tuesdays and Fridays. He also can be seen daily on KTLA-TV Channel 5. Send your tips or feedback to [email protected].