Introduction

As recently as 10 years ago, it would have been hard to imagine the phenomenal growth of the Internet. The Internet has led to a host of new and exciting applications -- email, the World Wide Web, instant messaging, digital file sharing, e-commerce, and many more. Yet for all the changes that the digital economy has brought, the potential of the Internet is greater still. The Internet has yet to fulfill its promise of a true revolution as more ubiquitous use and the development of powerful new applications and services are limited by a lack of bandwidth.

Bandwidth, simply put, is the size of the "pipe" or cable feeding data into a computer. While most workplaces have high bandwidth connections and fast data transfer rates, most home computers still connect to the Internet through low bandwidth connections that use a modem connected to a telephone line. The bandwidth of a dial-up connection is a fraction of high-speed broadband connections, such as cable modems, digital subscriber lines (DSL), or the T1/T3 connections used by office buildings. At the slow speeds offered by dial-up connections, for instance, it can take an hour to download an email with a few photos attached. Visiting what some people jokingly refer to as the "World Wide Wait" can become a frustrating exercise in patience, and the poor quality of the streaming audio and video accessed by telephone Internet connections renders these applications useless.

While greater bandwidth is key to the future development of the Internet, most people who are able to subscribe to a home broadband connection choose not to do so. The reason is simple: Most Americans feel that the current offerings on the Internet do not justify paying two or three times more for a broadband connection than they do for a dial-up connection. Because of the low take-up rate, providers of advanced broadband connections have little economic justification to engage in the large-scale rollout that could drive prices down. Likewise, providers of services requiring broadband connections have little incentive to roll these out, given the low take up rate of broadband.

Solving this chicken-or-egg conundrum limiting broadband needs to be a key goal of public policy. The slowdown in the technology sector is at least partly attributable to the fact that Internet applications have "hit the wall" at current connection speeds. Without demand for high-speed online services, there is little demand for increasingly powerful hardware and software to deliver these services. Getting broadband connections into U.S. homes will be a major boost to the flagging economy. That, however, is not to say that the goal expanding broadband use is simply to sell more telecommunications services or even computing devices; that is merely the means. The ultimate goal is to take full advantage of the promise of the Internet: greater productivity and economic efficiency, empowered consumers, and a better-educated and more open society. In particular, the economic impact of broadband deployment -- in improved productivity, new jobs, and so on -- will be hundreds of billions of dollars annually.

While this report focuses on the demand side of the broadband equation, the supply side is also important. Though increasing demand for broadband services is key to deployment of high-speed data networks to residential areas, the fact remains that even the most compelling application or service is of no use to a household that cannot subscribe to bandwidth because there are no companies that provide service to the area. Moreover, most households can only get low-speed broadband, and not the high-speed broadband that would enable services like streaming video. The supply question is therefore a key piece of any broadband deployment policy.

There are currently intense debates over this in Washington and in the states, particularly the conditions under which incumbent telephone companies provide access to their advanced broadband infrastructure. In addition to this regulatory debate, there are proposals for stimulating broadband supply, including tax credits to broadband deployment, particularly to rural areas. Finally, there are several technology policy issues relevant to broadband, including funding for next generation Internet research projects like Internet2 and deployment of wireless "last mile" broadband technologies. While these issues are important, and in fact reinforce the market as more demand leads to more robust supply and vice-versa, the focus of this paper is on the demand side.

While the main responsibility for developing compelling Internet services falls to the private sector, public policy can play a key role in facilitating the process. As a result, to stimulate broadband demand, governments at all levels should pursue policies that:

Encourage greater Internet penetration and more robust use by expanding e-commerce and e-government.

• Oppose actions designed to protect the status quo against e-commerce competition and resist efforts to prevent consumers from capturing the savings realized by online transactions.
• Support digital transformation of industries by calling for government agencies to examine how their procurement, regulatory, and other functions can speed the digitization of the sectors they influence while working with both technology developers and users to devise technology reinvention roadmaps. In addition, Congress should pass the Driver's License Modernization Act to encourage deployment of technologies that limit identity theft and credit fraud.
• Foster e-government transformation by passing the E-Government Act of 2002, and create a $50 million challenge grant fund for states or cities to significantly transform their governments by using the Internet.
• Increase trust in the Internet by passing appropriate federal privacy and spam legislation while encouraging technologies that empower users, such as the Platform for Privacy Preferences (P3P) and the Internet Content Rating Association (ICRA) rating system.

Encourage the availability of digital content.

• Harmonize the royalties paid by terrestrial broadcasters and webcasters and simplify the process for collecting and distributing royalties.
• Allocate $50 million to PBS to develop and deploy webcasts of the programs that are already broadcast over the air.

• Establish the National Digital Lending Library.
• Fund a grant program for development of online museums, including science museums.

Encourage the development and deployment of transformative applications:

• Promote working from home via telecommuting by passing telework incentive legislation; ensure that home offices are not subject to workplace regulations; and develop telework programs for government employees.
• Promote distance learning by creating a portal for digital learning materials; eliminate the "in seat" requirements for higher education, extend the Lifelong Learning tax credit to cover broadband access; develop an expanded online tutorial within AmeriCorps; and provide funding to the Department of Education to support the creation of online curricula for basic skills assessment and acquisition.
• Promote telemedicine by altering Medicare to allow for payments for telemedical expenses, provide more funding to the Department of Health and Human Services to develop telemedicine, and address medical licensure rules that inhibit the cross-state practice of telemedicine.

Accomplishing these goals involves myriad legal and regulatory issues, many of which seem unrelated to the task of furthering broadband deployment. However, not only will taking these actions be useful steps in their own right, they will also boost broadband demand, which in turn will boost productivity -- the key to the economic well-being of Americans. Some of the proposals made here can be carried out by state and local governments. Others will require congressional action or an executive order. In fact, there is a considerable amount the Bush administration can do on its own, including fostering telecommuting and broadband use by federal employees, development of e-learning and e-health initiatives, and aggressive adoption of e-government efforts. In this regard, PPI supports legislation, such as S. 2582 introduced by Sen. Joe Lieberman (D.-Conn.), that requires the administration to develop a national strategy to speed the deployment of high-speed Internet service.

This report describes the connections between a variety of policy issues and broadband deployment, and sets forth a detailed agenda for addressing those issues with an eye toward stimulating consumer demand for broadband services.

Blueprint Keywords: Extra Broadband

Robert Atkinson is vice president of the Progressive Policy Institute and director of Technology & New Economy Project at PPI. Shane Ham is senior policy analyst for the Progressive Policy Institute's Technology & New Economy Project. Brian Newkirk is the project assistant for PPI's Technology & New Economy Project.