Monday, November 09, 2009

Broadband demand vs. supply siders: Real debate or a diversion?

As in macroeconomics, an ideological split appears to be developing among supply siders and demand siders over government policy designed to make broadband available to all Americans.

The demand siders tend to hail from the telco/cable duopoly such as Kyle McSlarrow, the president and CEO of the National Cable and Telecommunications Association (NCTA). Policy should focus on the demand side, McSlarrow told a conference hosted by the Family Online Safety Institute. "[T]he way we need to think about this is to think about this in terms of broadband adoption. We have it a little backwards right now."

Demand siders got a boost last week with the release of a study by the Information Technology and Innovation Foundation concluding the U.S. should create several programs to address demand for broadband in addition to subsidizing deployment of advanced telecommunications infrastructure.

Supply siders however question the need for government programs to stimulate broadband demand. IDG News Service reported at a recent California forum, some speakers suggested broadband adoption would continue to rise in the U.S. without significant help from the government. Connecting to broadband will eventually be like electricity, easy and inexpensive, Google cofounder Sergey Brin was quoted as saying.

I question whether the supply/demand side debate is real or contrived. The fact that the demand siders tend to be in the telco/cable camp raises my suspicion that their pushing the issue of adoption is more of a tactical move than substantial policy difference, aimed at diverting attention away from the problem of numerous broadband black holes. Last month, the Yankee Group issued a report noting about 12 percent of U.S. households, including those in some major metropolitan areas, have no access to broadband service, landing the U.S. at a dismal 15th in broadband penetration worldwide.

Even if we were to give the telco/cable duopoly the benefit of the doubt and accept a true policy split exists, I'd have to lean toward the supply siders. Unlike the far slower rate of adoption for basic telephone service, demand for and adoption of broadband has been explosive by comparison.

We also have to be careful not to frame the issue too narrowly. It's not just about high speed Internet connectivity but rather the larger migration to next generation, Internet Protocol-based telecommunications infrastructure than can provide not just fast Internet connections but also voice communication and TV/video -- both services that have very high rates of adoption in the United States.

1 comment:

Andrew said...

There is no "demand" problem, from my perspective, and I've been doing this longer than the incumbents. Unlike most of the incumbent providers, which came late to the broadband "demand" game, I started in a community where the "demand" was quantitatively and irrefutably zero. In 1993, no one in Blacksburg, Virginia knew what broadband was or why they would want it. So it was up to me and my group to create "demand."

What I observed is that it is applications, not bandwidth, that drives demand, and that little or no "adoption" effort is required if applications and services exist that users want.

The incumbents tend to use an entirely circular argument about "demand" and bandwidth. They don't provide adequate bandwidth to support the applications that people want (like HD movies on demand), then claim that the lack of "demand" "proves" that the bandwidth isn't needed!

The "demand" problem is entirely artificial, because the incumbents want to control and limit the services and applications available, and they are frustrated that pesky users won't passively buy what the incumbents are trying to sell.

The clue that they are dead wrong is the iPhone. In less than two years, the entirely open, service-oriented architecture of the iPhone has led to the development of 100,000+ new applications and services and over 1 billion user downloads of such applications and services. Aside from some very light management to keep iPhone apps family-friendly and virus free, Apple has encouraged innovation and a free market--with record-breaking results. When users can choose from a wide variety of specialized services and applications, little or no "broadband adoption" program is needed. If you give your customers what they want, you don't have to spend millions on a marketing campaign to convince them they should want something.

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