Lately, reading tech industry news has been like reading the obituaries, with a stream of reports detailing the demise of once-promising firms and initiatives, and with lots of pessimism about broadband take-up rates.  But someone forgot to tell consumers that the Internet revolution had been suspended, and reports just issued by the Commerce Department and the FCC show that more people than ever are using the Internet and advanced broadband services.  The studies also show that the much-feared “digital divide” is shrinking.

The DOC study, which is based on census surveys, shows that more than half the population (54 percent) is now connected to the Internet, up 20 percent in the past year.  And, in a blow to fomenters of digital class warfare, usage increased the most among the poor – with a 25 percent increase among those making under $15,000.  The richest income class had the smallest increase – 11 percent.  Minority Internet usage also continued to advance, with use by African-Americans increasing by 31 percent, more than any other group.

These trends (actually a continuation of trends going back to the first such survey in 1997) are unlikely to end the political debate over the digital divide.  While minority and low-income usage is increasing faster, in absolute terms a gap remains.  Thus, Sen. Patrick Leahy (D-VT) reacted by saying “I suspect we have to add money in the Congress.”  One wonders what he would have said if usage rates were not improving – but with Internet subscribership increasing at 20 percent a year and low-income and minority subscribership increasing at 25-30 percent per year, additional subsidies would be redundant at best. At worst, they would distort, and even slow, Internet growth.  The Commerce report shows a market that is functioning well, and policymakers should keep their hands off it.

The FCC report on broadband Internet access also provides some good news.  Despite financial troubles among many providers, high-speed service continued to grow – with some 9.6 million subscribers as of mid-2001, a 36 percent increase in six months.  This represents some 7 percent of all U.S. households.

There are some serious question marks concerning broadband, however, that temper the celebration.  Notably, the FCC defined high-speed service as speeds of 200 kbps – but many applications, such as video, demand speeds far higher than that.  Moreover, while the FCC found that 78 percent of the nation’s zip codes had broadband subscribers, one out of four of those had only one service provider, and thus no competition.

So what, if anything, should be done?  Once again, the favorite idea is subsidies – in the broadband context this means tax credits. And once again, that’s the wrong approach.  Rather than interfering with the market for broadband telecom, policymakers would be better advised to reduce the current governmental barriers to its deployment.

FCC Commissioner Kevin Martin, in a separate statement attached to the FCC broadband report, persuasively made the case for such an approach, and outlined a series of specific reforms.  Among these are reform of “unbundling” and price regulation for broadband (already the subject of FCC proceedings, and to an extent the Tauzin-Dingell bill).  In addition, he cited reduction of taxes on telecom and fees imposed by cities for rights-of-way.  Lastly, he called for a new “regulatory environment” at the FCC, with swifter – and less unpredictable – decisionmaking.