FCC Emphasis on Broadband Without Apps a ‘Mistake,’ ITIF Says
The most connected societies aren’t the major sources of growth of the Internet economy, said a report (www.xrl.us/bgymnd) Monday by the Information Technology and Innovation Foundation on the growth and future of the 25-year-old .com domain. The media fixation on social networking has obscured much more important growth mechanisms whose success can’t be reduced to universal broadband, foundation President Robert Atkinson told reporters Monday. “It’s a mistake to put so much emphasis on broadband” and less on the applications that make the Internet useful, as the FCC seems to be doing, he said.
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About 99 percent of growth happened after the first decade of .com, and the pace quickened after the dot-com bubble burst, Atkinson said. The commercial Internet adds $1.5 trillion a year to the world economy, and even if its growth rate slowed by half, it would kick in $3.8 trillion a year by 2020, he said. The “fun and cool things” that draw attention, like Twitter, are less important than the savings from online business -- online purchases on average are 4 percent cheaper than offline, the report estimated. Internet business also enables higher interest rates from online-only banks, lower commissions from online real estate brokerages and reduced energy consumption -- 35 percent less carbon if digitally-delivered media fully replaced analog, Atkinson said.
One of the biggest surprises was that “broadband leadership does not strongly correlate with leadership in e-commerce,” said the report, which groups countries into five categories for e-commerce. The four countries in the top group -- Denmark, U.K., Sweden and the U.S. -- are far ahead of the leaders in broadband penetration, Japan and South Korea, which fall in the third and fourth groups of e-commerce leadership and whose businesses also lag in information technology adoption. Similarly, information and communications technology investment doesn’t track with e-commerce strength -- Denmark is 22nd in ICT while Japan is third, the report said.
The U.S., which has long hovered around 15th in broadband penetration, leads in e-commerce in part from U.S. companies dominating in online products and services around the world, Atkinson said. Yahoo, Symantec, Amazon and Google ranged from 42 to 48 percent in the portion of their revenue from abroad in 2007, the report said. Small businesses in Sweden and Denmark have high rates of Internet usage, helping to explain their position. The U.K. and Japan have similarly high rates of business-to-consumer (B2C) e-commerce but differ widely in its impact on their retail economy, the report said. B2C accounts for only 1.3 percent of gross domestic product in Japan, partly because consumers are buying “cheap digital goods such as mobile applications, music or ringtones for their cell phones” -- optimized for populations with high broadband penetration. U.K. consumers, in contrast, are more likely to buy “computers and high-end clothing” online. Business-to-business e-commerce is the unsung hero of the Internet economy, counting for about 90 percent of global e-commerce in 2007 and a majority of the U.S. Internet economy, the report said.
"Clearly more broadband is going to be better” than stagnant penetration, Atkinson said: Only a third of the U.S. has shopped online in part because only two-thirds have Internet access. But the FCC shouldn’t have a “build it and they will come” mentality around broadband deployment. It’s important for the commission to show it’s “not just focusing on the pipe” and follow through on broadband uses for telemedicine, mobile payments and other applications, as Blair Levin, head of its broadband initiative, has pledged, Atkinson said.
Cybersecurity vulnerability as a threat to the Internet economy is probably overstated, just as the Y2K threat was, Atkinson said. “I don’t see the entire Internet being vulnerable” as opposed to certain businesses with poor security practices. Increased adoption and acceptance of digital signatures would remove one large impediment to shopping online, though as with mobile payments and a la carte purchases for products such as news articles, there’s a “chicken or egg problem,” he said. Public-private partnerships can help make viable such markets, such as if the federal government required Washington Metro fare machines to accept payments with the swipe of a phone, Atkinson said.
Bigger threats include China’s favoring of its own homegrown companies, which could create a “fragmented, balkanized e-commerce system,” Atkinson said. If Google leaves the Chinese search market over its refusal to censor Google.cn any longer, it will give the censored Baidu an even bigger share, he said. “Middleman resistance” is another threat -- Internet users can freely purchase a customized computer online from its maker, but not a car from its automaker because of state laws. Overturning or preempting such laws that inhibit e-commerce should be a major focus, Atkinson said.
Atkinson declined to judge the efforts of the Streamlined Sales Tax Governing Board, a group led by state tax administrators that has been working on a uniform system of definitions to enable nationwide sales-tax collection. Any collection regime must work on a “simplified level” so it doesn’t burden the merchants who would have to collect sales tax for online purchases, he said. “There’s no reason technologically you couldn’t do that.” The Supreme Court’s Quill decision blocks states from requiring sales tax collection from businesses without a physical “nexus.” But some states have tried to collect taxes for e-tailer affiliate referrals or, in Colorado’s case, require businesses to turn over their customer purchase lists.