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Public Infrastructure or Private Monopolies

By Wayne Caswell, CAZITech Consulting

WHITE PAPER: "BIG BROADBAND: Public Infrastructure or Private Monopolies" (PDF) is written for consumer advocates and policy makers to contrast the different incentives of incumbent local exchange carriers (ILECs), cable television (CATV) companies, municipalities and other stakeholders. It suggests that the capital expense of extending fiber closer to premises is high enough to cause the ILECs to cherry pick the most profitable customers in green field installations, leaving others to fend for themselves. That’s where public broadband comes in. The politics of broadband, however, can pose obstacles for municipalities that want their own networks, so the paper also includes a section explaining the fears of various stakeholders. Incumbent phone companies, for example, fear competition from voice-over-Internet-protocol alternatives and are using their deep pockets and powerful lobbyists to delay municipal networks as long as they can.


    "BIG BROADBAND: Public Infrastructure or Private Monopolies" (1/2-size PDF slides, 1.5 MB) that I shared with Texas Legislators as part of a personal lobbying campaign (not associated with any organization) to protect municipal networks.

    See the future of "BIG Broadband and Gigabit-to-the-Home." This evolving slide set supports a vision of universal adoption of truly high-speed Internet access and the challenges of deploying the required infrastructure. It starts with arguments that Wi-Fi and even 100 Mbps is not enough and then introduces FTTH concepts and the debate over public versus private ownership. And it concludes by introducing a residential gateway to terminate fiber service.

LINKS: Check out this important collection of resources that expand on Big Broadband, Fiber Optics, Municipal Networks, Wireless Networks, and Telework topics.


    Broadband technology is critical to Economic Development (tech leadership, productivity & innovation, workforce training, wages & jobs, and e-commerce), Quality of Life (entertainment, education, culture, telework, telemedicine, and e-government), and National Security (crisis management, financial stability, social stability, self-reliance, diplomacy, and personal privacy & security). In short, our future prosperity depends on it.

    The US now ranks 16th (and falling) in broadband subscribers per capita. US broadband access is 30 times more costly than in Japan, on a price-performance basis. Leading broadband nations share two main characteristics: an aggressive national broadband policy and true competition based on a separation of retail network services and wholesale network transport. Some also have subsidies.

   The US lost its 60-year technology lead, falling in 2005 from #1 to #5, largely because of its failing broadband position.

    Modern apps need Big Broadband: 100 Mbps is needed for 2-3 streams of HDTV, and even faster speeds are needed to download movies to mobile devices. Downloading “The Matrix” on a DSL line, for example, can take 10-12 hours, so you might as well FedEx it or run down to the video store. The download only takes 1 minute at 1 Gbps, so there’s less waiting for people on the go.

    The CE industry is constrained by incumbent network operators since they have been slow to deploy Big Broadband. As a result, CE products, apps and services have not achieved their potential, and consumers have missed out on their benefits.

    High costs, low performance, and selective availability of US broadband services contribute to the “Digital Divide” and encourage offshore outsourcing, resulting in higher unemployment and lower wages. Universal Access must expand beyond telephone and be applied to broadband Internet to help eliminate/minimize the Digital Divide.

    "The principal source of the problem is monopolistic structure, entrenched management, and political power of the ILEC and CATV sectors, worsened by major deficiencies in the policy and regulatory systems covering these industries." -- The Brookings Institute

    The Telecom Act of 1996 failed to remedy the situation, and current FCC & PUC policies continue to foster franchised monopolies instead of competition. Existing telecom laws are written for legacy phone services and ILECs without regard for the effects of Digital Convergence.

    The FCC defines broadband as “speeds exceeding 200 Kbps in at least one direction.” That's not nearly fast enough for modern applications like high-quality video conferencing. It's about 5 times slower than today's DSL and cable connections, 10-25 times slower than connections in Korea and Japan that cost half as much, and over 225 times slower than the Bell companies' own 1992 definition.

    The big phone companies promised to rewire the company with fiber optics back in 1992, and they defined broadband as speeds of at least 45 Mbps in each direction to carry high-definition video. The promises were made to gain concessions and huge subsidies from Congress and the FCC, but they never delivered.

    The FCC says broadband is “available in 94% of zip codes” but ignores the fact that it's often to just one neighborhood in a zip code. These measures sugar-coat our progress and fail to compare it with other nations.

    Incumbents can’t easily justify infrastructure investments like fiber-to-the-premises (FTTP), except where they can cherry-pick and get high market share and average revenue per user (ARPU). That includes high-end green field neighborhoods, but others are left out. The FCC crumbled under their pressure and removed its requirement to share network access in new fiber networks, thus guaranteeing a monopoly and giving incumbents the justification they need. But that’s not true competition, and it won’t drive down prices or improve services.

    ILECs have blocked true competition, intentionally limiting performance to avoid cannibalizing their legacy services. Relatively slow up-stream bandwidth, for example, inhibits wide use of Voice-over-P, advanced TV-over-IP, and video conferencing. These monopolistic behaviors justify antitrust investigations and actions.

    ILECs fiercely protect their old business models instead of creating new ones, spending much more money on lobbyists & attorneys than R&D, so innovation is happening elsewhere - in municipalities and startup technology firms. That's why public policy should encourage municipal innovation.

    Municipalities have started installing their own networks with a business model like airports, where cities can more easily absorb the long payback of infrastructure investments (like bridges, highways & airports). Instead of comparing the Information Superhighway to the Interstate Highway, a better analogy is the airport, where access revenues (like leasing gates and space for shops & restaurants) pay off the public bonds that fund outsourced development & operation.

    But some 14 states now have laws prohibiting or severely limiting municipal networks, even when impatient citizens want to raise the funds and install the networks themselves because they can't get competitive service otherwise. Here in Austin, I’ve been doing personal lobbying to influence telecom reform and protect the concepts of public broadband infrastructure and community Internet.

    Wireless is an innovative but relatively short-term investment compared to fiber (or for that matter BPL). It’s much simpler and cheaper to install and has a shorter payback period, but the technology is evolving rapidly.

    We need policy reform and a national broadband policy that separates retail content & services from wholesale switching & network transport. In an open-architecture system with standardized interfaces, service providers would have Equal access to consumers (all consumers) without worry about incumbents that control and limit access. This would also give consumers Easy access to services (all services), and that’s the personal vision I describe in many of my white papers.

    Legislators must protect the public interest, so we need business models that avoid raising taxes. For example, private organizations with fiduciary interest in universal adoption of big broadband might guarantee municipal bonds in order to get the best interest rate and offload any public risk.

    Telecom policy reform will require major changes in the FCC, Justice Department, and other federal and state regulatory systems. Expect a political battle between Democrats and Republicans, “if” either party is brave enough to take on the issue.  Policy reform best fits the democrat ideology, with individuals, small businesses and small service providers versus Big Corporate America. This would be a good campaign platform, which is why republicans would be wise to claim credit for it first as a preemptive strike.

    Congress hears more often from industries suffering the most pain, not from individuals that alone find it difficult to justify airfare and time to travel to Washington to lobby their positions. That's why consumer issues struggle to get equal time compared to lobbyists, suggesting that representation from advocacy groups like AARP and Consumers Union, as well as smaller ad-hoc groups, is essential.

    Politicians take note -- You need to go overboard to understand all sides of the issues and look far beyond what is presented by paid lobbyists.

    Disruptive technologies threaten old business models (see Mark Christiansen’s book, “The Innovator’s Dilemma”), so expect a fight from any organization that feels threatened: phone & cable companies (franchised monopolists), record labels & studios (digital rights management), car & oil companies (less time driving due to telework), PC companies (“the network is the computer” vision might prevail), Microsoft (open source flourishes when developers easily exchange code), and even myopic cities & landlords (companies might relocate to new buildings in suburbs where fiber is being installed). Look beneath their self-serving arguments and do what's right for America.


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