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More Government != Better Broadband

There is a groundswell of public opinion that government intervention is going to increase the availability and decrease the price of broadband. Read this sentence again. See the problem?

As a college freshman, I had an Economics professor (Carrington-Crouch) who told me that the scariest words you will ever hear are the following:

Hello, I’m here from the government and I’m here to help you.

He told me that if you ever heard someone say this to you, start running. I agree.

Reading this article this morning pushed me over the edge. It exemplifies the ‘groupthink’ on the net that every other country has better broadband, and that the only solution is for the government to intervene and break up the ‘monopolies’. It’s the umpteenth post I’ve seen with this viewpoint on the issue, if there is even an issue anymore.

Be afraid. The digeratii and the blogerati think Uncle Sam Bell is better. It won’t be. It’s how we got here in the first place.

We might have had more fiber to the home today, except for government regulation overturned over the last 3 years (2003, 2004, 2005). The regulation forced ILECs (The only ones with the cash to do it) that installed new infrastructure to lease it back to CLECs like Covad, Earthlink, etc. at ‘cost plus’ (another great government term). Why would you make a risky, multi-billion dollar investment if you would never realize a decent return?

Only recently, as these laws have been rolled back, do we see companies like Verizon and SBC deploying advanced broadband architectures. Even now, as Verizon pushes ahead with FiOS, the market views this investment negatively.

Where is the detailed unbiased data about how terrible broadband is in the US? I’ve yet to see it. Even my Dad, who vacations on a mountain in North Carolina, can get a 3Mbs cable modem for $35 a month.

People that point out other countries have better broadband overlook the fact that this may be the result of several factors that we do not have nor want here in the US. Europe is put up on a pedestal – but Europe has a much higher density population than the US making it easier and more economical to offer broadband. If you live in the boondocks in Europe you are just as likely to not have broadband as if you live in the sticks here in the US.

Japan and Korea (really the only places with better broadband than the US) have high density topologies suitable for fiber deployment and government subsidized carriers. That means you pay for broadband whether you want it or not- is it such a surprise that these blog-heads want you to pay for their DSL or fiber connection?

The latest craze is the push for network neutrality, which effectively means that carriers are not allowed to set variable pricing for services over the infrastructure they own. The analogy here would be if the government told major airlines they needed to start charging flat fares for travelers regardless of whether they flew the all-nighter on a Saturday night or the 8AM shuttle. The logical outcome is that some people end up paying more for the same service so the ‘Elites’ who push these laws can pay less. Om Malik recently had a fair and balanced podcast on the subject (transcript here).

With the insanity of forced leasing of new infrastructure ending and positive legal decisions like Brand X, Broadband in the US has turned a corner. I wouldn’t be surprised that in 10 years the US has the most advanced and – more importantly – cost effective infrastructure in the world, perhaps with China and Japan the only real contenders.

If the only way to get better broadband is for the federal government to pay for it then we don’t really need it. Ronald Reagan:

If it moves, tax it. If it keeps moving, regulate it. If it stops moving, subsidize it.

If there is a market need you can bet someone, somewhere will find a way to meet it. You need to be patient and wait for the Industrial Accident. The only way this can happen is if the FCC and government stay out of the way.

Discussion

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  1. I’d like to start with congratulating you on a great blog. I do however feel a need to comment on this particular post. I won’t argue about whether more or less government involvement is good or bad, as that is a highly personal opinion. Either way you need to know that your arguments do not hold water.

    i) Monopolies
    Monopolies are bad for business. Simple as that, no need to defend that business model. Monopolies are only good for the companies with the monopoly. More monopoly does not mean more fiber. More monopoly means more profits for the monopoly company. Verizon is not building out Fios because of new regulation. The regulation is only the icing on the cake. Verizon needs to upgrade its network no matter what. Competitive forces are the only ones strong enough to make ILECs invest.

    ii) ILECs are the only ones with deep enough pockets
    No so. Look to Europe for business models. Take a look at what the energy companies are doing.

    iii) Negative view on the telecom market
    The CEO says it himself best: “Investors have been so used to what they considered an industry that had limited or minimal competition,” Mr. Seidenberg said. “Now they get concerned about which companies win and which companies lose.”

    That’s the real reason telecom stocks are down, not the fact that Verizon has seen the futures and chooses to invest now rather than die out later.

    iv) Other countries simply do better at broadband
    The regulatory environment in the US is simply abysmal. Excuses like population density are just that, excuses. EU population density is only about 50% higher than in the US and Canada’s population density is a tenth. Both the EU and Canada are still kicking butt and taking names.

    v) Network neutrality
    I don’t know if you misunderstood the network neutrality concept or not, but your analogy is way off. If major airlines were allowed to act like telcos on network neutrality then the airline would be allowed to charge different prices on the same seat on the same flight depending on your FINAL destination. “Going to France after spending the weekend in NY with your sister? That’ll be $500 extra, ’cause we don’t like them frogs at United.”

    What’s my take on the matter of better broadband? You need a sound and solid regulatory framework that enables competition on all levels of the network plus community involvement for a better business model that ensures availability and reasonable prices. Missing any of the pieces increases barriers of entry, the cost of doing business and risks.

    Posted by Zed | December 29, 2005, 6:34 PM
  2. >We might have had more fiber to the home today, except for government regulation overturned over the last 3 years (2003, 2004, 2005). The regulation forced ILECs (The only ones with the cash to do it) that installed new infrastructure to lease it back to CLECs like Covad, Earthlink, etc. at ‘cost plus’ (another great government term). Why would you make a risky, multi-billion dollar investment if you would never realize a decent return?

    It seems you have forgotten what really happened with broadband or with the FCC’s decisions…

    Let’s start with broadband — by 2000, about 50 million households should have had 45mbps services to their homes — the Bell companies were able to change state laws to alternative regulatins and got billions per state…. which they then did not spend on the networks,.

    in fact, they lied to regulators, since the services they claimed they were building weren’t able to be built at the cost models they submitted.

    More ot the point, the FCC’s decisions in the 2000 range were a travesty. The Bells opened their networks in exchange for entering the long distance markets — something they had wanted to do since 1984…And after it was happening, the Bell, using the FCC simply killed off any competition on the PSTN — that’s public switched networks.

    And the outcome of all of this was to allow the Bell companies to put AT&T and MCI out of business by blocking their ability to offer local service — on the PSTN.

    And about competition — well, you also seem to forget that SBC and Verizon were able to get larger and buy their sibliings was because they promised to compete with each other — which they failed to do…

    In short, they simply lied to the American public about their broadband deployments and competition…

    And so, would I take a goverment controlled utility to an out of control phone monopoly?

    America is 16th in the world today in broadband because there’s been no accountabilty or enforcement of their committments. And while Korea may be smaller than the US and goverment controlled, they have 100 Mbps services, we have DSL over the old copper wiring…. The broadband promises the Bells made was state-by-state and so, the bells didn’t fullfill obligations in NJ, MA, PA, CA, IL, OH, TX — and when you add up the states, it’s obvious that the coverage areas were much larger than most of the countries who are not dominating the broadband market…

    And to read more:

    Here’s our recent fraud complaint about the missing fiber networks
    http://www.newnetworks.com/FTCcomplaintSBCVerizon.htm

    And here’s just a few quotes of what was promised — and not delivered

    Bell Atlantic, 1993-1996

    * Bell Atlantic1993 Annual Report “First, we announced our intention to lead the country in the deployment of the information highway… We will spend $11 billion over the next five years to rapidly build full-service networks capable of providing these services within the Bell Atlantic Region… We expect Bell Atlantic’s enhanced network will be ready to serve 8.75 million homes by the end of the year 2000. By the end of 1998, we plan to wire the top 20 markets… These investments will help establish Bell Atlantic as a world leader…”
    * Bell Atlantic Press Release, July 1996. “The company plans to add digital video broadcast capabilities to this “fiber-to-the-curb,” switched broadband network by the third quarter of 1997… Bell Atlantic plans to begin its network upgrade in Philadelphia and southeastern Pennsylvania later this year…. Ultimately, Bell Atlantic expects to serve most of the 12 million homes and small businesses across the mid-Atlantic region with switched broadband networks.”

    And you trust these guys with our future?

    Bruce Kushnick

    Posted by Bruce Kushnick | December 31, 2005, 2:14 AM
  3. I agree with a lot of what you have said. I think the issue is very much about the econiomics of the competitive structure. Where a monopoly existed, the mindset remains.

    Here in Australia we have a once-government-owned-carrier who has done their best to stifle competition since the market was de-regulated some 15 years ago. This sounds similar to the situation in the US. The incumbent competes with all their wholeasle customers, and only provide better services when the competition forces them to catch up. Still being the market share leader, they seem to get away with this. An example is their announcement to offer ADSL2 at speeds of 3Mb/s some time in 2006, where smaller ISPs who have deployed their owwn DSLAMs have been offering ADSL2 at 24Mb/s since last year.

    Have a look at some of the models in Europe, where the network operator just operates the network, rather than trying to be the ISP also, or read my full opinion on this at http://yamasakiot.com/techtalk/dark-fibre-gets-put-to-use-by-service-providers/

    Posted by Jeff Servaas | January 15, 2006, 8:11 PM
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