The recent US Supreme Court decision, NCTA v. BrandX, stirred up a new round of discussion and lamentations over broadband Internet access and public policy in the US. Some of the more insightful BrandX commentary came from Susan Crawford and Jeff Pulver. On the other hand, I've been following (and occasionally participating in) broadband policy discussions for years, but I have yet to see anyone taking the long view I think is necessary -- so here goes.
The points I'll make (and attempt to justify) are:
- Be careful what you ask for. Competition really works, but public policies to promote competition frequently produce unintended results.
- Legal and regulatory systems evolve at a snail's pace compared with technology so, when advocating new law, take a long view based on first principals.
- Fiber is not a natural monopoly.
- First mile right-of-way is the bottleneck for fiber-based broadband access.
- Wireless will be significant in broadband access over the life of any new legislation.
- Laws or regulations to guarantee Net Freedoms, while appropriate in the face of a monopoly, could easily inhibit the rise of additional competitive broadband access providers.
Which argues we should focus on long terms objectives:
- Open, competitive access to public right-of-way.
- More license-exempt access to RF spectrum.
Be Careful What You Ask For
Today there is widespread agreement, across the political spectrum, that competition works better than central planning. In telecom, country-by-country comparisons show that when a government figures out how to attract competing mobile operators, mobile phone adoption goes up. At least roughly, two viable competitors gives some growth, three gives better growth and four or more competitors leads to soaring growth. In a substantial change from even ten years ago, today the ITU, the World Bank and their offshoots are all advocates for market approaches to network development. But in moving from regulation of monopolies to regulation that fosters competition, it's easy to go wrong.
Scott Marcus has a good example from his examination of Europe's "New regulatory framework."
"In 2000, Vodafone Airtouch merged with Mannesman. <EU> Commission competition authorities were concerned that the merged firm would be the only entity able to offer pan-European mobile telecommunication services... The merging parties resolved competition concerns by agreeing to provide roaming tariffs to affiliated and unaffiliated mobile operators on a nondiscriminatory basis. As a practical matter, this eliminated the merged entity's incentives to offer pan-European service packages..."
Scott compares this with the US where AT&T Wireless's introduction of Digital One Rate service lead to a wave of mergers, alliances and joint ventures as competitors were forced to respond. Today, most US mobile subscribers have large buckets of minutes for which there are no per-minute, no long distance and no roaming charges. As a result, today's US average minutes-per-subscriber is four times that of Europe. European attempts to foster competition had the opposite effect. Be careful what you ask for.
Another US-European mobile phone difference was the early choice in Europe to require "caller pays." This transferred the cost of fixed-to-mobile calls from the competitive mobile sector to the non-competitive fixed-line sector. The result: today US fixed line subscribers see no difference when calling mobile subscribers and mobile subscribers pay with their previously mentioned large buckets of minutes at low fixed cost Meanwhile, fixed-line callers pay 15-30 cents or more per minute to call European mobile subscribers.
Take a Long View Based on First Principals
Law evolves at a snail's pace compared with technology today. Consider Title II of the Communications Act of 1934 as amended by the Communications Act of 1996. Title II regulates the ILECs as common carriers. The history of common carrier legislation stretches over several centuries, from canals to railroads to telegraph to the telephone. The 1996 act wasn't the first amendment of the 1934 act, but 62 years later we were still amending the 1934 act. And even though the Internet was highly visible in 1996, the 1996 act focused only on competitive local telephone services based on traditional telephone technology. Law and technology evolve on completely different time scales.
In advocating content for a Telecom Act of 2007 or 2008, do you focus on regulating the services offered by today's duopoly, or on fostering the entry of additional competitors over the next decade?
Fiber is not a "Natural Monopoly"
A natural monopoly may arise when the largest supplier has an overwhelming cost advantage, frequently the case in capital intensive industries. If there were a single service being offered, that was only available over fiber, and the market dynamics were relatively static, then the first supplier to install a fiber on a particular route would be in a position to undercut potential competitors thus keeping them out of the market. So fiber to the home (FTTH) is commonly assumed to be a natural monopoly. But that's not the case with fiber in the real world.
First, not everyone wants a service. Some want to own their own fibers, typically via an Indefeasible Right of Use (IRU) agreement. Second, competing suppliers offer more than one service and bundle different services in their offers. And third, even with pure broadband Internet access service, there's competition from legacy DSL, legacy coax and a range of emerging wireless technologies.
One has only to look at an adjacent market to see that fiber is not inherently a natural monopoly. If you are seeking telecom capacity between One Summer Street in Boston and 60 Hudson Street in New York City or Telehouse Docklands in London, there are many competitive suppliers with a wide range of offers. Further, the potential suppliers differ in terms of what other services they offer and other locations they reach, i.e. in their effective bundle. In this market there are many different rights-of-way between Boston and New York and across the Atlantic. Also the provision of backbone data services is almost totally unregulated yet no monopoly has emerged. Fiber is not a natural monopoly here. What's different for first mile fiber?
First Mile Right-Of-Way a Bottleneck
For first mile fiber, the ultimate bottleneck is not the first fiber in a specific right-of-way, but open access to that right-of-way. Today local rights-of-way are usually owned by local governments but bound up by government-granted monopolies regulated, on a service-specific basis, by an assortment of federal, state and local authorities.
I live in a moderately wealthy suburb of Boston with a moderately high housing density (1750 homes per square mile). Electricity, telephone and cable TV are on poles. Construction costs for FTTH (home run fibers!) in my neighborhood would be less than $1800 per home passed and less than $3000 if built to 30% of the homes. If a condominium fiber project were legally and politically feasible in our neighborhood, 30% penetration (even at a sales price of $6000 per home) would be easy to achieve and private developers would be lining up to build such condominiums. Indeed, the ultimate competition for broadband access service providers is an option to own your own fiber connection to an aggregation point where multiple competing ISPs are present.
First mile right-of-way is the real bottleneck, but most of today's discussion is about regulating one or two service providers. Lets focus on opening up the first mile right-of-way to developers of any ilk.
Wireless
Wireless technology is evolving at a rapid rate, particularly in the bands where license-exempt operation is permitted, for example where WiFi operates. And the use of wireless or fixed-wireless hybrid access is increasingly competitive. Already there are over 3000 broadband wireless Internet service providers (WISPs) in the US. A great many of these WISPs are small operations. We need to be careful to impose no new regulation on such companies.
Instead, focus on opening more spectrum to forms of license-exempt operation. These include new bands, spectrum underlays (like UWB) and cognitive radio. (There are good open spectrum discussions here and here).
Limited Push for Net Freedoms
Former FCC Chairman Powell articulated a set of Net Freedoms which have been endorsed by a wide range of broadband advocates. I too find them incredibly appealing -- for a monopoly market. But in the long term, we would be far better served by robust competition in the first mile -- preferably four or more viable competitors plus the opportunity to purchase our own fiber on a condominium basis.
Why not focus some of our advocacy zeal on access to poles and conduits? In the US, this subject is only partially addressed by the Communications Act of 1934 (as amended), Title II, section 224 and case law such as Gulf Power decision of 2002. Who (beside Richard Keck) is talking about the regulations that have kept power companies from becoming a third competitor for the triple play? It's not about waiting for broadband over power line technology that may never work -- fiber together with wireless transmitters on neighborhood poles would work today -- the problem is regulation and business structure.
Summary
If you want world leadership in broadband access five and ten years from now, starting figuring out how to get more competition at the physical layer. Inn other words focus on:
- Open, competitive access to first mile right-of-way, and
- More license exempt access to spectrum.
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