Friday, February 03, 2006

Net Neutrality and the Sorry State of U.S. Broadband

Most French citizens can get 24Mbps/2Mbps Internet connectivity that includes unlimited local/long distance calling, plus TV and Cable channels, for 30 Euros per month. Japan? Fiber everywhere. All those services are available from many fiercely competing companies. Just take a walk in Parisian subways and look at the various "Haut Debit" (high speed) advertisements to see just what i'm talking about: Wanadoo. Club-Internet. Cegetel. Claranet. To name a very few.

Many countries such as Japan and France have succeeded in the broadband field, paradoxically, precisely because of Government intervention: at some point they decreed that copper phone lines to their constituents' houses were no-longer the sole operating property of the local phone company. After all, phone companies have in most countries throughout history consistently enjoyed comfortable government subsidies to deploy their infrastructure, when not owned and operated by governments themselves.

The Industry jargon defines this process as Local Loop Unbundling. It provides a framework for allowing competing companies to leverage today's infrastructure to offer their own broadband-internet-powered services: Voice and Video communications, interactive, custom-tailored entertainment. E-mail and "the Web" are "so" 1995 and no-longer the "killer applications" of the Internet. They're insanely useful starting points.

Having enjoyed comfortable taxpayer-subsidized monopolies for the better part of a century, such competitive landscapes are a direct conflict of interest for the traditional phone companies.

In the U.S., they've been rabidly lobbying to keep their monopolies intact, under the guise of preserving our cherished capitalistic principles, by parroting feel-good phrases in the wrong context: "Government Involvement is bad! Let market forces do their thing!". But in this case, we're talking about network infrastructure. It makes perfect sense for local government to largely subsidize and work with the private sector on the deployment of such infrastructure, and lease access to it, at cost, to all businesses willing to compete. It is a far more efficient approach, at long last enabled by today's technological advances and the Internet Protocol.

Consider another type of infrastructure: sidewalks. A municipality might happily front costs, or work with private developers to build sidewalks in an affluent area to attract new tax-revenue-generating businesses. In today's broadband landscape, we're looking at a narrow sidewalk with a 2-story Verizon shopping center on it, and perhaps an SBC shop 2 miles down the road.

As we blindly grant "right-of-way" to companies such as Verizon, letting them pony-up all the costs of digging trenches in our streets to deploy fiber connectivity in a few lucrative areas, we can't refuse them the right to solely own and operate this network. But few, if no other companies can afford similar deployments on their own, and Verizon will hence have very little incentive to compete on the quality of services they offer, because after all, they're the only ones in the game.

Nothing will prevent them to limit what it is we can do with the bandwidth they offer us, such as obtaining phone or video service from 3rd-party providers.

And this touches on the issue of Net Neutrality which Dave Coustan is covering quite well over at EarthLing.

See also: Fire your Phone Company. Today.

See also: Net Neutrality, Clear Disclosure?

See also: If we build it, they will come.

update: 2/15 See also: this great comment on somebody else's blog:
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.”


Anonymous said...

30 Euros a month for broadband. Oh, lets not mention what their tax rate is. Think some of that money goes to support the broadband network? Do we want to import the French tax system also? Why stop with broadband, lets bring in their healthcare system also.

Ever stop to think that maybe the reason for the lack of broadband in the US is in part caused by companies refusing to invest capital because they know their return will be limited? Investment chases return. Wall Street is killing Verizon on their Fiber to the Home, telling them they can't recover the costs. So now you are mad that Verizon is thinking about only using 80% of that fiber capacity and people are upset with that? Whats wrong with 100%. Once that happens, now you have two (cable & fiber). Soon you will see mobile broadband (oh, parts already are) and then there were three. Seems like competition to me, unless you want to convince me that the RBOC's and cable really do like each other.

Anonymous said...

Well, well, haven't we seen this spin from Anonymous before in some comments on other blogs? This is called FUDding, creating fear uncertainty and doubt. A very popular technique of spin doctors for RBOC'S and cable PR agencies. I wonder who is paying you.

Anonymous said...

Sorry, work for a consulting company. So its just fear and doubt huh? Ignore the realistic facts, don't look at the real world and talk about how nice things could be yet ignore the real issues.

You compare US broadband prices to France, yet refuse to talk about their tax structure. You can't have one without the other. Oh, I appologize, I must have been incorrect when I saw the Wall Street reports killing Verizon on their Fiber to the Home project. Seems to me that project introduces competition.

Dispute the facts, don't just hate.

Anonymous said...

Err there would be some hugely serious competition issues if French tax funds did go into funding broadband. The whole market is driven by the EU Telecoms Package Anonymous im afraid you don't understand the European market in the slightest. France has a hugely competitive broadband market, as we are now getting here in the UK precisely due to this framework. It also not really government intervention but regulatory intervention as each Member State has a national regulatory authority in it that regulates the communications sector. Many Member States have made that authority independent from central governments.

Chris Holland said...

To Anonymous: I grew-up in France, i know what the "system" is like, so do my parents who are both entrepreneurs there, and have struggled their entire lives to make an honest buck because of all the social charges. I'll gladly talk your ears off for hours about the many problems with counting too much on the government to bail us out of our lazy natures. To say i'm not a fan of socialism would be an understatement.

But that's not what we're talking about here. Let's keep things in perspective and chill out on the rabid segues.

Not all forms of government "involvement" are necessarily bad. You've simply got to define what's meant by involvement. Here, we're mostly talking about regulation, and coordination of broadband infrastructure deployment. We're not talking about health care.

To have a successful broadband infrastructure deployment, the government does not, in all instances, need to spend a lot of money and get into debt if striking smart, careful deals with the private sector, when deploying new infrastructure. Which is basically what Philadelphia did with their WiFi project.

As as far existing infrastructure is concerned, a lot can be done through regulation and legislation to create a framework that will promote competition, and alleviate the stranglehold phone companies have today.

According to John's link, that's precisely what Europe did.

Chris Holland said...

to anonymous, again:

2 companies offering the same set of limited connectivity packages at $40/month, along with poorly repackaged versions of "MSN premium" is not a competitive landscape, nor does it represent a set of compelling choices for the consumer.

You said: "Ever stop to think that maybe the reason for the lack of broadband in the US is in part caused by companies refusing to invest capital because they know their return will be limited? "

I find that hard to believe. Few companies get in the broadband market because they're stuck with reselling pre-packaged deals offered by phone companies who solely control the pipes.

If our broadband framework allowed for wholesaling of bandwidth, ADSL2 would have been deployed much faster, on a far larger scale, while the network would be constantly improved and maintained by a consortium of competing companies that have a very-much vested interest in seeing to its health.

But today, in the U.S., far too many of our elected officials are not exerting the mental due-dilligence necessary to develop such a framework.

While the rest of the World is.

In my opinion, there are two rays of hope:

1) Covad is a company who's primarily in the business of reselling wholesale ADSL/ADSL2 service to independent ISPs, some of which help it with infrastructure deployment. They've managed to deploy their own hardware and lease space in phone companies' central office, at tremendous costs. They've recently started to deploy ADSL2, which in theory should get us, one day, to the 24mbps figures. 8mbps should already allow for various forms of "tripleplay" offerings similar to those we see in France.

2) WiFi deployment. Whether wealthy communities deploy it on their own, or more typical communities work with the private sector to deploy it, it'll help bring healthy competition, and force businesses who are in the business of merely selling "connectivity" to start doing a little more for consumers to remain competitive. As residents save money with WiFi connectivity, they can in turn spend more of that money on actual services, covering a wide range of communication and entertainment services, from custom-tailored deals that fit specific needs, to packaged deals.

With dramatically reduced distribution costs powered by the Internet Protocol and pooled bandwidth, all this should enable nascent forms of media to cater to individual tastes, rather than the traditional forms of media we see today which are forced to cater to the widest audience possible to subsidize their high distribution costs.

THAT is the future. 2 broadband companies that call all the shots is not part of this future. A myriad of businesses competing to provide value with compelling services, is part of this future.

Chris Holland said...

People also like to invoke the "population density" excuse with regards to broadband deployment.

My Dad has a farm house in the country, 2 hours south of Paris, by the Loire river, in a little "commune" named Saint Firmain.

His Powermac G5 is there. He's got high speed ADSL2.

John Thacker said...

People also like to invoke the "population density" excuse with regards to broadband deployment.

And it is valid, your father notwithstanding, because of the vagaries of universal service and how it's implemented. The cost of universal service to rural areas is absolutely immense in some cases, and it's no wonder that the incumbents try to recoup that cost through helpful regulation. (And rural representatives, regardless of party, help them with it.)

In your initial article you elided over local loop unbundling in the US. As you well know, local loop unbundling has been law in the US essentially since the 1996 Telecommunications Act. However, it's been tied up in an endless series of lawsuits and countersuits since then, resulting in quite a few court-ordered changes in FCC regulations. Despite that, there certainly has been and is room for bandwidth wholesaling, like Covad which you mentioned later.

In addition, universal service and population density plays into local loop unbundling in a very real way. A key for local loop unbundling is determining the price at which access to the local loop is offered. Rather than offer access to each individual local loop at its true cost, the incumbents want to average over geographical areas, in order to include rural areas mandated by universal service as well. To some degree, this is understandable, as universal service also constrains their ability to do differential pricing somewhat.

Population density still makes a difference. A country with an overall higher population density and more of its population concentrated in larger cities can more easily afford to subsidize its rural areas through universal service.

Chris Holland said...

To John Thacker: very interesting points.

I guess one of the most important things to me is for the phone and cable companies to NOT get in the way of communities trying to deploy WiFi, or their own broadband alternatives, regardless of whether or not they were planning to deploy fiber in those communities. It infuriates me that they've managed to get several states to pass such legislation. Those states should have called the Telco bluffs regarding not deploying new broadband infrastructure.

They'd better keep this legislation away from California.

I'm willing to empathize with the challenges they face, but in the end I remember that they got to grow their deep pockets largely thanks to Tax Payers, and their monopoly position.

In the end, they'll have to adapt to market forces by providing significant value beyond mere IP connectivity. If their packages are compelling, they'll find a healthy market. Verizon is already bundling TV and phone service with their fiber offerings in certain areas. Lucrative revenue streams from voice services alone are going away. Face it. Embrace it. And innovate.

But if Verizon remains the only broadband player in town, what's going to motivate them to innovate? Or drive prices down?

Going forward, Fiber deployment would ideally follow a similar model to WiFi deployment:

WiFi represents new infrastructure sponsored by local governments at very little to no cost to them, most of the costs being fronted by the private sector. Companies involved in this deployment will know full-well they will not make significant profits beyond recouping their costs, out of merely reselling IP connectivity through the infrastructure, but through providing continued value BEYOND mere connectivity, in a competitive market.

In the specific case of the small, affluent city of Hermosa Beach, where i live, we had a plan to cover the entire city with WiFi for under $200,000. The city has plenty of cash, and no debt (That's until we lose the lawsuit against us from a local Oil Company, we *will* be *flat* broke after that.). About 10,000 homes, roughly packed onto 2 square miles. Neighboring cities of similar sizes were entertaining similar plans.

Had tel/cable-co-induced FUD not taken hold, new businesses could have emerged on-top of the network. Private businesses could have resold a slew of services on-top of high-bandwidth packages, while low-bandwidth access could have remained free to all.

bourgogne said...

your dad is so lucky to have broadband in the country!! we aren't so lucky in burgundy and have resorted to the ancient practice of using isdn (and that costs us approx. 100 euros/mo). they do not usually offer isdn but we complained really loudly. yes, isdn is better than dial up but still KILL ME NOW slow! :D they say we should be getting reach extended dsl this year but i think it will be 512kb/s (64KB/s). next year we should be getting wimax at 1Mb/s symmetrical.

Anonymous said...

I dont see what all the fuss is about. I, like most people i know use the internet mainly, to chat to friends on msn, send emails, download music for FREE and do the occasional piece of research on Google. If I cant do those things I wont use the internet, and if im not using im not paying.

Vic said...

I can see your argument about a company like Verizon being one of the few who can lay down fiber and set up an infrastructure for broadband Internet, but that's capitalism. If Verizon eventually ends up looking like a monopoly, then that's when the government should step in... but there's a fine line between being dominant and in being a monopoly... if that made any sense.

Also, France is running on socialism... It's really hard to compare a lot of things, let alone Internet connections, on the same level. It's like saying the US Army isn't as large as China's when China forces everyone to serve.

High Speed Internet Access and Broadband Provider

Chris Holland said...

Vic, thanks for stopping-by.

The only reason phone companies are in a position to lay-down fiber in the first place, is because of the monopoly they were handed by the government a long time ago. Digging holes in the streets is very expensive, and this only makes business sense if you can have a guaranteed return on your investment.

To get back to that monopoly they were handed, it's indeed a form of capitalism, without a competitive landscape, which you might consider, in this very specific field, a market that is NOT "free". Phone companies are their own "meta government" wrapped in private entities, as they were put in a position to control a resource *every working citizen needs* to ... "survive" or "Call 911", while gleefully monetizing a sub-par service in a market with zero competition.

It simply has been a very fortunate series of events for phone companies. And that all was okay. The government basically "farmed out" the responsibility and burden of developing, operating and maintaining a communications backbone for the country.

To appease the masses, the government broke nationwide monopolies into smaller regional phone companies. While this got rid of one big monopoly, it supplanted it with more local monopolies. Aside from moving from Northern California to Southern California, consumers still didn't enjoy a competitive landscape when it came to communications.

Now that VoIP and other technologies have shaken things up a bit, consumers are able to choose phone service from different providers, but they're still confined to one or two companies who control broadband to their homes.

What we need today, is to look at the past and plan for the future.

Fiber is the ultimate pipe to people's homes for all aspects of communications, research, education, entertainment.

Local government can let phone companies solely carry the burden of deploying fiber to people's homes, leveraging the vast capital acquired from decades gouging the living crap out of a captive consumer base.

Or local and federal government can WAKE THE F' UP, and fund the deployment of fiber or other broadband infrastructures to people's homes, and LEASE out the infrastructure to any company from the private sector willing to competitively provide services, be they anywhere between mere connectivity, and connectivity+communications+entertainment access+content.

And when I mention "fund the deployment", this doesn't mean local government HAS TO fork the cash out of pocket. It can simply mean partnerships with private companies who'll subsidize a good part or ALL of the deployment, in exchange for a temporary monopoly status, and/or quick direct compensation from wholesale access resellers over the newly-created network.

There is a myriad of ways to make this work, and that's precisely what many municipalities have been doing with various WiFi deployments when working with the private sector.

In all instances, an infrastructure is deployed, and a competitive landscape is born.

Due to its many applications in communications, research, education, and entertainment, a strong Broadband Infrastructure is becoming just as important to human development in the U.S. and other developed countries, as roads and sidewalks are.

It needs to be developed with an adequate amount of forethought.

Municipalities are typically responsible for paving roads and sidewalks, contracting private entities to do the work, subsidizing the cost thru State Funding and/or local taxes, creating a setting for a more affluent area, and a myriad more businesses to flourish and compete.