Wednesday, February 29, 2012

Protecting investor-owned Internet providers from market failure is bad public policy

This USA Today profile of Lafayette, Louisiana's municipally-operated fiber to the premise network raises significant policy questions as to the proper role of the private and public sectors in providing premise Internet connectivity. It notes Lafayette like other community fiber projects faced significant resistance from private sector telco and cable providers bent on preserving their territorial hegemony even when their business models don't permit them to upgrade their networks to provide robust Internet connections to homes and businesses. The push back comes in the form of lawsuits, public information (or disinformation campaigns, depending on one's perspective) and state legislation barring local governments from building publicly owned and operated telecommunications infrastructure.

It's understandable the incumbent telco and cable companies would want to protect their service territories from competition given that telecommunications infrastructure -- like roads and highways -- tends to be a naturally monopolistic (or at best, duopolistic) market. That kind of market creates a winner takes all situation in which the winners in turn pick winners (those who are provided good Internet service) and losers (premises deemed too costly to serve and left off the Internet grid). Their problem, however, is the losers are naturally getting restless and petitioning for relief such as recently proposed Colorado legislation designed to lay the groundwork for the state to directly serve areas lacking connectivity.

The incumbent telco and cable companies may wish to rethink their current strategy of locking down failed markets and barring the door to public providers. The courts could well cast a jaundiced eye toward such uncompetitive market conduct and state laws designed to preserve what in many areas of the nation have become telecommunications backwaters due to what President Obama described in his January State of the Union address as "incomplete" Internet infrastructure.

I'm not sure those state laws could survive judicial scrutiny in the federal courts as they effectively create a state sanctioned monopoly in telecommunications. But unlike other nations, the state doesn't actually provide the service. Instead, their function is to protect private investor owned providers from the consequences of market failure. That's poor public policy because it leaves too many effectively disconnected from the Internet and the economic, educational and other benefits it affords.

Incumbent providers may also want to considering partnering with communities instead of fighting them. As the USA Today article notes, businesses approached Lafayette about expanding the network throughout the city as a way of drawing businesses. City leaders asked BellSouth and Cox representatives to partner on the project. But they spurned a private-public partnership that could have allowed them to share in the revenues, instead opting for a short sighted win/lose strategy.

Colorado bill first step in state investment in Internet infrastructure

Government Technology has an article today on legislation introduced in the Colorado Legislature that the author, Gail Schwartz, D-Snowmass Village, describes as a first step toward the state investment in Internet telecom infrastructure shunned by private sector providers:

Schwartz said the intent of the Rural Broadband Jobs Act is to help Colorado improve access to broadband so that businesses throughout the state have opportunities to be competitive and successful.

“I am looking for a definitive assessment of underserved and unserved areas in our state that lack broadband access,” Schwartz said in an interview with Government Technology. After those areas are defined and as funding becomes available, she’d like the state to invest in the infrastructure needed to bring broadband to those underserved locations.

Click here to read Colorado Senate Bill 12-129, CONCERNING ACCESS TO AFFORDABLE BROADBAND INTERNET CONNECTIVITY IN NONCOMPETITIVE RURAL AREAS.

Tuesday, February 21, 2012

Emergence of Internet TV reinforces end of “broadband” era

The emergence of the Internet ready or “smart” TV marks the graduation of the Internet to a full featured, multiple service telecommunications service. It also marks the beginning of the end of siloed, single purpose video programming providers such as cable TV and satellite. Now that HD video content of all varieties is available via the Internet, the medium is the message in the words of mass communications theorist Marshall McLuhan and the medium is the Internet.

The Internet or “smart” TV also marks the end of the “broadband” Internet era, where the Internet was mostly used for viewing web pages and email — and later Voice Over Internet Protocol (VOIP). It’s notable that TV manufacturers aren’t marketing the latest sets as “broadband” TVs. That reinforces a point I made in December 2010 when I declared distinguishing “broadband” from dialup “narrowband” was growing increasingly irrelevant since dialup was becoming technologically obsolete. Consumers either have functional Internet infrastructure connected to their premises, or they don’t. And if that infrastructure can’t deliver HD video while simultaneously allowing them to browse the web, download email and make a voice call, they’re effectively disconnected from the Internet.

Saturday, February 18, 2012

Better telecom infrastructure, increased telework adoption would boost suburban home values

This U.S. News and World Report article suggests a big problem with the U.S. housing market is overbuilt suburbs that are incompatible with work. Homes located in the burbs are less desirable because they are far from jobs, requiring costly commutes. Other workers aren't interested in buying suburban dwellings because they need to remain mobile to move among metro areas where job opportunities arise.

What the article doesn't mention is that these homes would be far more marketable if 1) They had fiber optic connections to the Internet and 2) More information and knowledge work (and video conferencing) was done in home offices instead of requiring lengthy commutes to a cubicle simply to use a different computer. Move bytes, not bodies.

Post Office says Internet forces closings, but affected residents remain offline

Geoff Brim sent along this Reuters piece that highlights an odd irony. The U.S. Post Office is shuttering offices in rural areas, blaming the Internet for putting them out of business. But the residents of these areas are scratching their heads since so many of them remain disconnected from the Internet due to lack of wired infrastructure. As the article explains:

Internet access has spread the way most businesses expand - to areas more densely populated with people willing to pay for service. Today, rural areas remain less connected to the Internet than urban populations across every technology type, according to Commerce Department data. Nearly 90 percent of the 24 million Americans without wired broadband access live in rural areas, latest data show.

"There's still a real digital divide between rural and urban America," said Ed Luttrell, president of the National Grange, which represents rural America. "You look at rural folks, they tend to rely much more heavily on the Postal Service for delivery of a wide variety of necessities than urban people."

Sunday, February 05, 2012

Georgia cities oppose proposed legislation curbing community networks

Representatives from several Georgia cities testified last week in opposition to state Senate Bill 313, legislation sponsored by investor-owned telecommunications providers that would bar local governments from using public funds to finance municipally owned Internet infrastructure. From the Associated Press story:

Leaders from cities including Elberton, Hogansville, Thomasville, Monroe and Toccoa lined up to tell senators that broadband is necessary infrastructure for the 21st century economic development they hope to attract — and that they are doing what they must to keep their communities competitive.

"We cannot wait for the private sector to ride to our rescue," said Tim Martin, executive director of the Toccoa-Stephens County Development Authority.

Martin is correct. Investor owned providers cannot earn a sufficiently rapid and adequate return on capital expenditures on last mile Internet infrastructure to satisfy their shareholders. That's why public funding is entirely appropriate just as it finances construction of roads and highways. This isn't rocket science -- just simple economics.

Saturday, February 04, 2012

California PUC misstates public policy goal of Internet infrastructure subsidy fund

The California Public Utilities Commission (CPUC) has adopted a decision implementing a grant and loan program to subsidize the construction of advanced telecommunications infrastructure in the Golden State through its California Advanced Services Fund (CASF). Under urgency legislation enacted in 2010, SB 1040, $100 million was allocated for grants and $15 million in revolving loans for the CASF's Broadband Grant and Revolving Loan accounts. The CASF is one of several subsidy funds administered by the CPUC to help offset the cost of providing telecommunications services in areas of the state where it is costly to provide them in order to make them more widely available.

The CASF is codified at California Public Utilities Code Section 281(a) which directs the CPUC to "develop, implement, and administer the California Advanced Services Fund to encourage deployment of high-quality advanced communications services to all Californians that will promote economic growth, job creation, and the substantial social benefits of advanced information and communications technologies..."

While not stated as a finding of law in a draft of the decision issued for public comment prior to its adoption earlier this week by the commission, the decision adopted by the CPUC nevertheless states on page 3:

"We emphasize that the ultimate goal of the CASF program is to increase the adoption of broadband."

A plain reading of that assertion does not comport with California Public Utilities Code Section 281(a), which clearly states public policy intent that the goal of the CASF is "deployment of of high-quality advanced communications services to all Californians."

The CPUC's declaration is also illogical. In order to increase the adoption of broadband, infrastructure must first be built to deliver it. That's the commission's stated purpose of the CASF Broadband Grant and Revolving Loan -- to help capitalize the construction of infrastructure capable of providing premises Internet connectivity in high cost areas where it hasn't been deployed. Moreover, the CPUC's decision distinguishes adoption from infrastructure deployment, noting at page 9 that applicants for CASF-funded infrastructure projects must submit a plan to encourage adoption of the broadband service in the proposed area(s) including the number of households the applicant estimates will sign up for the service (the take rate), the marketing or outreach plans the applicant will employ to attract households to sign up for the service.

Without deployment of the necessary infrastructure, broadband simply isn't available as hundreds of thousands of Californians trying to get by on dialup and satellite are painfully aware. And if broadband isn't available at any price, it cannot be adopted by anyone. First things first.

 
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