Saturday, February 14, 2015

Center for Public Integrity delves deep into U.S. Internet infrastructure challenges

A great read on investigative journalism by the Center for Public Integrity that delves deeply into the market and policy challenges of building a complete and modern Internet infrastructure in the United States in 2015. Here’s a summary of the fundamental elements covered in the article.

Incumbent telephone and cable companies can’t afford to upgrade and build out their Internet infrastructures to fully serve their service territories. So they lobby and give campaign contributions to policymakers to allow them to preserve their incomplete networks that leave many disconnected from the Internet. Reporter Allan Holmes describes a typical scenario in much of the nation where those networks don’t extend to reach many suburban and exurban homes:

But then you go outside of Tullahoma (South Carolina), you just drive like 3, 4, 5 miles outside of Tullahoma into this suburban area where there are some very nice homes, and they don’t have Internet access. They don’t even have AT&T, U-verse or Charter Communications which is another telecom there who provides service in Tullahoma. They don’t serve this area.

Leaving these people unserved creates political pressure for action to solve the problem – naturally leading local governments to build their own infrastructure to serve their citizens just as they did in the 1930s for electrical service. That in turn generates resistance from the incumbents to preserve the status quo and put roadblocks in their path. Legislators like Tennessee State Representative Glen Casada are being squeezed by increasing pressure from both the incumbent telephone and cable providers that support their campaigns and the constituents who elect them and want good Internet connections as Holmes relates a conversation with Casada:

“My district is about 2/3 high-speed and 1/3 non-high-speed. So I do hear a lot of that, and I talk to several of those providers: ‘we need help, what’s the solution?’ and their retort is ‘well, we can’t afford to go to the southeast corner of your county because we would lose money and lose money hand over fist.’ And I said ‘we’ve got to figure this out, and real quick, because if we don’t figure it out, then we’re going to have to go with a solution that may not be palatable to the free market system.’ So there is an answer, I contend we have to work it out and figure it out so that the free market solves it, because if a government-run entity solves it, it’s got long-term negative implications.”

The challenge Casada faces is the market for telecommunications infrastructure isn’t a competitive one. It’s a natural monopoly due to the high cost barriers that keep out potential competitors. It’s that natural monopoly that the incumbents want to preserve by keeping local governments from building their own Internet infrastructure with protectionist laws. 

Casada can however have market competition for services provided over Internet infrastructure by treating the infrastructure like public works such as a road or highway. But a competitive market with many sellers and buyers isn’t going to happen for Internet infrastructure because it is fundamentally at odds with market economics.

The larger story underlying this one is the disruption and discomfort that naturally comes with technological and economic change – in this case replacing 20th century metallic legacy telephone and cable TV infrastructures with modern fiber optic networks for the 21st century. Naturally the legacy providers will resist this transition out of fear of adverse economic consequences for their shareholders and employees. But policymakers must also consider the economic opportunity and job creation ubiquitous modern fiber Internet infrastructure will enable.

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