Wednesday, July 26, 2017

U.S. policy should support technological progress in telecom, not protect interests of legacy telephone and cable companies

The Town That Had Free Gigabit Internet - Motherboard: But just as Wilson was preparing to expand the program in 2011, North Carolina passed House Bill 129: the "Level Playing Field" act, which was supported by Big Telecom lobbyists. This put tight restrictions on any town hoping to start its own municipal broadband, and reined in existing systems under the thinking that it was unfair for the government to compete in the open market with private businesses. After the law was passed, Wilson was not allowed to bring high-speed internet to Pinetops. "From our perspective, municipal broadband networks do not create competition in the long run," a spokesperson for CenturyLink, one of the ISPs that provided some service in the area, told me via email. "Rather, they replace it because public investment in government-owned networks drives out private sector investment and undermines an already-challenging business case for bringing broadband to certain areas." But locals argued the current providers weren't really competing at all, with many people unable to get access or stuck with expensive, slow connections.
This needs some unpacking. First some basic microeconomics. Infrastructure tends to function as a natural monopoly due to high cost barriers that protect incumbents and deter potential sellers from entering the market. Case in point: Google Fiber. It tried to take on the incumbents in a small number of U.S. metro areas and retreated in 2016 -- due to those high costs of entry. They proved to be too much, even for a very deep pocketed, tech savvy enterprise like Google.

In functional markets, sellers and buyers are able to get together on mutually agreeable terms. That's often not the case when it comes to advanced telecommunications infrastructure since those high cost barriers creating a natural monopoly typically mean only one seller -- or two at best. And if they offer poor value service -- or none at all -- consumers are stuck.

Naturally, CenturyLink as other rent seeking legacy incumbent telephone and cable companies wish to be that one seller and want their natural monopoly franchise protected by government policy, even as they struggle with a "challenging business case" as CenturyLink concedes. But U.S. government policy should not be to protect the interests of these players who must operate on very extended, uncertain timetables for modernizing their infrastructures for the digital age due to the aforesaid business case difficulties. Instead, it should be to ensure the rapid deployment of public sector-owned fiber connections to every American doorstep like roads and highways.

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