President Obama’s call this week to the U.S. Federal Communications Commission to regulate Internet service providers as common carrier telecommunications providers provoked Sen. Ted Cruz of Texas to disapprovingly dub it “Obamacare for the Internet.”
A political shot to be sure. But what if the high cost of building fiber to the premise infrastructure to all American homes and businesses were subsidized using tax credits such as those used to make individual health insurance more affordable to low and moderate income households under the Patient Protection and Affordable Care Act?
Instead of directly subsidizing Internet providers to build infrastructure in high cost areas using the FCC’s Connect America Fund – which many providers have spurned or only selectively accessed – customers in high cost areas would receive the subsidies and not providers.
Providers would be able to charge higher rates (not based on bandwidth use or connection speeds) for fiber connections to homes and businesses in high cost areas. Owners of these properties could then use the telecom tax credits to offset the higher cost of getting them connected.
That would create incentive for these premises to get online while also reducing the business risk of the current subscription-based models that are heavily dependent on how many customer premises sign up for service and which act to inhibit infrastructure construction in higher cost areas of the nation.
What do you think? Share your comments.
Analysis & commentary on America's troubled transition from analog telephone service to digital advanced telecommunications and associated infrastructure deficits.
Showing posts with label Patient Protection and Affordable Care Act. Show all posts
Showing posts with label Patient Protection and Affordable Care Act. Show all posts
Friday, November 14, 2014
Monday, May 26, 2014
Like health insurance, tipping point of market dysfunction will come for premise Internet service
- Low customer satisfaction levels and high churn
- Rising prices and poor value
- Little choice among providers
- Market segmented into haves and have nots
For the pre-Affordable Care Act individual health insurance
market, a tipping point was reached in early 2010 when a California health plan
issuer raised premium rates by nearly 40 percent for some plans. At the same
time, millions of Americans not covered by employer or government health plans
couldn’t purchase coverage at any price due to pre-existing medical conditions.
Today, millions of Americans face the same predicament when
it comes to landline premises Internet service because none is available for
sale to them -- two decades after most people accessed the Internet by slow,
dialup modems still being used today. Mirroring poor customer satisfaction with
health insurers, consumers give low
ratings to telephone and cable companies.
Like the individual health insurance market, dissatisfaction
with premise Internet telecommunications service will soon reach a tipping
point that forces positive change. Tipping points are hard to predict precisely.
They occur when the right combination of events and public sentiment converge at
exactly the right time and place.
For landline Internet premise market dysfunction, it’s
inevitable that point will soon be reached. It’s only a question of how and
when we’ll get there.
One thing’s for certain. When a market for a product or
service of vital importance to the nation’s economic well-being can’t remedy its
own dysfunction, massive government intervention becomes more likely.
Monday, January 13, 2014
Strong parallels between individual health insurance and Internet service markets
Telecommunications providers, consumers and policymakers
should be aware of the strong parallels between wireline residential Internet service
and the individual health insurance marketplace as it existed prior to the market
reforms of the Patient Protection and Affordable Care Act.
Both residential Internet providers – and formerly individual
health insurers -- shared a business model whose success is ironically predicated
on not selling to all potential customers in their market areas. The underlying principle is risk aversion: vendors believe they cannot adequately manage the risk of loss associated with an expanded market. A smaller, more certainly profitable customer base is better than a larger one notwithstanding the potential for greater revenues.
Before the Affordable Care Act outlawed the practice starting this month, individual health insurers employed underwriters charged with selecting relatively healthy individuals less likely to incur high medical costs, refusing to offer coverage those who didn’t meet specified underwriting standards. Similarly, wireline residential Internet service providers offer service to one address while declining to serve another nearby – even as close as quarter of a mile away or less. As individual health insurers did, these providers reject the latter residences (as well as some small business sites) as more costly to serve and thus less potentially profitable. Their infrastructures are engineered and built to accommodate preferred addresses and redline the rest.
Before the Affordable Care Act outlawed the practice starting this month, individual health insurers employed underwriters charged with selecting relatively healthy individuals less likely to incur high medical costs, refusing to offer coverage those who didn’t meet specified underwriting standards. Similarly, wireline residential Internet service providers offer service to one address while declining to serve another nearby – even as close as quarter of a mile away or less. As individual health insurers did, these providers reject the latter residences (as well as some small business sites) as more costly to serve and thus less potentially profitable. Their infrastructures are engineered and built to accommodate preferred addresses and redline the rest.
The problem with this business model for individual health
insurers is that medical underwriting limited the size of the pool of individuals
and families who could pay premiums to cover claims costs. Consequently, the
pool and the number of healthy people staying in it shrank to the point it was
on the verge of collapse when the Affordable Care Act was enacted in 2010. The federal
law intervened to head off market failure by requiring health plan issuers to sell
to anyone applying for coverage regardless of medical history or health condition.
The restrictive marketing practices of Internet service
providers bring about a similar problem. Just as insurance pools are more
viable with more people in them, telecommunications networks are more valuable
when more people are on them or able to get on – both for providers and
subscribers. This principle is known as Metcalfe’s Law. Those
who argue for broader deployment of fiber to the premise (FTTP) Internet infrastructure
carry over the Metcalfe principle to economic activity and education. Greater
numbers of premises with modern Internet access can lead to more online commerce
and business formation. Increased access to information and educational
curricula, similarly, lead to a more informed and better educated society.
As time goes on and these broader benefits – and conversely costs
of not having affordable premises Internet access – become more evident, it
could lead to large scale market reforms such as are now reshaping the individual
health insurance market.
Subscribe to:
Posts (Atom)