Lexicon of competition in advanced telecommunications

Facilities-based competition: Owners of network infrastructure compete to gain access to end user premises. Incumbents have advantage due to high competitor cost barriers to entry, first mover advantage. “Overbuilders” compete with incumbents with delivery infrastructure offering superior value, end user experience and support, reliability.

ISP competition: Internet service providers lease access to open access networks and compete to sell voice, video and data and value added services to end users.

Financial structure competition: Investor owned, market-based network infrastructure versus publicly owned or consumer utility cooperative owned infrastructure. Higher cost capital seeking relatively rapid return on investment versus lower cost, patient capital, respectively.

U.S. telecom policy faltered in early 1990s with failure of National Information Infrastructure (NII) initiative

Excerpted from Service Unavailable: America’s Telecommunications Infrastructure Crisis

Policy Failure

U.S policymaking on Internet infrastructure began shortly before the Internet was decommissioned as a government-run network in the mid-1990s. In 1993, the Clinton administration issued a policy framework titled The National Information Infrastructure: Agenda for Action.50[i] It called for the construction of an “advanced National Information Infrastructure (NII),” described as “a seamless web of communications networks, computers, databases, and consumer electronics that will put vast amounts of information at users’ fingertips.” Development of the NII, the document stated, “can help unleash an information revolution that will change forever the way people live, work, and interact with each other.” For example:

· People could live almost anywhere they wanted, without foregoing opportunities for useful and fulfilling employment, by “telecommuting” to their offices through an electronic highway;

· The best schools, teachers, and courses would be available to all students, without regard to geography, distance, resources, or disability;

· Services that improve America’s health care system and respond to other important social needs could be available on-line, without waiting in line, when and where you needed them.

Among its nine principles and goals, the policy called for extending the universal service concept to ensure that information resources are available to all at affordable prices. “Because information means empowerment, the government has a duty to ensure that all Americans have access to the resources of the Information Age,” the policy declared.

In addition to this policy document, the Clinton administration sponsored legislation championed by then Vice President Al Gore, who foresaw the coming role Internet-based telecommunications would play in the future. The Telecommunications Infrastructure Act of 1993 created a framework for its integration with the Communications Act of 1934.51[ii] The legislation, which was not enacted and died in Congress, included several findings. The first three findings stated that:

(1) it is in the public interest to encourage the further development of the nation’s telecommunications infrastructure as a means of enhancing the quality of life and promoting economic development and international competitiveness;

(2) telecommunications infrastructure development is particularly crucial to the continued economic development of rural areas that may lack an adequate industrial or service base for continued development;

(3) advancements of the nation’s telecommunications infrastructure will increase the public welfare by helping to speed the delivery of new services, such as distance learning, remote medical sensing, and distribution of health information.

The legislation envisioned Internet telecommunications services being offered over the existing telephone network and would have required telephone companies to provide access to their networks for these services on a nondiscriminatory basis and on reasonable terms and conditions.

Like the NII Agenda for Action policy document preceding it, this legislation reinforced the principle of universal service. It would have required telecommunications carriers contribute to the preservation and advancement of universal service and states to act in coordination with the Federal Communications Commission to “ensure the preservation and advancement of universal service.”

This Clinton administration policy framework, its proposed Telecommunications Infrastructure Act of 1993, as well as 1996 legislation updating the Communications Act of 1934 enacted during the administration were predicated on the convergence of legacy voice telephone service and Internet communications. A foundational policy principle was the belief that competitive market forces could be relied upon to further this convergence and expansion of Internet telecommunications services, making Internet service universally available to all Americans as voice telephone service had been for decades before.

A generation later, it is painfully apparent that it didn’t play out that way. As discussed earlier in this chapter, the high cost of constructing new infrastructure to deliver Internet-based telecommunications services prompted telephone and later cable companies to selectively deploy new infrastructure only in densely populated and relatively affluent areas in order to satisfy shareholder demands for rapid return on investment and high profits and stock dividends. Everyone else was essentially left off the new telecommunications “grid” of the Internet.

The universal Internet service goals of the Clinton administration initiatives went unfulfilled in large part because the administration failed to take into account basic economics: the high costs of constructing and operating new advanced telecommunications infrastructure that create a natural barrier to competition. Markets can only be competitive when barriers to entry are low enough to allow for the entry of new players. Without new entrants, markets cannot meet the fundamental economic definition of a competitive market: one that has many sellers and buyers. Due to these high costs, telecommunications infrastructure functions more as a natural monopoly or a duopoly. Many buyers but few sellers do not a competitive market make.

Instead of relying on market competition, the Clinton and subsequent administrations and Congresses should have put in place a plan to fund universal FTTP. Had the United States chosen that policy direction instead of relying on market forces alone, every home business and institutional premise would likely have fiber connections in 2015.

50 The National Information Infrastructure: Agenda for Action, September 15, 1993, https://archive.org/stream/04Kahle000911/04Kahle000911_djvu.txt.

51 Senate Bill 1086 (103rd Congress, introduced June 9, 1993), https://www.govtrack.us/congress/bills/103/s1086.

Sohn questions key policy premise of 1996 Telecommunications Act

Gigi Sohn, executive director of the American Association of Public Broadband, made a profound observation on U.S. telecommunications policy in a podcast interview this week with Mike Masnick of TechDirt at (around 47:50)

 “The facilities-based competition when you have cable competing against telecom competing against wireless, maybe wasn’t the best idea."

Sohn is essentially -- and astutely-- questioning a fundamental policy premise of the 1996 Telecommunications Act and once held by her former boss, Federal Communications Commission Chairman Tom Wheeler: that facilities-based competition would unleash market forces that would benefit all Americans by bringing them affordable Internet access. 

This is also referred to as "technological neutrality" in the context of subsidizing advanced telecommunications infrastructure. The assumption baked into law -- along with opening up the legacy metallic copper telephone delivery plant to Internet Service Providers -- is market competition would benefit all Americans regardless of their location by bringing them access to the then-emerging form of digital telecommunications. 

It was incorrect largely because fiber optic delivery technology existed in the 1990s that was technologically capable of modernizing the legacy copper and cable coax connections to homes, businesses and institutions. No technology has emerged since that's superior to fiber when it comes to delivering high quality, reliable digital, voice and video services.

Another fundamental flaw in this policy was seeing connectivity as a market commodity of "broadband bandwidth" instead of a natural monopoly that utilities are and where market forces don't operate to benefit buyers and instead strongly favor sellers. A single fiber connection would suffice; fiber to the premises (FTTP) should have been designated as the national telecom delivery infrastructure standard. There is no need for more than one fiber connection or other type of technologies for premise service.