A better alternative to picking winners and losers

One of our aims at the MIC Center in organizing the Democratizing the Internet symposium was to bring together visionaries whose critique runs deeper and whose political imaginary for the internet’s future is more expansive than the tinkerers. This cohort of thinkers relate the manifold maladies that plague the contemporary internet to its underlying political economy. In this view, there is a structural antagonism between the owners of the internet and its users, between the profit interests of digital monopolists and the public’s interest in an open, empowering internet. In other words: we can have an internet that works for Silicon Valley and telecom companies, or we can have an internet that works for the people. But we cannot have both.

https://techpolicy.press/another-internet-is-possible-if-you-believe-it-is/

Why do public policymakers insist on picking winners and losers when it comes to modernizing the nation’s outdated metallic advanced telecommunications infrastructure to fiber reaching most every American doorstep as copper telephone lines did in the 20th century? They typically declare the shareholders of investor owned companies the winners and the public the losers.

The usual explanation is lobbying power of the investor owned players. It’s not that simple. Policymakers know who those lobbyists represent. They are intentionally favoring that much smaller cohort of shareholders over the much larger general public interest in accessible and affordable fiber delivered advanced telecommunications. Good for the shareholders seeking rents in a natural monopoly utility market but poor public policy.

There is an alternative where both groups can win. The public sector owns the infrastructure and the private sector can make money and create jobs designing, building, operating, and offering services over it and compete via competitive public bids.

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.

Sohn: Legacy incumbent telcos, cablecos should see publicly owned open access advanced telecommunications infrastructure as business opportunity and not competitive threat.

Gigi Sohn, executive director of the American Association of Public Broadband, urges incumbent telcos and cablecos facing the significant expense of modernizing their legacy metallic delivery networks to fiber to view publicly owned, open access fiber as a good business opportunity to offer services over the fiber instead of viewing it as a competitive threat.

We are hearing a lot about public-private partnerships now. But Sohn is talking about a true partnership versus local governments merely handing over federal and state dollars to the incumbents as subsidies to build out their infrastructures but not necessarily to provide universal service to all addresses within their jurisdiction.

Here’s what Sohn said on this in a podcast interview this week with Mike Masnick of TechDirt at 47:50:

“Perhaps we should have started with open access to begin with. The facilities-based competition when you have cable competing against telecom competing against wireless, maybe wasn’t the best idea. But it’s the world we live in now and we can fix it by having more open access. I’m always encouraging the incumbents to see community broadband, open access as a business opportunity and not as a competitive threat. And some have approached me quietly and said yes, Gigi, we’d like to find ways to work together and I think that’s really refreshing.”

Facilities-based competition is arguably a wasteful use of high cost infrastructure. “It’s a waste of resources more than anything,” says Carl Åhslund, CEO of Open Infra. “Everyone fights, they have to build their own network if they want customers, but it doesn’t make sense. You don’t have two water lines.”

California, Vermont on the right path prioritizing FTTP

The California Public Utilities Commission (CPUC) presented its draft 5-year plan to connect the state’s unserved with broadband using the $1.86 billion BEAD funding it received, and at the same time warned the total $4 billion available in state and federal funding won't be enough.

Critics of “the fiber-above all” approach have called the CPUC’s concerns “unsurprising.”

“The fiber lobby has done a great job of pitching itself as kind of the end-all, be-all, and it does have a lot of great case study for it. But there are other opportunities that can come along,” said the Wireless Internet Service Provider Association’s (WISPA) state advocacy manager for California, Steve Schwerbel.

Colorado BEAD plan is ‘agnostic’ to fiber versus fixed wireless

Wireless Internet Service Providers (WISPs) have been a valuable stopgap for widespread deficits in landline advanced telecommunications infrastructure, first coming on the scene about two decades ago when telephone companies instead of fiber deployed digital subscriber line (DSL) technology that couldn't reach many customer locations over their aging copper delivery infrastructure.

But federal policy should regard them as just that and not subsidize them going forward, particularly in any major federal infrastructure improvement initiative such as the Infrastructure Investment and Jobs Act (IIJA).

They grapple with a difficult business model in which they must purchase landline backhaul at high cost or use microwave. That forces them to offer service at high monthly rates in limited areas in order to profitably operate, hindering affordable access to even what the federal government deems basic access. They also face technical challenges of terrain and foliage growth that blocks wireless signals from reliably reaching end user premises, limiting their potential customer base and promoting churn off. And most importantly, limitations on bandwidth imposed by radio spectrum physics that does not allow them to feasibly accommodate growing bandwidth demand.

California and other states such as Vermont are demonstrating the correct, forward looking approach to set fiber to the premises (FTTP) as the standard for advanced telecommunications delivery infrastructure.

Lacking goal of universal fiber, incrementalism dominates

Billions of dollars in recently announced federal grants have been called a once-in-a-generation opportunity for internet service in rural America. But the same prediction was made about other plans, and some of those fell far short of their goals.

Billions in rural internet grants could be a once-in-a generation opportunity

That’s because these are incremental and not wholistic ongoing initiatives to bring fiber to every doorstep that was connected to copper telephone lines in the previous century. They will inevitably come up short with limited timelines and budgets and “technical neutrality” favoring substandard stopgaps when this isn’t the clearly expressed goal.

Wisconsin has roughly 246,000 locations lacking access to even minimum broadband speeds of 25 megabit per second downloads and 3 Mbps uploads, and another 217,000 without access to 100 Mbps downloads and 20 Mbps uploads, adequate speeds for many households, according to the state Public Service Commission. The locations are spread across the entire state, said PSC Chairwoman Rebecca Cameron Valcq.

Once again, incrementalism is the reason. Investor-owned telephone and cable companies extend service to discrete, cherry picked neighborhoods where they expect a relatively rapid return on investment and that generate sufficient revenues to be profitable. The resulting infrastructure deficiencies cannot be neatly categorized into broad residential settlement patterns e.g., urban, suburban, exurban, rural. As Karl Bode described the issue, it’s infrastructure that is only half completed, leaving many addresses without fiber connections:

I’ve spent the better part of a life writing about how federal and state telecom regulators and politicians throw billions at companies for fiber networks that then somehow, repeatedly and quite mysteriously, never arrive. It happens over and over and over again, with only fleeting penalties for big ISPs that miss meaningful deployment goals.

California BEAD Five Year Action Plan: Substantially greater funding needed for universal FTTP.

California is unable to assure the timely construction of universal fiber to the premises (FTTP) infrastructure – estimated to cost $9.78 billion including infrastructure hardening in areas with high wildfire risk – because less than half that amount is available as federal and state subsidy funding.

That’s according to the state’s draft Five Year Action Plan required by the National Telecommunications and Information Administration’s (NTIA) Broadband Equity, Access and Deployment (BEAD) program. BEAD requires states to file “a comprehensive, high-level plan for providing reliable, affordable, high-speed internet service throughout the (state) including the estimated timeline and cost for universal service.” Additionally, the plans must include an estimated timeline and cost for universal service and planned utilization of federal, state, and local funding sources to pay for it.

“This estimate assumes no re-use of existing infrastructure (e.g., poles, conduit, manholes, etc.) in the total investment,” the draft plan prepared by the California Public Utilities Commission states. “The timeline for universal service with fiber-to-the-premises would extend beyond the BEAD funding timeline and require additional federal and state funding.”

The draft plan cautions given the Golden State’s large size, it may be challenging for BEAD-funded subgrantees to deploy infrastructure within the required five-year timeline. Additionally, “the CPUC recognizes that developing sufficient capacity may be a challenge for some potential subgrantees, including small ISPs and localities and other entities” as well as permitting challenges.

Oregon’s draft Five Year Action Plan similarly concluded that state’s BEAD funding allocation would not sufficiently subsidize universal FTTP. Like Oregon, California’s draft plan calls for the possible use of alternatives funded by the state’s $1.86 billion BEAD allocation. Those deemed “reliable” by the NTIA include hybrid fiber-coaxial cable, digital subscriber line (DSL) technology and terrestrial fixed wireless utilizing entirely licensed spectrum or using a hybrid of licensed and unlicensed spectrum.