Misunderstanding of market economics underlies U.S. telecom infrastructure deficiencies

Fiber-Optic Network Construction Highlights Widespread Lack of Broadband in Salinas Valley, Calif.: Joel Staker of the Central Coast Broadband Consortium estimated the project would cost between $20 million and $30 million, half of which the group was hoping the USDA would be capable of funding.

After quietly listening throughout the entire discussion, Mensah thanked the stakeholders for their time and commitment. She also said that the USDA no longer had grant money available for such projects, but a long-term loan was not out of the question.

“I can see that the scale of need and gaps in service are severe in your region,” Mensah said. “However, I am concerned that if government steps in to accomplish this we would be displacing private industry, which is something we are very careful not to do.”

This story illustrates the circular thinking and poor grasp of market economics impeding the construction of badly needed telecommunications infrastructure in the United States. Areas such as this one near California's Silicon Valley suffer from last mile infrastructure gaps due to a lack of investment by the private sector. Consequently, those adversely affected look to the public sector for help.

Public officials however are reluctant to provide funding, concerned as the USDA official quoted that doing so would deter private sector investment. However, if private sector interest in building last mile infrastructure was there, the "last mile problem" wouldn't exist in the first place and the locals wouldn't be looking to the federal government for assistance.

This story also points up the misguided thinking that once middle mile fiber is in place and anchor institutions such as government offices and schools are connected, the private sector will step in to build fiber to the premise to serve the rest of the community. That typically doesn't happen because the ROI doesn't pencil out quickly enough. That economic reality goes to the heart of the problem. Many people including public officials have difficulty understanding that market failure can and most often does occur for telecommunications infrastructure due to its high costs and lengthy wait for ROI.

FCC declines to forbear universal service requirement; AT&T complains

The FCC’s Half-Shoveled Sidewalk | AT&T Public Policy Blog

This blog post by AT&T notes that it wants the U.S. Federal Communications Commission to relieve it from the obligation to provide landline voice service to all premises in its service territory requesting it, even those in areas not eligible for subsidization through the FCC's universal service subsidy program, the Connect America Fund (CAF). While the subject of the requested relief is voice telephone service, it also extends to Internet service now that the FCC reclassified it as a common carrier telecommunications service subject to the Communication Act's universal service obligations under its 2015 Open Internet Order. 

Although not mentioned in AT&T's blog post, that's the real issue here. AT&T does not want to invest in upgrading and building out its infrastructure to bring landline Internet service to all premises in its service territory -- service that would also be capable of delivering voice service.

Germane to AT&T's complaint are those communities where the cost of deployment is relatively high, but not high enough to justify universal service fund subsidies intended for high cost rural regions. There are a lot of these neighborhoods in its vast service territory because AT&T continues to rely on limited range, obsolete (in its own words) DSL technology to deliver Internet service over aging copper plant that cannot reliably serve premises more than a couple of miles from its central offices or field distribution nodes.

The question going forward is whether the FCC pursuant to its Open Internet order will enforce the universal service obligation on AT&T when a consumer living in one of these unserved areas beyond the range of DSL technology requests Internet service. So far, the FCC has shown no inclination of doing so as AT&T allows its legacy copper plant to rot on the poles. Consumers in these redlined neighborhoods will continue to face the worst of all worlds: no service from their nominal ISP, nor meaningful regulatory action to remedy their plight.

Time to switch to fiscal economic stimulus -- starting with a U.S. telecom infrastructure initiative

If the United States had instituted a fiscal economic stimulus program to build fiber optic telecommunications infrastructure to reach every American home, school and business when the economic downturn began in 2008, it might well have completed the job by now. And for a mere fraction of the $3.5 trillion the U.S. Federal Reserve Bank spent to buy bonds under its quantitative easing program. The program has ended amid indications this monetary stimulus didn't have its intended effect with continued slow economic growth and slack in the labor market.

Now that monetary stimulus has proven less than effective, it's time to take a closer look at fiscal economic stimulus. For starters, a massive federal telecommunications infrastructure initiative to achieve the previously mentioned goal to fiber up the nation. Many of those dollars invested in this critical 21st century infrastructure would return to the federal treasury, thanks to the multiplier effect of creating new businesses and jobs.

Why U.S. FTTP infrastructure deployment won't follow the 20th century timeline for electrification

Here's how a colleague thinks Susan Crawford's forecast of a long winter of telecom discontent might play out in the coming years as the nation wanders in the darkness unlit by fiber to the premise. He believes "very, very few cities and no counties" have the money or the political will to pursue FTTP telecommunications infrastructure. The construction of FTTP infrastructure reaching all American homes, schools and businesses, he predicts, will play out over decades as electrification did in the early part of the 20th century. There will be 20 or 30 years of isolated private or municipal builds, followed by another 20 or 30 years of federally funded infill to cover the remaining unfibered areas. 

I disagree with the comparison to the deployment of electrical distribution infrastructure in the previous century. Information and communications technology is moving at a far faster pace in the 21st century. We're seeing robust, pent up demand for Internet service that is far outstripping the ability of Internet service providers to deliver it at reasonable, affordable rates due to widespread market failure. Americans simply will not tolerate such a prolonged wait for universal FTTP service.

Politics also argues for a much more compressed timeline than my esteemed (and anonymous for now) colleague envisions. The United States is close to or already at a political tipping point in terms of protecting the de facto monopolies of the legacy incumbent telephone and cable companies -- among the most hated and least respected institutions in the nation. That inevitable tipping point is when their lobbying currency is greatly devalued relative to consumer and business demand for Internet services that grows stronger by the day. 

Finally, the pace of technological progress is far faster than in the early 20th century. A disruptive technological development could come along that would drastically reduce the time and cost of deploying FTTP. For example, super strong and lightweight carbon fiber or nanotube sheaths that could be deployed on poles by remotely operated drones once the poles are made ready. That would greatly reduce labor costs, which is the major FTTP cost challenge. As well as maintenance costs since the sheaths would be wind resistant and squirrel proof.

America’s winter of telecom discontent calls for strong, unified federal intervention to bring the spring

The United States faces a long, dark winter of telecommunications discontent if it continues to rely upon the tender monopolistic mercies of the legacy telephone and cable companies. If the light of spring is to come and comprehensive construction undertaken to address the nation’s accumulated telecom infrastructure deficits and build fiber optic connections serving all American homes, schools and businesses, the federal government must take a predominant role relative to its funding and construction. So argues Susan Crawford, who urges a dual pronged strategy utilizing federally subsidized bonds paired with a program to fund and oversee regional infrastructure builds.

Crawford and I are on the same general page here. In my recent eBook, Service Unavailable: America’s Telecommunications Infrastructure Crisis, I call for a federal telecommunications infrastructure initiative to fund universal fiber optic infrastructure as a fully federally funded public works project, not unlike the federal highway construction initiative of the 1950s. Crawford proposes something similar, but also harnessing private investment capital via a regionally administered federal telecom infrastructure development and finance agency, funded by federally subsidized bond proceeds.

Crawford and I agree fiber is the only option for ensuring the nation has the telecom infrastructure it needs now and for the future. We can’t get there trying to subsidize yesterday’s “broadband” speeds or hoping that somehow the laws of physics can be overcome and wireless and satellite will magically offer a cheap workaround. We also agree a unified, federal strategy is needed that also takes a regional approach. 

“[T]o avoid waste and inefficiency, we need to get it right from the beginning — and not just hope we’ll get there with our current patchwork quilt of federal, state, and local government agencies and private utility planners, each with different goals and motivated by different incentives,” Crawford writes. She couldn’t be more correct on that point.

New year, same FCC finding: Advanced telecom infrastructure not being deployed in a reasonable and timely fashion

As it has since 2010, the U.S. Federal Communications Commission is expected to report this month that advanced telecommunications infrastructure is not being deployed in a reasonable and timely fashion. Consequently, 34 million Americans still lack access to landline premise service with 39 percent of the nation's rural population left without service, according to a draft progress report required under Section 706 of the Communications Act issued this week.

On the heels of a Pew Research Center study finding that premise service connections have leveled off as more Americans exclusively use mobile wireless devices for Internet access, the draft FCC report notes these consumers tend to perform a more limited range of tasks and are significantly more likely to incur additional usage fees or forgo use of the Internet.

AT&T exec: Mobile wireless primary driver of fiber deployment (and John Donovan's inapt cite of Moore's Law)

Donovan: AT&T Beating Moore's Law | Light Reading: Part of achieving those capex gains while continuing to meet rising demand for bandwidth is AT&T's integrated planning. While its Project VIP local fiber deployment initiative has wound down, the company is still able to push fiber more deeply into some areas, based on the need for business services or backhaul for cell towers and small cells, Donovan said.

"We have a really good cost curve on incremental costs for wireless," he said. "We are still putting fiber out where it is economic -- that is a big part of our program."

Yet another project to nominally push fiber to premises -- like Project Pronto and  Project Lightspeed before it-- is going away as AT&T like other big telcos shifts its focus away from residential and small business premise service to the mobile segment.

Donovan's invocation of Moore's Law unfortunately perpetuates the incorrect analogy of telecommunications service as a consumptive utility like electric power or natural gas. In the world of telecommunications, Moore's Law more properly applies to the growth in consumer bandwidth demand as I blogged in 2010. Additionally, Moore's Law applied to the total microprocessor market unlike the segmented markets employed by legacy telephone companies like AT&T.