Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age (43 page)

As a result of the depredations of the electrical utilities, we came to understand that public goods like electricity (and railroads and highways) must be overseen by the public (and funded by the public) if they are to remain publicly useful and generate increasing economic and social returns for all. Why have Americans stopped applying this thinking to communications?

After the Great Depression, the Federal Communications Commission was given the job of providing America with a high-quality, general-purpose communications system at reasonable rates. For fifty years, the state oversaw the development of phone service. Providers were prohibited from entering into other businesses and were obliged to serve the public on nondiscriminatory terms. Phone lines used narrow bandwidth to make telephoning cheap for conversational use. Everyone, by and large, had the ability to make a phone call to everyone else.

In the 1970s, communities began handing out exclusive franchises to cable companies that could bring remote entertainment into homes. Over the next twenty years, the cable companies consolidated and swapped system franchises so that they would each control certain markets. By the mid-1980s, the phone companies, anxious to get into the long-form entertainment business, asserted that they could not attract the capital needed to expand their bandwidth to allow video delivery unless they were released from the conditions imposed on them by the AT&T breakup.

As communications companies converged on bundled phone and entertainment services, legislators and regulators struggled to constrain the companies’ potential gatekeeper control and ability to raise prices. The arrival of commercial Internet communications in the mid-1990s posed a threat to both the phone and cable companies; eventually, pummeled by endless litigation, cajoled by well-paid lobbyists, and spurred on by the promise of consumer-protecting competition among various modalities of Internet access—cable, phone, wireless, satellite, broadband over powerline—the FCC deregulated the entire sector over a five-year period beginning in 2002. The belief animating deregulation was that competition would protect Americans, and in 2002 there was indeed rough parity—speed and price—between the cable companies and telephone companies providing Internet access.

But cable companies soon found a technical way to upgrade their networks to provide far higher bandwidth—perhaps a hundred times faster than what was possible over copper wires—at much lower expense than the phone companies incurred replacing their phone lines. Now Comcast, like all the cable distributors, is providing a single, all–digital communications, all–Internet Protocol pipe. A small portion of that pipe, four out of hundreds of channels, is devoted to the public communications platform that is now the common medium around the world: the Internet.
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Comcast has the incentive and ability to minimize the impact of Internet-based communications on its video packages, and to control, constrain, and cripple any Internet business that threatens its plans.

For their part, the phone companies are riding a wave of explosive growth in wireless data, and the two largest have carved off this separate marketplace for themselves. If anything, the wireless situation with regard to Internet access is even worse. Wireless carriers have no obligation to refrain from discriminating in favor of their own business plans.

Here is the problem: The American copper wire telephone system is becoming obsolete, as consumers move to cellphones for voice service and the physical switches used in that network reach the end of their useful lives. The telephone companies who built that regulated network are hoping to get rid of the obligation to maintain it now that cable has decisively won the battle for high-speed wired communications in America. Some municipalities are trying to install fiber-optic networks for themselves, but
their efforts are routinely squelched by lobbying campaigns and other tactics launched by incumbent network providers at the state level. Because America has deregulated the entire high-speed Internet access sector, the result is expensive, second-rate, carefully curated wired services for the rich, provided by Comcast and Time Warner; expensive, third-rate, carefully curated wireless services (or no services at all) for those who cannot afford a wire; close cooperation among the incumbent providers of wired and wireless services; and no public commitment to the advanced communications networks the rest of the developed world is adopting. At the same time, the longtime consensus in the United States that basic, nondiscriminatory, affordable utility communications services should be made available to all Americans is being dismantled, state by state—just as America's peer countries are coming to the view that it is a national priority to replace copper with fiber for all of their citizens as soon as possible. As Bernstein Research noted in a 2012 report, “What is most remarkable, in our view, is how little attention [the end of the copper phone network] has received. When confronted with the question ‘Will we still operate a national scale low-bandwidth wired network in 20 years?’, most investors and policy makers quickly acknowledge that the likely answer is ‘no.’ But when faced with the question of ‘what should be done about it?’—one draws blank stares.”
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None of this is good news for consumers or for American innovation.

The sea change in policy that led to the current situation has been coordinated over the past twenty years by legions of lobbyists, hired-gun economists, and credulous regulators. The cable companies have no incentive to upgrade their core network hardware to ensure that advanced fiber connections are available to every home throughout the country. Communications companies describe globally competitive high-speed access as a luxury, just as the private electricity companies did a century ago.

Yet communications services are now as important as electricity. Today if you asked American mayors what technology they most want for their city, the majority would say, “affordable high-speed Internet access.” And they want these networks not simply for the jobs created to construct them but because the Internet brings the world to their community. High-speed Internet access gives towns and cities online commerce and services, the
ability to reach world markets, to invent and innovate, to learn and communicate. It brings a wealth of economic activity and information. But despite these manifold benefits, Americans continue to treat such services as the exclusive domain of private monopolies and as luxuries obtainable only by the wealthy.

Not coincidentally, the United States has fallen from the forefront of new developments in technology and communications. It now lags behind countries that long ago defined communications as a public, and publicly overseen, good. America is rapidly losing the global race for high-speed connectivity, as fewer than 8 percent of Americans currently receive fiber service to their homes.
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And the country has plateaued: adoption gains have slowed sharply, even though nearly 30 percent of the country is still not connected.

Not surprisingly, cost is the most commonly cited reason people in America do not subscribe to high-speed Internet access, and nonadoption is closely tied to economic status; lack of data access reinforces other inequalities.
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Meanwhile, the future of startup businesses, independent programmers, the computing industry, the quality of life of many Americans, and free expression online are all in jeopardy; neither businesses nor people can count on fast, open access to new markets, new ways of getting an education, new ways of obtaining health care, and new ways of making a living.

It is clear from extensive evidence around the world that this publicly supervised infrastructure should be made available to everyone and provided on a wholesale basis to last-mile competitors in order to keep speeds high and prices low. Yet vertically integrated incumbent monopoly communications providers have every incentive to discriminate in favor of their own information and content—to the detriment of innovation coming from the rest of us, and to the detriment of the flow of information generally. America has emerged decades after the breakup of AT&T with a communications system that has all the monopolistic characteristics of the old Bell system but none of the oversight or universality.

Yet this inequality is not irrevocable. It is not a product of “market forces” absent human intervention. But to fix it, a new approach is needed.

The first step is to decide what the goal of telecommunications policy should be. Network access providers—and the FCC—are stuck on the idea
that not all Americans need the high-speed access now standard in other countries. The FCC's National Broadband Plan of March 2010 suggested that the minimum appropriate speed for every American household by 2020 should be 4 Mbps for downloads and 1 Mbps for uploads. These speeds are enough, the FCC said, to reliably send and receive e-mail, download Web pages, and use simple video conferencing. The Commission also said that it wanted to ensure that by 2020, at least 100 million U.S. homes have “affordable access to actual download speeds of at least 100 megabits per second and actual upload speeds of at least 50 megabits per second.”
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Such rates would not be difficult. Comcast is already selling its hundred-megabit service in the richest American communities, but it costs $200 a month (or just $105 if you buy the bundle—a 50 percent discount for keeping the company's business model in place).
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In a sense, the FCC adopted the cable companies’ business plan as the country's goal. Its embrace of asymmetric access—far lower upload than download speeds—also serves the carriers’ interests: only symmetric connections would allow every American to do business from home rather than use the Internet simply for high-priced entertainment.

Other countries have chosen different goals. The South Korean government announced its plan to install one gigabit (Gb) per second of high-speed symmetric fiber data access in every home by 2012. Japan, the Netherlands, and Hong Kong are heading in the same direction. Australia plans to get 93 percent of homes and businesses connected to fiber, ensuring download speeds of 100 Mbps; the other 7 percent, in more remote areas, will get a 12 Mbps wireless or satellite service. In the United Kingdom, a 300 Mbps fiber-to-the-home service will be offered on a wholesale basis. As we have seen, even some U.S. communities (Chattanooga, Kansas City through Google) have made this leap, believing that their citizens want and will need 1-Gb symmetric connections in their homes.
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The current 4-Mbps Internet access goal is unquestionably shortsighted. And when the public agencies’ lack of technical foresight is combined with the carriers’ incentives to keep their incumbent market structures in place, the 4-Mbps prediction for minimum universal Internet access service in America takes on a darker hue.

If this speed remains the country's goal for 2020, only the carriers’ interests will have been served. They can already provide 4-Mbps wireless service to most of the country, and they can extend it to the rest without much effort. (Though they are likely to demand heavy subsidies from the state to do so.) If investing in high-speed Internet access can be compared to the Eisenhower administration's investment in freeways, a promise of 4 Mbps is like a promise to surface all dirt roads with asphalt; it will make the ride smoother, but drivers will still be stuck in a single lane behind the feed truck. It won't give them multi-lane highways.

At the same time, a 4-Mbps goal gives corporate America a pass; it allows the cable distributors to assert that they have already made all the necessary investments. They are poised to provide the richest Americans with profitable asymmetrical high-speed access while leaving ample wiggle-room for their own “premium” bundled services.

As a result, the firmly entrenched digital divide, with rural, poor, and minority areas poking along with publicly subsidized 4-Mbps services while urban and suburban residents pay as much as they can spare to access high bandwidth, will remain the status quo. And there America will stagnate, while other countries rocket ahead.

What does America really need? For starters, most Americans should have access to reasonably priced 1-Gb symmetric fiber-to-the-home networks. This would mean 1,000-Mbps connections, speeds hundreds of times faster than what most Americans have today. The copper-based lines are not up to the gigabit task because they cannot handle additional data. As we have learned, wireless connections work well for small screens carrying low-resolution images but cannot support the data rates that will be needed for each home. Only fiber will be able to cope with America's exponentially growing demand for data transmission.

Put it this way: using dialup, backing up five gigabytes of data (now the standard free plan offered by several storage companies) would take twenty days. Over a standard (3G) wireless connection, it will take two and a half days; over a 4G connection more than seven hours; and over a cable DOCSIS 3.0 connection an hour and a half. With a gigabit FTTH connection, it will take less than a minute. And if the fiber needs to be upgraded, all it takes is upgrading the electronics.

If America's communications infrastructure were the subject of concerted investment resulting in a fully fiber-based network, shipping large files to the cloud would be trivial: Hollywood blockbusters could be downloaded in twelve seconds; real-time video conferencing would become routine; gaming applications could become even more immersive; 3D and Super HD images could be in every household. Imagine businesses, both large and small, being able to run their enterprises using HD video conferencing or making online backups that took hours instead of days. Americans could be connected instantly to their co-workers, their families, their educational futures, and their health-care monitors.

But for this, America needs reliable, symmetrical gigabit-level connections to residences and business sufficient to support three or more two-way video streams. And America needs it now: the computing industry is working toward a data deluge that the country's slow, fixed-line connections will be simply unable to handle. Right now, the nation's backward-looking infrastructure is a bottleneck for the future of computing. Amazon and the online backup service Mozy have to send backup disks through the mail because the country's infrastructure is not up to the task of shipping large amounts of data. Services are becoming cloud-based—remote from users. But rather than update their core networks, carriers are imposing usage-based billing schemes that allow them to parcel out artificially scarce bandwidth; rather than expand, they're propping up their share prices and extracting more money from consumers.
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All of this is good for the 1 percent but not for the 99 percent.