Ending the Internet’s Trench Warfare
IMAGINE that for $33 a month you could buy Internet service twice as fast as what you get from Verizon or Comcast, bundled with digital high-definition television, unlimited long distance and international calling to 70 countries and wireless Internet connectivity for your laptop or smartphone throughout much of the country.
That’s what you can buy in France, and similar speeds and prices are available in other countries with competitive markets. But not in the United States. Prices here are three to five times that much for the fastest speeds — the highest prices among advanced economies.
The Federal Communications Commission’s National Broadband Plan, announced last week, is aimed at providing nearly universal, affordable broadband service by 2020. And while it takes many admirable steps — including very important efforts toward opening space in the broadcast spectrum — it does not address the source of the access problem: without a major policy shift to increase competition, broadband service in the United States will continue to lag far behind the rest of the developed world.
Take the commission’s “100 Squared Initiative,” which aims to get 100 megabits-per-second service to 100 million households, at affordable rates, by 2020. Meeting the speed target shouldn’t be difficult; industry is well on track to achieve it within the decade.
Affordability is the hard part — because there is no competition pushing down prices. The plan acknowledges that only 15 percent of homes will have a choice in providers, and then only between Verizon’s FiOS fiber-optic network and the local cable company. (AT&T’s “fiber” offering is merely souped-up DSL transmitted partly over its old copper wires, which can’t compete at these higher speeds.) The remaining 85 percent will have no choice at all.
Last year my colleagues and I did a study for the Federal Communications Commission showing that a significant reason that other countries had managed to both expand access and lower rates over the last decade was a commitment to open-access policies, requiring companies that build networks to sell access to rivals that then invest in, and compete on, the network.
These countries realize that innovation happens in electronics and services — not in laying cable. If every company has to dig its own holes, the price of entry is too high and competition falters; over time, innovation lags, and the goal of broader and better access suffers.
Existing local companies argue that they deserve control over a market because they’ve sunk enormous amounts of money into digging trenches and laying cables for their telecommunications network. And to be fair, it is expensive. But other countries are exploring creative ways for competitors to share the costs and risks of fiber investments, sometimes coupled with public investment, so that incumbent companies can accommodate competitors without unnecessarily hamstringing themselves.
Making such an arrangement work is ultimately a matter of political will. In Japan and many European countries, regulators fought hard to bring existing providers around to open access. They won, and today these countries have more competition, lower prices and higher speeds. Such political will is glaringly absent in the commission’s plan.
The 1996 Telecommunications Act did, in fact, point the United States in the direction of open access. But after eight years of intense litigation and lobbying from telephone companies, the Federal Communications Commission gave in, deciding that competition between one telephone incumbent and one cable incumbent was enough — in essence, it rejected open access as a way to create competition.
But without a strong commitment to open access, things will get worse. Because of the high price of laying their own next-generation fiber optics, would-be competitors like AT&T and Qwest have largely abandoned their goal of bringing fiber to the home, leaving the highest-speed tiers to the cable companies.
Those companies aren’t keeping their excitement quiet: a recent Time-Warner investor briefing touted the company’s ability to set higher prices in markets in which its potential competitors provide only DSL services.
The F.C.C. broadband plan doesn’t completely give up on competition. It recommends several elements that kick the can — albeit productively — down the road: for example, it would require data collection about rates, which would demonstrate how monopoly structures increase prices and hurt access.
Unfortunately, though, senior commission staff members have essentially conceded in interviews that lobbying pressure from the monopolies is too strong even to begin exploring open access right now.
They may be right. But their decision comes with real risks. If we stay the present course, the commission’s new policy will build a better wireless network around a more entrenched monopoly system, lodging an insurmountable obstacle in the path toward bringing America’s broadband network up to speed with the rest of the world.
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