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.23 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.24 Meanwhile, the future of start-up 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.”25
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).26 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.27
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 t
o 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.28 All of this is good for the 1 percent but not for the 99 percent.
Opponents of a minimum fiber-to-the-home requirement will say that no one needs such a fast connection. But when municipal networks make fiber available, adoption rates for these connections are very high; even though fiber is a new (and rare) commodity, 50 percent of customers routinely sign up.29 America is a nation of fast adopters and innovators, given the chance; if the infrastructure is there, the American market will find uses for it. But without that fast nationwide fiber infrastructure, America will not be the country that produces the next big idea, the next Google, for the world market of fast connections.
Just as the Nixon White House staff suggested, U.S. policies should require separation between wholesale and retail access facilities and between wholesale transport and content. The government should support municipal networks and ensure the freedom within which local initiatives can operate, so that the next Terry Huval can install a city network without slogging through years of exhausting litigation.
This support should include upgrading core networks to make truly high speeds possible throughout America's communications ecosystem, preempting state laws that make municipal networks impossible, making available the long term, low-interest financing independent actors need to build and maintain fiber, and regulating the prices of wholesale transmission facilities so that competitors can count on this input when planning their own services. Municipally controlled fiber networks will route around the second-best installations now sold to residents by the incumbent cable companies.
To do this, though, America needs to move to a utility model. This is not to say there is no role for private industry. AT&T's early-twentieth-century chief Theodore Vail was right when he said in 1915 that only large corporations with extensive resources are capable of initially mass-producing communications infrastructure at low prices; economies of scale are needed. The tradeoff, as Vail recognized, is that public supervision and control are needed to encourage “the highest possible standard in plant, the utmost extension of facilities, the highest efficiency in service, [and] rigid economy in operation” by the private actors providing the public service.30 Higher adoption of high-speed Internet access will require dramatically higher capital spending. Wall Street hates this; falling returns on capital are anathema to private investment markets. But without universal fiber access, America's private market for innovation and ingenuity will cease to compete. Americans need to stop treating this commodity as if it were a first-run art film—expensive, luxurious, high-margin, and available only in urban areas. In urban areas, providers of fiber must allow competing network access operators use of their systems at fixed and reasonable rates, and the providers should be allowed to earn returns at a set percentage above their investments. They could charge the retail operators a fixed fee per unit of data; in exchange, they would need to build a sufficiently robust fiber baseline. In rural areas, independents should have easier access to capital to serve all Americans.
And these physical connections to homes must be open to all Internet service providers, so that customers have choices of operators. The rates charged can support building network hardware in difficult to reach areas. Where public subsidies are needed, they should be given in the form of reasonably priced “middle mile” optical fiber backbone installations that do not provide Internet connectivity themselves. Capacity via these middle-mile links can be leased to other carriers, local governments, schools, hospitals, and other businesses. Less-speedy wireless connections should be the permitted minimum connection only to towns of fewer than twenty thousand people and remote areas.
Moving from a high-speed Internet access model based on overcharging rich, urban residents for bundles of services while letting the state subsidize slow access for poor and rural residents to a model based on the assumption that America requires fast, standard, reliable, and unbundled fiber-optic Internet access at reasonable prices will present many challenges. But the paradoxical lesson Americans learned from both the antitrust suit against Standard Oil and the breakup of AT&T is that government intervention is necessary to ensure unfettered competition. Voluntary services from private carriers are costly gifts that do little to move the country forward.
The incumbent communications companies have no interest in switching to fiber deployments that will cannibalize their existing revenues, and they will resist this move with every tool they have. There will be years of litigation; the carriers will claim that any attempt to regulate basic high-speed Internet access is an expropriation of their property. They will claim that their rights as “speakers” under the First Amendment have been trampled on. They will attack whoever is president at the time, saying (as John D. Rockefeller did of Teddy Roosevelt) that he or she was “venturing with rash experiments” and “impeding prosperity” by “advocating measures subversive of industrial progress.”31 They will make it extraordinarily difficult to investigate their practices and books. They will embroil the transition toward coherent Internet access policy in a long, slowly moving grind. The government may need to settle some disputes with hefty payments, and carrying out the cut-over to the new system will be a multi-year effort. America will need an army of Terry Huvals.
How much would it cost to bring fiber to the homes of all Americans? Encouraged by the wireless industry, the FCC estimated in March 2010 that it would take about $350 billion. According to the Bill and Melinda Gates Foundation, all anchor institutions across America—schools, libraries, hospitals, and government buildings—could be wired with fiber for just $12 billion. Thus the $350 billion estimate seems wildly high, and the $12 billion would not cover individual residences and businesses. Corning, the American glass manufacturer, and others have estimated that the real cost of bringing fiber to most Americans is between $50 and $90 billion.32
Think about what $90 billion means in terms of the total U.S. budget. Security agencies were given a combined total of $682.8 billion in discretionary funding during 2010. The Defense Department was given $80 billion in FY 2010 just for research, development, testing, and evaluation of new weapons systems. For the same amount that the country spends on defense research in one year, America could bring access to fiber networking to all Americans for generations. Eighty percent of the cost would be labor—which is good for job growth.33 The payback to the operators would be slow; in exchange, the economy would be stimulated via a massive national infrastructure project that would set the stage for strong economic and cultural health for generations to come.
Regulation of utilities has had a long and difficult history in the United States. Every once in a while, Americans get it right. In the Progressive era, farmers who were furious at the limited opportunities to get their goods to market rose up and persuaded the country to regulate the railroads and Standard Oil. The country was networked with taxpayer-financed freeways under a Republican president, Eisenhower; when cloverleafs became crowded, the nation re-built t
he freeways with stacked levels. Someone's ox is always gored by government involvement; when the freeways were installed, the railroads were undermined. But it was worth it.
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