Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age (44 page)

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 multiyear 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 the 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.

The government standardizes, regulates, provides tax subsidies, and puts price supports in place every day. By abdicating that task with regard to the utility service of high-speed Internet access, federal agencies have enabled a situation in which a few companies control America's informational destinies and policies.

Americans must rest their hopes on the generation after mine—people now in their twenties and thirties. My generation, which came of age after the breakup of the New Deal consensus, has succumbed to the idea that markets fix everything and that the government has no business intervening in things like privately provided high-speed Internet access. The very rich among my generation, the people who have the time to be involved in politics, often don't care about public infrastructure; as one of my media-industry interviewees said to me, “I don't know anyone who rides the subway.”

America needs more people who can calmly and rationally oppose the free-marketeer rhetoric. People who don't have the knee-jerk response that “we tried regulation in the 1996 Telecommunications Act and it didn't work.” People who see the public provision of high-speed Internet as a vital role of the public sector, who are willing to fight for years against vested interests to make it happen. People who can understand this issue and then channel their understanding into useful, long-term political engagement. People who will make this an electoral issue for all public offices.

The country's current political leaders operate with a sense of constraint. Convinced that they have little freedom to act, they find it increasingly difficult to act at all. Even though a core function of the modern state is to provide certain goods and services that are in the public interest—such as transportation, communication, clean water, sewage systems, and electricity—the complexities of modern-day applications and devices, and the enormous market and political power of both wired and wireless carriers, have been allowed by U.S. policy leaders to create a spectacularly dismal national communications infrastructure.

American leaders need to insist on the nation's shared interests. They need to have conviction and authority as well as a coherent set of principles and policies. At the moment, the carriers themselves seem to be in charge. Like J. P. Morgan in 1902, they view government as—at best—a peer; at worst, they have no respect for government save as a client for their surveillance and networking systems. Without a strong, sympathetic, authoritative policy, the development of widespread, low-cost, very-high-speed Internet access will not happen. Without it, America will have no free market for new investment in uses of the network. America needs a plan. The incumbents have their plan, and it is working well for them. But it is not working for the rest of the country.

Without government intervention, there would have been no Internet in the first place. Sen. Al Franken knows this. At a morning meeting with me at his office in September 2010, he sat on a couch looking a little sleepy, and recalled a speech he had recently made. “I was at an FCC meeting in Minneapolis, a public event out there,” he said, where “some folks said, ‘Keep the Internet the Way It Is.’” He laughed briefly. “You want to say, ‘That's what we're doing.’” Franken shook his head. “They'd say, ‘Get the government out of the Internet, it was developed by free enterprise.’” Franken answered himself, with humor, “'No, it wasn't, it was developed by DARPA [Defense Advanced Research Projects Agency, a federal agency].’”

He went on. “Aside from … having to deal with people who … are just reflexively anti any kind of regulation—even if it's regulation to make sure that the Internet is the way it is and it has been from the very beginning, it's the much much bigger issue of making sure that we have a free and open Internet, free for innovation, free for freedom of speech, it's desperately important to our first amendment rights and to the functioning of a democracy.” I asked him what he thought would happen in the next five years on this issue. He sat up on the couch, bristling with earnestness. “I think they'll write of this period: this was the moment in which the Internet was saved by a few brave souls who had the vision to see what was happening and took tremendous political risks and summoned up an amazing amount of courage to save not just the country but the world as we know it.” And then he laughed, self-mockery taking its turn. “Not to be self-serving.”
³⁴

Since America last tried to regulate the cable industry, in 1992, the world of communications has been transformed. The Internet has taken the place of the telephone as the world's basic, general-purpose, two-way communication medium. All Americans need high-speed Internet access, just as they need clean water, clean air, and electricity. But they have allowed a naive belief in the power and beneficence of the free market to cloud their vision. The enormous private cable distributors—particularly Comcast—on whom the country increasingly depends for high-speed Internet access have a giant conflict of interest. Comcast is a great American success story, but its interests are not necessarily aligned with those of the country as a whole. Their interest is in keeping their profit margins as high as possible by exacting tolls from any independent company or entrepreneur seeking
to use their wires, and from bundling and pricing their services so that Americans pay a lot of money for products they're not sure they need. No competitive pressure will force these companies to act otherwise. Traditional wisdom dictated that competition would protect consumers from the cable companies’ abuses and obviate the need for regulation, but things did not work out that way, and now America has the worst of both worlds: no competition and no regulation.

Incumbents always have an interest in slowing down developments that might disrupt their plans. Comcast has an interest in slowing the advent of fast, cheap, reliable, universal Internet access. The only threat it faces is action by the government to force it to respect the valuable tradition of common carriage. While concerned citizens continue fighting that battle in the courts—which will take time—all Americans can work on another idea that is as old as the electrical cooperative: encouraging towns and municipalities to oversee their own open-access, nondiscriminatory, fast fiber networks. When it comes to bringing high-speed Internet access to all Americans, the country cannot afford to fail.

NOTES

1.
As of May 2012, Comcast was the largest high-speed Internet access provider in the nation, with nearly 19 million subscribers—a nearly 14 percent gain over the previous two years. The company added nearly half a million new subscribers during the first quarter of 2012, its best quarterly result in four years. The Associated Press, “Subscriber Data from Internet Service Providers,” May 8, 2012. As will be clear from this book, Comcast is rapidly gaining subscribers as telephone companies Verizon and AT&T steadily and steeply lose copper-phone-line customers and cease expanding their fiber installations. With more people using the Internet to access bandwidth-consuming services such as Spotify, Netflix, and Major League Baseball games, copper high-speed Internet access (DSL) does not provide adequate service.