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Paper Title

-- By AvelinaBurbridge - 03 Feb 2013

Introduction

Reflecting on this course, a dominant theme seems to be the use of the Internet to achieve freedom. An important initial requirement is ensuring that all people have access to the Internet. However, some Americans do not have access to broadband and others cannot afford it.

Current Internet service provider (“ISP”) giants prefer that people perceive broadband to be a luxury good so that they may continue to control the distribution of Internet service and extract rents in the process. Lobbying to support their interests has largely proven effective in maintaining control. However, other companies whose interests favor expanding broadband access may influence change in broadband markets on a regional or national level.

The Problem with the Current Broadband Market

The national market for broadband service is controlled by the cable industry.

What about the telecomms, Verizon, AT&T, Sprint, etc.? Talking about the structure of the US bandwidth market without observing the FCC's objective, the "convergence" oligopoly, misleads the reader.

In most regions, however, there is a single cable provider that also has a monopoly as the ISP for the area. The ISPs provide broadband service in return for fees, which are usage-based. As National Cable and Telecommunications Association president Michael Powell concedes, the pricing structure is not a reflection of issues in network congestion. Rather, Powell claims that the ISPs are concerned with recouping the fixed cost involved in building the infrastructure.

You mean former FCC Commissioner Michael Powell? Why aren't we talking about things as they are in an essay ostensibly directed at the discussion of things as they are?

While the ISPs’ behavior is enabled by high fixed costs, it is not justified by those costs. The expense of constructing a network acts as a barrier to entry that protects the current ISPs from competition. As cable and utility providers, the current ISPs did not have to make the sizable investment in infrastructure that an incoming competitor would have to, since they largely were able to leverage their existing infrastructure to accommodate Internet service. Further, earnings reports from the ISP giants, including Comcast and Time Warner Cable, suggest that they have long since recouped the cost of their initial investment.

I don't understand this paragraph. Are we discussing wired networks only? Cable systems were completely unsuitable for use as two-way data transmission networks in 1996. Everything that followed cost money, immense quantities of money. No one recouped it: many of the firms who spent it went bankrupt. We discussed all this. The text proceeds as though that in-class discussion never happened.

Yet, without competition, the ISPs are not motivated to reduce prices to reflect the true costs of continuing to provide broadband, leaving poor Americans unable to afford broadband service.

As in many parts of the world, American poor people have mobile phones, including increasingly smartphones, which provide them expensive broadband very inefficiently and at very high relative cost, which they nonetheless pay. What they do not have is computing equipment that uses their available bandwidth efficiently, to empower them and improve their economic position in society. They're not supposed to.

Moreover, because the ISPs already service customers whose demand for broadband is high and who are able to afford the high fees for consumption, there is a diminished incentive to expand the infrastructure to reach remote Americans.

Not true. There's plenty of incentive to reach them, but it isn't economically profitable to do so, because the usage wouldn't pay for the infrastructure.

Government Regulation as a Solution

Treating broadband service as a public utility has been suggested as a solution to the problem. Such a solution would require federal legislators and regulators to take action against the traditional ISPs.

"Take action"? You mean "compete with"? It's just the usual effort to prevent government from providing the goods and services it can provide more efficiently than private ownership, so as to perpetuate the myth that government can never provide goods and services more efficiently than private ownership.

Traditional ISPs have a very successful history spending millions of dollars lobbying to maintain control of the industry on their terms. Rather than regulating the ISPs to foster competition, the government treats them like natural monopolies.

Either they are natural monopolies or they aren't. The US doctrine is that they aren't, because of vibrant intermodal competition between forms of carriage. Hence the "convergence" oligopoly that Reed Hunt, Michael Powell and Julius Genachowski have all been successively working to create, stabilize and maintain.

"Fostering competition" might be about regulating ISPs. Providing competition would be about building public facilities and infrastructure. Providing communications and transport as a public good has been the engine of economic and imperial growth in our "extensive republic" since Jefferson. Would we have built the interstate highway system by "fostering competition" among local turnpike oligopolies?

Further, government regulators’ actions, such as the approval of a joint-marketing deal between Verizon and a group of cable companies, stifle competition in broadband markets.

Based on these patterns of behavior, it is unlikely that the government will spryly issue a mandate that is disfavored by the traditional ISPs. However, should the traditional ISPs lose their stronghold on the broadband market, regulators may be more likely to give way to change.

Non-Traditional ISPs as a Solution

Companies not traditionally in the ISP business may be enticed to enter if widespread, low-cost, enhanced Internet access would improve their core business.

Google, whose core business is selling advertising space, benefits when Internet access improves. Getting paid per click, Google profits from more people being on the Internet more often. The better Google is able to customize the ads to its users by observing their behavior online, the more profitable it is. Thus, Google’s interests are best served by having everybody perpetually online, using the Internet at top speeds.

Acting in its own best interest, Google created Google Fiber in an initiative to make broadband more affordable. Currently only available in their pilot market, Kansas City, Google Fiber provides broadband at today’s average speeds for a one-time construction fee of $300, to cover its fixed costs, and no monthly cost thereafter. Alternatively, it offers gigabit service for $70/month, a fraction of the cost that other ISPs charge for inferior service.

In response to Google’s announcement to become a Kansas City ISP, Time Warner Cable began reducing the prices it charges for broadband and increasing the bandwidth so that it can stay competitive. More, telecommunications companies in the area began competing with Google to outfit the community with fiber optic hardware.

In six other communities, GigaBit? Squared, a broadband Internet startup, is working to provide access to improved broadband for the benefit of innovative providers of health care and education services.

Conclusion

If the Internet is to be a tool of freedom, it must be available to all people. Although dominant players in the broadband market prefer market monopolies, which allow them to control and profit from the market, other industries are applying pressure on the traditional ISPs to provide enhanced service at affordable rates. As non-traditional ISPs find it profitable to enter the broadband market, the dominant players are forced to compete.

Hopefully, as more markets are infiltrated by non-traditional ISPs, the way will be paved for all levels of government to foster expansion of affordable broadband service to all Americans.

Google isn't a non-traditional ISP: it's a data-mining company that uses immense bandwidth reaching its victims, primarily with "television that watches you watch it," which is very correctly called "!YouTube." Its relationships with bandwidth providers are designed to prevent them from hijacking it. The soft merger with Verizon, which I discussed at some length in class and which should be mentioned here, has long protected it against bandwidth holdups, as has its immense investment in dark fiber early last decade, when they were already making big money on advertising, and the carriage-hawkers were going bust. Using bits of that dark fiber to reach unmined brains and to force local telecomms to play ball with them isn't a source of new bandwidth policy, any more than were their bluffs about purchasing open spectrum at FCC auctions.

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This is a good start on the development of a realist look at the US bandwidth market. What it needs is mostly more reality, much of which I provided in class.

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