Comments Filed on Improving International Comparisons of Broadband Development

I filed comments in the FCC International Bureau's inquiry (IB Docket No. 10-171) into how it can improve data collection and assessment of international broadband development.  Here is a summary of my recommendations:

(1)        Rather than compare the United States with other nations using composite national data, disaggregate the international data into several geographic and demographic categories.  The International Bureau should benchmark urban, suburban, exurban and rural communities in foreign locales in terms of broadband cost, transmission speeds, download caps, and other variables.

(2)       Use a credible average of delivered broadband speeds rather than advertised speeds.  A variety of demand and technological factors affect broadband service performance.  Advertised bit rates typically contain a disclaimer stating that actual performance may vary.  Because nations typically do not sanction carriers for overstating what subscribers can expect, the Commission should try to determine what bit rates subscribers can reasonably expect to receive.

(3)       The FCC must separate the data collection process from policy making so that data collection can occur without implicit or explicit coercion to support a pre-determined outcome.  Rather than consider the data collections and statistical compilations of other organizations a threat or challenge, Commission staff should try to replicate such findings and identify factors contributing to any disparities.  U.S government officials have challenged the OECD and other organizations in efforts to save face, or mitigate the political damage from reports showing mediocre national performance.  Instead, the Commission should try to understand the basis for disparity in performance statistics.

(4)       Limit redactions, trade secret designations, and other sanitization of broadband information so that researchers have access to useable and replicable data.  No trade secrets would be disclosed if the Commission identified the types of carriers serving specific areas by technology used.

(5)       Expand broadband data collection and benchmarking in the context of overall broadband leadership, quality and national readiness to compete in information industries.  Commission staff should examine the variables used in the comparative assessments generated by such organizations as Cisco, the Internet Innovation Alliance, and the Information Technology and Innovation Foundation.

(6)       Balance more easily quantifiable supply-side measurements of the broadband market with demand-side measurements that attempt to assess national digital literacy, computer ownership and access, e-government and other technology incubation efforts, as well as private/public partnerships in stimulating interest in, and use of, Internet-mediated services.

(7)       Conduct a thorough literature research with an eye toward identifying best practices in broadband data collection and dissemination.  This exercise will help Commission staff determine what are the key variables for multi-year tracking.

The National Broadband Plan--A Work in Progress

The National Broadband Plan represents a thoughtful, albeit belated, recognition that the U.S. federal government can stimulate both the broadband supply and demand through stewardship and vision. However, the Plan does not signal a major shift in strategy, the infusion of billions more in subsidies, or a departure from reliance on marketplace forces to allocate most resources to broadband development. The Plan does make the case for many short and long term adjustments in policies, many of which the FCC cannot effectuate unilaterally in light of the need for a legislative mandate, or cooperation with other government agencies and stakeholders. The Plan offers hope that some leaders in the U.S. government now recognize the need to adopt global best practices, many of which require the national government to engage in sophisticated analysis of when to become more involved in broadband development, but also when to remove regulatory underbrush that retards timely and flexible adjustments to the mix of radio spectrum available.

The FCC officially recognizes that broadband means something much faster than 200 kbps. The Plan proposes an ambitious “100 squared” goal of having 100 million households with access to 100 Mbps download service by 2020 with a far less ambitious 4 mbps service of actual download speed available to nearly all residents as soon as possible.

The National Broadband Plan offers scores of thoughtful and probably positive policy changes, but many of them require coordination among federal agencies, newfound zeal in finding ways to use spectrum with greater efficiency, and the need to make changes quickly. Dislodging the status quo will prove daunting, because the Plan offers little new inducements for government agencies to refrain from inefficient spectrum use bordering on hoarding and for incumbent wireline carriers to welcome a shift in universal service funding from narrowband telephone service to broadband.

The Plan operates under the flawed presumption that broadband competition exists, or soon will flourish, with particular emphasis on wireless broadband options that currently have failed to match the bitrate deliver speeds of wireline options. Additionally, the Commission appears content with finding new wireless broadband spectrum for incumbent carriers, without considering whether the scope of competition, as well as broadband access and affordability might be enhanced by reserving some newly available spectrum for market entrants. The Plan avoids addressing network interconnection, neutrality and sharing requirements that other nations have adopted with measureable success.

New Book Galley Proof Edit Completed

My blogging absence has occurred largely because of teaching, consulting and book manuscript work. I am glad to report completion of the galley proof edits of my new Yale University Press book entitled: Winning the Silicon Sweepstakes--Can the U.S. Compete in Global Telecommunications?

The book asks and answers the following questions:

Why does the United States demonstrate global best practices in some information and communications technology markets, such as software and computing, but woefully lag in others, such as wireless and broadband services?

If the information revolution was supposed to “change everything,” how did more than one trillion dollars in investment largely evaporate in three years?5

How can incumbent telephone companies successfully argue the need for governments to create incentives for investment in next-generation networks and at the same time claim that the existence of robust competition eliminates the need for any other sort of government involvement?

Why have nations failed to bridge the “digital divide”6 despite having created subsidy mechanisms to invest billions annually in never-achieved solutions?7

If the ICE marketplace has become so robustly competitive, where are the usual consumer benefits of lower prices, diverse choices, and responsive customer service?

How can incumbent ventures regularly avoid the adverse consequences of failing to anticipate developing trends and serve new markets by belatedly acquiring or extinguishing most competitive threats through mergers and acquisitions?

Why have some nations, including the United States, lost their comparative and competitive advantage in ICE products and services?

Why does it look as though the next-generation Internet will be less open, less neutral, and less accessible, possibly turning the playing field into “walled gardens” of content and services offered by incumbents keen on disadvantaging newcomers offering “the next best thing”?

The book will be available in the spring.

Insights From the National Cable Show

I had the opportunity to attend the National Cable and Telecommunications annual convention in Las Vegas. This show offers me an opportunity to kick the tires of new technology and get a sense of where the industry is headed. It also helps me replenish the cache of swag I use as door prizes in my classes at Penn State.

Here are the key take aways I got from the show:

Cable can more easily enhance its broadband platform than telcos simply by bonding about 12 MHz to the existing 6MHz (one anbalog television channel) currently allocated for broadband. I saw how cable can offer best practices 120+ megabits per second throughput using the DOCSIS 3.0 standard. This confirms what a transitional and inferior technology the telcos offers with DSL.

In a quasi-public session I swear I heard a senior officer of a major cable Multiple System Operator mention that broadband offers margins in the 98% range.

Cable managers understand full well that consumers expect to have access to compelling content anytime, anywhere and via any device. The operators expect new content access opportunities to be "additive," i.e., leading to more consumption rather than cannibalizing revenue streams.

Cable executives believe it will be easier for them to generate positive cash flow from non-video markets than it will be for telcos to master the content business.

Having not visited Las Vegas in 10+ years I enjoyed the people watching even as I marveled at the tawdriness of the place.

Lies, Damn Lies and Broadband Statistics

For the better part of a decade, the United States lagged in broadband development largely because stakeholders invested in long haul capacity and failed local loop alternatives. Incumbent telephone company managers have emphasized regulatory uncertainty and “confiscatory” FCC sharing requirements, but the fact of the matter is that over $1 trillion was invested in the dotcom boom, a significant portion of which targeted burgeoning demand for local and long haul bandwidth.

Now that regulatory uncertainty provides no explanation for the United State’s comparatively poor performance in broadband market penetration the federal government has started to shoot the messenger reporting continuing poor penetration rates. Both the National Telecommunications and Information Administration and the State Department are challenging the statistics compiled by the Organization for Economic Cooperation and Development that ranks the U.S. 15th globally in broadband subscribers per 100 inhabitants (down from 12th last year). See
http://www.oecd.org/document/7/0,2340,en_2649_34223_38446855_1_1_1_1,00.html.

The State Department has made the issue something of a diplomatic affront to the U.S. See http://www.ntia.doc.gov/ntiahome/press/2007/State_OECD_042407.pdf NTIA offers explanations why scope of broadband access in places such as government offices and coffee shops means that the OECD ranking underestimates market penetration. See http://www.ntia.doc.gov/ntiahome/press/2007/ICTleader_042407.html.

So first stakeholders could blame the government for mandating common carriage facilities unbundling and interconnection. Now the government can blame outside data collectors as underestimating the kind of success the FCC found when it used zip codes as the relevant market penetration metric.

I am confident U.S. broadband penetration statistics will improve, but the initial “success” will occur in urban areas with greater likelihood for more than two facilities-based carriers offering true broadband at rates below $60 a month.

I fear the Digital Divide increasingly with cleve between cities and the hinterland.

The Dark Side of Incentive Creation

Much of the debate about broadband and next generation network development focuses on the alleged need for government to create incentives for carriers to invest. Ironically much of the excuses given for the disinclination to have invested emphasizes how government created disincentives, marketplace distortion and regulatory uncertainty.

So let me get this straight. The same person or corporation, with libertarian/deregulatory instincts, rails against government intervention as likely to fail even as they assert the need for incentive creation with a straight (if not disingenuous) face.

Let’s examine incentive creation, a government activity that has become so important that we now have a new word for it: incentivize, as in the FCC needs to incentivize broadband development in rural areas by expanding the universal service program.

With all this incentivization going on it’s no wonder that arbitrage and gaming opportunities abound. The most recent example lies in the realization by rural wireline telephone companies, particularly those entrepreneurial independent telephone companies in Iowa (see http://www.techdirt.com/articles/20070315/193857.shtml) that they can convert the universal service mission into cold cash. Because Congress and the FCC have created incentives for rural phone companies to wire up the hinterland, the crafty beneficiary of such incentives can earn extra cash by stimulating inbound traffic to the hinterland.

Brilliant! Funds designed to encourage telephone companies to serve expensive remote areas now flow more robustly into the coffers of the more creative incentive exploiters who offer outbound international long distance and conference calling all for the cost of the inbound call to rural Iowa. Wireless subscribers incur no additional charges for such calls made at nights and on weekends and cheap “postalized” long distance plans and calling cards offer 3-5 cents per minute calling any time of the day. The carriers handling the Iowa-bound call end up paying the Iowa telephone company as much as 7 cents a minute to terminate the call. Of course the call does not end ringing the telephone of some rural farmer in Iowa. It routes to a switch that provides second dial tone for outbound calling.

This clever money maker exploits the incentive to build out networks into the hinterland. Some of the outbound calling carriers, such as AT&T, have unilaterally decided to refuse to complete such calls. Unilaterally acting as judge, jury and executioner violates these carriers’ common carrier legal responsibilities. It also shows these carriers as asleep at the switch when the Iowa telephone company tariffed the extortionate 7 cent rate.

But most importantly the Iowa gambit shows that incentive creation has the very same potential to distort the marketplace and favor one group of stakeholders over others as the much more discussed disincentive creation.

Government Rent Seeking Versus Commercial Profit Seeking

Managers of commercial ventures invariably have to decide the proper balance of profit seeking investments and efforts versus seeking benefits (rents) from various government programs. For example, a professional sports team might leverage the possibility of leaving a city if the local or state taxpayers do not underwrite construction of a new stadium.

In telecommunications incumbent carriers have engaged in similar leverage: limiting investment in next generation networks unless and until government creates financial incentives or other inducements, e.g., removing “regulatory uncertainty” which might just mean unfavorable and costly regulatory obligations. For example, a telephone company might not build a fiber optic network capable of providing video competition with incumbent cable television ventures in a particular state or region unless and until the newcomer can avoid having to secure operating authority (a franchise) from each and every municipality within which the newcomer wants to operate. I understand that CEO of one major telephone company opted to “punish” the state of Illinois by targeting other states for new technology trials.

The tension between rent seeking and profit seeking has adversely affected the pace of next generation network deployment. Too many actual or prospective investors recognize the benefits in seeking government-generated incentives to invest. It becomes difficult to determine when competitive necessity would have forced an investment without government assistance and when incentive creation was necessary.

The recent substantial infusion of capital investment by incumbent carriers into next generation networks may evidence a healthy response to the elimination of unbundling and below market access pricing regulations. But it just as readily may evidence the fact that incumbent ventures, cable television and telephone companies alike, could not longer rely on core and previously captive revenues streams.

How much longer could the incumbent local exchange telephone companies see declining local voice service revenues, before they had to find and serve new profit centers? When stakeholders demand government incentives, it probably makes sense to ask whether the stakeholders would make the investment and take the risk without special accommodations.