My Broadband Pipe Dream, Part I: Review & Stage-Setting

In this post I hope to tie to together some threads of  analysis explored in earlier posts, with the goal of setting the stage for a follow-up post that will outline what I’ll call my “broadband pipe dream.”

So let’s review….

In a previous post I provided a conceptual overview of how a combination of New Growth Theory (NGT) and Modern Monetary Theory (MMT) provides a policy rationale for federal investment in broadband infrastructure and related development of value-generating network usage, skills and applications development.

This investment would support accelerated Internet-driven economic growth, as explained by New Growth Theory and its analysis of “the economics of ideas.”

It would do so by leveraging the U.S.government’s ability to deploy its sovereign currency in ways that (contrary to economic conventional wisdom), would not trigger deficit-driven problems related to the solvency of the U.S.government or inflation, as explained by Modern Monetary Theory.

In several other recent posts I considered issues related to the industry’s migration of Internet access to vertically-integrated and unregulated monopoly or duopoly structures, and the impact of this trend on the Internet’s “openness.”  (see here, herehere, here, here and here).  As I noted, these issues have been explored in depth by law professor Susan Crawford, in several papers and an upcoming book entitled “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.

In another post I considered different models of ownership and control of Internet access networks, applying an analytical framework developed by Marjorie Kelly in her new book, Owning our Future.  This framework focuses on differences between ownership structures with a purpose of maximizing “financial extraction,” and ownership models that have what Kelly refers to as a “generative” purpose and structure.

In that post I argued that publicly-traded cablecos and telcos typically approach local networks with a primary purpose of financial extraction (e.g., maximizing stock price, free cash flow, shareholder dividends, etc.).  In contrast, community-owned networks tend to have a “generative” purpose along the lines of:

 …to provide households, businesses and public service organizations (e.g., schools, healthcare providers, public safety, etc.) with affordable, reliable, symmetrical, high-capacity broadband connectivity and related services, to support their ability to prosper and thrive in an increasingly competitive and knowledge-based global economy.

It seems to me that this kind of “generative” purpose and ownership structure is very much in harmony with the growth-promoting role of the Internet, as suggested by New Growth Theory.  That’s because such an ownership model will tend to maximize the free flow and “combinatorial explosion” of ideas by maximizing Internet availability, affordability, symmetrical capacity, and the ability of end-users to freely leverage these capabilities to generate and exchange value–without control or censorship of this exchange of ideas and value by a centralized authority, whether it be a public or private entity.

In contrast, the “cable TV” model of Internet access favored by large publicly-traded ISPs has fundamental inconsistencies with this growth-promoting capability of the Internet. As Susan Crawford explained in her paper applying NGT to Internet policy:

If network providers act as gatekeepers, deciding which new ideas will fail and which will succeed, then they will be artificially amplifying particular ideas. Instead of the internet, we will have a broadcast television network, in which success is decided on “from above” rather than emerging from the interactions of agents.

In a recent blog post, Crawford elaborated on this point, arguing that, with regard to providing the kind of non-discriminatory Internet access that maximizes the voluntary exchange of ideas and content, “cable operators have a built in, giant conflict of interest.”

They want to make sure that only their own premium video products are successful, and they can twist all the dials to make sure that happens. They can re-define services (calling their own content “specialized” and exempting it from caps or usage-based billing), they can withhold programming (particularly sports and live specials and first-run premium content) in concert with their colleagues, or charge so much for it that it won’t make sense to compete with them online, they can treat the bits coming from non-partners badly through their control over in-home devices as well as the pipe itself…endless endless ways to control.

So, here’s the situation as I see it:

1. As New Growth Theory explains, non-discriminatory, affordable, high-capacity, symmetrical Internet access can provide powerful, self-sustaining support for economic growth.

2. The generative purpose and structure of community-owned broadband networks tend to be strongly supportive of this growth-promoting function of the Internet.

3. In contrast, publicly-traded ISPs that enjoy extreme market (and political) power as vertically-integrated monopolists or duopolists, and whose primary purpose is financial extraction, have fundamental conflicts of interest when it comes to maximizing the free flow of ideas that NGT tells us will drive strong economic growth.

4. Internet access markets, especially in the wireline sector, are characterized by the economics of “natural monopolies,” with very high fixed costs, low variable costs and very high barriers to entry. This has discouraged such entry, especially among private sector entities with relatively high financial-return thresholds, as evidenced by the fact that a large percentage of such entities have ended up in bankruptcy.

5. Though, like the vast majority of private competitive service providers (known as “overbuilders” and/or CLECs), some community-owned networks have struggled financially, others have succeeded and even gained a dominant market share. This supports the notion, which I discussed at length in this report, that community-owned networks have unique strengths that make them the best (and perhaps the only) prospect for successful new entry into the wireline access market.

6. Publicly-traded ISPs control the vast majority of our nation’s Internet access infrastructure, and have demonstrated a strong inclination to use their financial and political muscle to “buy” state legislation that prohibits or severely restricts the ability of citizens to come together to create community-owned broadband networks.

7. Congress has the power to pass legislation that preempts these state restrictions on community-owned networks. And, as MMT explains, the federal government, as an issuer of its own sovereign currency, has the ability (and, I’d argue, the responsibility) to spend/invest that currency into the economy to support employment and economic growth. And, it can do so without threatening it’s solvency and, in most cases (including today’s low-growth, high-unemployment environment) without significant risks of inflation.

To finish setting the stage for Part II of this post, let me restate the closing of an earlier post:

[A]s I see it, the reality we face today is that:

1) the “cable TV” model is desirable from the perspective of companies that control our nation’s dominant local access networks, which were originally built decades ago to deliver monopoly telephone and cable TV services, using the public rights of way and subject to (and often protected by) various levels of government regulation.

2) the “neutral Internet/public road” model is preferred by most everyone else, including the millions of individuals and businesses that use the network, and the content and service providers and device makers wanting to serve these end users; and, as New Growth Theory tells us, this “gatekeeper-free” Internet model is best suited to support the free and open communication that drives the “combinatorial explosion of ideas,” which in turn drives economic growth and improvements in human welfare.

Given the importance of this issue to our future, and the fundamental nature of this conflict, two things come to mind in terms of communication public policy:

1. The preferences and needs of the vast majority of the nation’s citizens and businesses should be given priority over the preferences of a relative handful of private service providers and their shareholders.

2. At the same time, the welfare and property rights of access providers should be respected in developing public policy and, to the extent possible, incumbents should retain the freedom to pursue their preferred business models as long as this does not interfere with the rights of the rest of us to do the same (as it does when incumbents use the power of money to buy state legislation restricting community-owned broadband networks).

That strikes me as the right balance we should try to strike in crafting Internet policy, and it’s what I’ll be shooting for in my own proposals, which I’ll outline in more detail in a forthcoming post.

This entry was posted in Communication Policy, Community Broadband, Economics, Modern Monetary Theory, New Economy Movement, New Growth Theory and tagged , . Bookmark the permalink.

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