My Broadband Pipe Dream, Part II: How might we get there from here?

Having set the conceptual stage for a “generative” Internet access strategy in Part I of this two-part post, I’d like dig a little deeper here into the “what” and “how.”

As I said in Part I, and as suggested by this post’s title, the following is not intended to provide a specific and fully-formed proposal but, rather, to point in new directions, suggest some possibilities, and encourage creative and constructive discussion and debate.

To get started, here’s an outline of what I see as key components of a generative Internet access strategy that would be supported (financially and otherwise) at the national level, while being planned and managed at the local community level.

Together, these elements are intended to maximize the economic benefits predicted by New Growth Theory, by leveraging the federal government’s role as sovereign issuer of currency and the strengths of “generative” (vs. “extractive”) Internet access ownership models.

1.  Availability of symmetrical gigabit-capable networks to all American households and businesses, designed in a way that readily supports open and non-discriminatory access and competition among multiple service providers.  This network would be owned by its end-users and its management would be independent of any of the competing providers using the network to deliver services (i.e., in line with a “structural separation” model).

2. A program to support Internet-related training, and application development, implementation and testing.  This would include training and compensation of staff whose job would be to support end-users with training and technical support, to assist them in realizing the benefits of Internet connectivity and overcoming hurdles to achieving these benefits.

3.  Specialized programs within #2 above, which would focus on particular industry sectors, including healthcare and education, two fundamentally important (and arguably broken) sectors that show great potential for network-enabled benefits as well as future job growth.

4.  Embedded in all of the above would be an ongoing and web-enabled research and outreach component that helps identify, aggregate, analyze and disseminate best-practices, lessons-learned, pitfalls to avoid, etc.  This research and outreach program would cover, among other things, issues related to network construction, operation and governance, as well as ways to increase usage and benefits, both in general and for specific applications and industry sectors.

5.  Supporting all of the above would be what Marjorie Kelly calls “Ethical Networks.”  As Kelly put it in an email to me, community-owned broadband networks will have a better chance of success, “if there [is] a network of such organizations sharing ideas on issues like how to raise capital and bring community voices into governance.”

If the above sounds similar to the general goals of the broadband stimulus program funded by the ARRA (American Recovery and Reinvestment Act), it’s intended to.  While there’s certainly plenty to criticize about the design and execution of this program, it can provide a very valuable foundation for understanding how (and how not to) create items 1-5 above.

In fact, the broadband stimulus program included many of the key elements I have in mind, including funding of network construction and a variety of locally developed programs to support sustainable broadband adoption, usage and benefits.  It also includes a significant data collection and research components, as well as some degree of information sharing and mutual support among the various stimulus-funded projects.

So, I’d suggest that Congress establish an expanded version of the broadband stimulus program, to include a well-designed and well-funded effort to learn lessons from both the successes and failures of the existing broadband stimulus program.

Like the stimulus program, I’d focus initially on what it referred to as “unserved” and “underserved” markets (in terms of existing broadband service).  But, over time, I’d extend the program beyond that, to include any market in which there isn’t a network in place that supports symmetrical gigabit service and is based on a model that separates retail service from network ownership.

As I’m sure you’ve noticed, my “broadband stimulus on steroids” proposal has so far largely ignored the elephants (or, if you prefer, 500 lb. gorillas) in the room–the large, national cable and telephone companies that dominate the Internet access market.  Needless to say, these companies are politically powerful at both the state and federal levels, and very skilled in the art of legal siege warfare, having worn down many a regulator and market competitor in multiyear and multiple-appeal court battles.  And, to be honest, I see little reason to doubt that, at least initially, most if not all of these companies will staunchly resist what I’m proposing.

While I won’t try to address this “elephant(s) in the room problem” at any depth in this post (though perhaps in a later one, or in a policy paper), what I would suggest at this point is “let’s take a serious look at what’s happening in Australia.”

What I’m referring to is Australia’s National Broadband Network (NBN), which is investing AUS$43 billion to build a “world-class broadband infrastructure” that will initially be majority-owned by the government.  The network will provide open access wholesale-only service to private retail service providers, and will extend fiber optics to 93% of all Australian homes, augmented by terrestrial wireless and satellite networks that will bring 12 Mbps broadband to everyone else.

As Nate Anderson reported at Ars Technica last May–in a piece discussing an NBN-related “implementation” study conducted by McKinsey and KPMG –the Australian government has apparently found a way to deal with its own 500 lb. gorilla, Telstra [bolding is mine].

What about the presence of a “highly profitable vertically-integrated and horizontally-integrated incumbent with a monopoly position in most fixed-line access in many backhaul routes”? (This is a reference to Telstra, which controls most of the copper telephone line in the country.) Well, Telstra can partner with the government and make a bit of money off the rollout, or it can choose not to cooperate and the government will do what it wants anyway.

The message is clear: Australia refuses to be held back by the business decisions of a single company. As a new report on the Australian plan makes clear, there’s not much attempt to make this easier on Telstra.  “Existing participants will need to adapt to succeed,” says the government report.

…As for Telstra, there’s not much consolation here. The new fiber buildout will produce a “fundamentally different industry structure… This change will accelerate the evolution of the industry. At times this may be smooth; at other times it will be uneven. New business models and companies will emerge.

The incumbent can make money by doing a comprehensive deal with the government to “share infrastructure such as ducts, pits, exchanges, and unused backhaul fibers.” Telstra has over 100,000km of conduit in the ground already, and it’s estimated that 50-80 percent of these ducts still have unused space to run fiber. This could save the government significant money in trenching costs if Telstra will sell access. Likewise, the incumbent has plenty of dark fiber installed around the country to serve as backhaul links between exchanges; the government could also save the expense of laying its own fiber over these routes if it partners with Telstra.

But it’s clear that the new network won’t be held hostage to Telstra’s demands. The consultants conclude that, in the absence of an agreement, [the fiber network] should proceed to build both its access network and its backhaul unilaterally.”

To encourage competition, the government will not enter the ISP business itself. Instead, the plan is to wholesale fiber connections out to ISPs, and the network will be open to every ISP that wishes to participate.

For those wanting to dig more deeply into what’s going on in Australia, you might take a look at the full McKinsey-KPMG study.  And here’s a link to the NBN home page.  And, for those wanting a relatively concise overview of the NBN project, you can check out this Wikipedia page.

Could this happen in the U.S.?

Admittedly, following the Australian model would be a very (some would say impossibly) steep uphill climb in the U.S.

One reason is that, compared to Australia, we have a much larger number of incumbent network operators that would have to be dealt with.  And, at this point, it seems highly likely that most if not all of these would vehemently oppose such a national strategy, and use all the tools at their disposal to ensure it didn’t become a reality.

Another challenge is the tendency among too many of our political leaders to confuse deregulation of vertically-integrated monopolists with free market competition. As Australia’s policymakers have come to realize, the latter is actually best achieved with a single high-capacity open-access network that provides wholesale service to any ISP wanting to enter the market. It continues to amaze me that this distinction seems to be lost on so many political leaders and even some economists.

Another big hurdle relates to realities and political and public perceptions related to the federal deficit and federal debt. As I’ve discussed in prior posts (see here, here, here and here), I’ve become convinced that Modern Monetary Theory (MMT) provides a framework for understanding federal spending and deficits in ways that are more realistic—and much more beneficial–than other economic approaches, especially those heavily focused on applying fiscal austerity during a recession.

MMT tells us that the U.S. government–as a sovereign issuer of currency that is not convertible to gold or any other commodity, nor to any other currency at a fixed rate—has far more flexibility in terms of fiscal policy than is commonly believed in Washington policy circles.

This means that it would be possible to federally fund a nationwide gigabit open-access network without any risks to the federal government’s solvency, and very likely also without significant risk of triggering problematic inflation.

An MMT-oriented approach might also provide the federal government with more financial flexibility in dealing with  incumbents, including compensating them and their shareholders for cooperating with and contributing network resources to construction of an open-access gigabit network (which, of course, they’d get to use as a retail provider).  It even seems possible that the financial impacts of such a project could benefit incumbents and their shareholders, depending on what resources they contributed to the project, how much they were compensated for it, and how well they’d do as a gigabit-enabled provider freed of the financial and management burdens associated with operating and upgrading their own networks.

If concern over federal deficits remained high, an approach that makes sense to me is to pay for network construction with a tax on financial transactions. As I discussed in an earlier post, a razor-thin .03% financial transaction tax proposed in Congress is estimated to raise $350 billion over nine years.  This turns out to be roughly what it would cost to build out an open-access gigabit network to virtually all American homes and businesses, a construction task I believe could be realistically spread across a decade or so.

A final and perhaps the most daunting hurdle standing in the way of my “broadband pipe dream” becoming a reality is the fact that our politicians and political system are deeply addicted to money.  This addiction (and the time they spend fundraising) diverts them from the already-difficult task of wise, forward-looking policymaking.  And, unfortunately, this addiction seems to have gotten even more out of control in the wake of the Supreme Court’s Citizens United decision.

Which is why I think what Larry Lessig and others are doing to try to address this money-addiction is so important. Unfortunately, addicts usually need to “hit bottom” before they’re ready to break their addiction. And, in this case, the actions of Washington politicians, consultants and lobbyists suggest they’re quite willing to drag the rest of us to the bottom with them.

To shift gears from this depressing political reality and end this post on a hopeful note….I continue to believe in the possibility that we can change enough key components of our dysfunctionally-interconnected political, economic and media systems to “bend the arc of history” toward increased freedom and prosperity, as has been done before in our nation’s history. That belief, and my fascination with how we can make it a reality, is why I launched a blog called “Evolving Human Systems.”

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

2 Responses to My Broadband Pipe Dream, Part II: How might we get there from here?

  1. Lots of good stuff here. The approach I would like to see is modeled on something we know worked – the Rural Electrification Administration. Loans (or loan guarantees) from the Feds to coops and other public entities for capital costs. No ongoing subsidization for opex, which will save us a ton of money over the status quo give the direction that USF is headed in. The hit to the budget to guarantee loans is quite small. Coupling that fact with the need to slowly ramp up construction given constraints in the supply line suggests to me that we are talking about less than $10 billion/year from the feds each year for perhaps 10-15 years. I think that is a dramatic overstatement. The only real problem we face in DC is the lobbyists of AT&T, Comcast, et al. The cost of actually getting this done is small compared to the benefits. But as long as the big telecom firms can control our politics (with campaign contributions and access to media channels that will parrot their claims no matter how absurd), I doubt we will make much progress toward solving this problem for the whole country.

  2. Masha Zager says:

    @Christopher: So, RUS on steroids rather than broadband stimulus on steroids. That’s what Broadband Communities proposed four years ago (pre-stimulus program), and I still think that would have been the best approach. Loans, and especially loan guarantees, go a lot further than grants.

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