Policy and regulation

FCC Commissioner Deborah Tate spoke on the last day of the Broadband Properties conference. She had some interesting statistics that should give pause to anyone who thinks that DSL and cable modem broadband services are "good enough." Commissioner Tate noted that:

• Demand for bandwidth has been doubling every two years for the last ten years.
• By 2015 (just seven years from now), the FCC thinks bandwidth requirements will be fifty times (50x) what they are today.
• In Japan, where they have had 100 megabit connections to homes and businesses available for several years, they are already observing congestion--meaning 100 megabit pipes are already filling up.
• Americans are watching more than 10 billion videos per month over the Internet.

Tate went on to enumerate that choice was important to buyers of telecom services, and she listed that choice should be available for services, for providers, and for equipment.

The undersea fiber cables that were cut a couple of months ago were the subject of numerous conspiracy theories, but satellite photos have revealed the culprits--cargo ships that were anchored in the wrong place. Sometimes Occam's Razor (the simplest explanation is the likeliest one) is exactly right.

The object lesson for communities is to plan for cable outages by making sure local networks have redundant cable paths. Sometimes this is quite expensive to do when just getting started with community telecom investments, so an alternative to a second fiber cable is a high capacity wireless link that can handle local traffic (perhaps with somewhat less throughput) while repairs are made.

Eliot Spitzer, the governor of New York, has called for universal access to broadband in the state. The text of his speech is here (note that you have to scroll down past the agriculture remarks to get to the broadband stuff).

Unfortunately, Spitzer seems comfortable relegating rural areas to second class status. He calls for a minimum of 100 megabit connectivity in urban areas, but says that just one-fifth of that (20 megabits) is fine for rural areas. Cable and DSL are not going to provide universal access in rural parts of New York, so Spitzer has apparently decided that rural areas will have to make do with wireless while the cities get fiber. Rural citizens and legislators in the state should be outraged that the governor is willing to choke their economic future so easily.

This news report suggests that some cable companies are actively blocking certain kinds of traffic on their networks. The target of such blocking is peer to peer file sharing, in which the subscribers are often sharing very large files like movies and TV shows. From a network operator perspective, what you see is a very small number of your customers using a disproportionately large chunk of your network bandwidth, which can degrade service for other customers and increase costs.

Of course, the whole issue of net neutrality comes into play here, where the argument is that Internet access providers should not block traffic or offer preferential treatment to certain kinds of data over other kinds. But the access providers are on the horns of a dilemma, because the peer to peer sharing does have a measurable impact on their network.

But almost all of the arguments for and against traffic blocking, the rights of access providers to manage their own traffic, and free speech issues are red herrings. The real problem is the outdated and obsolete business model that nearly every access provider is still using.

It made sense, more than a decade ago, to sell bandwidth by the bucket to users because all folks were doing back then was email and some light Web browsing. And the Web in the mid-nineties was most text and a few pictures. Today, the media-rich Web is filled with sound and movie files of all kinds, and everyone uses them--look at the popularity of YouTube.

The current business model does not provide any cost information to consumers; that is, the "cost" of downloading a few emails is exactly the same as the "cost" of downloading an entire movie in DVD format. This is a classic and well-understood economics problem. Current pricing, to users, makes it appear as if there is unlimited supply (of bandwidth), which in turn creates unlimited demand.

The solution is simple. Rather than trying to discourage customers from doing things they want to do, you change the pricing model so that it conveys more information about the real cost of downloading things like movies.

In other words, you move from a business model of networks based on bandwidth, which we know is not working, to a business model based on unlimited bandwidth but where pricing is based on the service you want to use. So users that like to do peer to peer file sharing subscribe not to a bucket of bandwidth but instead subscribe to a service designed specifically to support high performance file sharing, and the price of that service will be based on the real cost of providing the service.

It is simple economics. Communities like Danville, Virginia are already rolling out networks that do this. These multi-service, open networks support real competition and will start driving innovation on the network because the business model support innovation, rather than stifling it.

Fights over WiMax spectrum are slowing deployment of WiMax. The FCC, which manages the WiMax spectrum, has been renewing the existing spectrum, called EBS (Educational Broadband Services). The problem is that the EBS spectrum licenses, in many cases, belong to local educational institutions. Sprint wants to build a national WiMax network and thinks that the FCC should require the schools not using the spectrum to give it up.

To make things more confusing, Clearwire, another WiMax provider, has taken the route of simply negotiating licenses directly with the schools, who make some money from something many of them were not using.

The end result will be extensive overbuilding of WiMax networks, which raises costs and makes it more difficult for users to roam from network to network. Wireless broadband operators have never been able to work out roaming agreements the way the cellular industry did. Cellphones did not become popular until roaming agreements were in place, meaning your phone would work pretty much everywhere. Today, in most airports, as one example, there are often two to five WiFi providers, and paying for service on one operator's network does not let you roam on any other operator's network.

The bigger problem here is overbuilding. With several different companies all trying to build wireless broadband networks in a community, costs go up for all users because of duplication of infrastructure. The solution is for the community to build a multi-service network that allows multiple providers to use a single network. Users gain the benefits of true competition, and prices are lower because there is no duplication of infrastructure. The FCC could play a valuable role here by encouraging the development of multi-service networks, but instead, continues to try to put band-aids on outmoded policies.

A 1998 ban on taxing services provided over the Internet is due to expire next month. Congress has three options: make the tax ban permanent, extend the ban for several more years, or start raking in a whole new source of cash.

If Congress decides to tax Internet access, everyone's access provider bills (dial up, DSL, cable modem, wireless, Blacksberry, etc.) could jump as much as fifteen to twenty percent.

The big picture issue here is whether Congress ought to be making the telecom industry tax collectors at all. For business, telecom taxes are pure overhead that crimp a company's ability to create jobs and pay for expansion. And if the company is profitable, it is still going to pay taxes on the profits. From an economic development perspective, telecom taxes are a drag on jobs development and business growth. Design Nine, as an example, gets phone bills with as much as 30% of the charges just taxes of various kinds, from local, state, and the Federal government.

Given the weak state of the economy right now, let's hope Congress does the right thing and extends the ban on Internet taxes for services.

Here is an interesting article that talks about what life might be like if the Federal Communications Commission was in charge of highways. It is not a pretty picture. The upcoming auction of 700 Mhz spectrum formerly used by TV stations is not likely to benefit communities or smaller, independent service providers.

The FCC has the opportunity to change things in a way that could simultaneously lower prices for wireless services and create lots of new business opportunities. What's the rub? The incumbents would have to compete on a reasonably level playing field with new companies, without a structural monopoly advantage. And that really worries them.

Mark Pryor (D-Ark) has decided that Congress and the Federal government should decide what we can and cannot see on our TVs, cellphones, and portable media devices. Pryor is sponsoring a bill that would require the FCC to develop a "super V-chip" that would have to be installed in every device that connects to any third party network, including the network.

There are so many things wrong with this that it is hard to know where to start. First, adding this sort of flawed technology to every single electronic device would raise the cost of everything. And remember that we are rapidly moving towards a time when every single electronic device we own (radios, phones, TVs, computers, music players, etc. etc. etc.) all have some kind of connection to networks. The cost of implementing this would be staggering, and we would get to pay for this with higher prices.

It also beggars belief that we would want FCC bureaucrats in Washington D.C. to decide what we can and cannot look at. Pryor is wrapping this in the usual "it's for the children" bait and switch language, but it would give the Federal government total control over the media. The V-chip was a dumb idea from the start, but if you squinted hard, you could dimly see some kernel of justification for it, since in 1996 a lot of us still got TV over the airwaves, which was still heavily regulated by the FCC. With all the alternative ways to get news, information, and entertainment today, the FCC is hardly needed to "protect" us.

Pornography is a scourge, but as more and more communities move toward an open services model for delivering media, the open market will take care of this problem quite neatly. In open services networks, some Internet access providers will be able to cheaply and easily sell "family friendly" Internet access with all sorts of parental controls built in. It will be quicker, cheaper, and easier than any government-mandated solution, and it will work better. That's the right way to do it.

There are many articles and commentary on the recent announcement by the Governor of Ohio to create a statewide broadband network. But it is not clear what the impact might actually be. If you read the Executive Order closely, what you see is that Ohio, in many ways, is just starting to catch up to other states.

Most of the statewide initiative simply requires Ohio state agencies to start buying off the statewide network, instead of making their own deals. States like Iowa and Virginia did this many years ago. It also creates a Broadband Council, which other states, like Virginia, have also announced. But statewide task forces rarely have the opportunity or the authority to actually get things done. These groups can make use of the bully pulpit to raise awareness of a problem, but even then, the groups often become captured by political realities.

Because so many states have had operational statewide networks, we have had the opportunity to learn something about them. What typically happens is that the networks have a substantial initial impact by lowering the cost of broadband for schools and state agencies, especially in rural parts of a state that might be otherwise underserved.

But small and medium-sized (that is to say, innovative) broadband providers rarely get these big contracts. Inevitably, the big incumbent providers get the contracts. Once in place, the rates tend to decline only slowly, and so after the first big price reduction, prices tend to stagnate.

But here is the worst problem. From a community perspective, statewide networks are a disaster. Schools, libraries, and state agencies are the anchor tenants of a communitywide or regional open network. Without those government customers paying into the community network, it becomes much more difficult to make a business case for such a project.

So schools and state agencies in a rural region get lower rates, but the rest of the community, including businesses, seldom see any benefit, and in fact, are often worse off. Statewide networks can cripple economic development prospects. There is some language in the Ohio Executive Order about allowing non-government connections, but when state agencies and universities are calling most of the shots for a statewide network, business interests usually don't get appropriate attention. And in fact, over time, rates on the statewide network may be higher than what businesses can do in the private market. We don't really want government bureaucrats negotiating rates and services for businesses, and that is way statewide networks are usually run.

What is the alternative? Get local and regional initiatives started that use the "digital roads" approach, where government's role is limited to building a high performance digital road system, and let customers buy directly from private sector providers, instead of putting state level bureaucrats in charge of prices. States have an important role to play, but as I have said for many years, states should be building inter-community digital roads to connect local and regional efforts, using the same open access, open services model.

Legislators are finally getting the message about faulty electronic voting machines, and perhaps some of these machines will get auditable paper trails in time for the 2008 election. The House of Representatives is working on a bill that will require better accountability for the electronic ballot systems for all Federal elections, starting with the fall 2008 elections.

The really galling part of this is that all this was completely avoidable. Many of us in the IT business saw this train coming a long way off. Unfortunately, a lot of local governments, who buy most voting equipment, were happy to ignore technical experts without a financial stake in the outcome and instead fell hook, line, and sinker for the promises of vendors, who were giddy over the windfall market that fell into their laps--nearly every voting machine in America was going to be replaced!

The taxpayers get to pay twice for this fiasco, but at least it is going to get fixed.