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"Children of Blood and Bone"
Tomi Adeyemi conjures a stunning world of dark magic and danger in her West African-inspired fantasy debut. Learn more
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Crawford's become the unofficial spokesman for a budding campaign to reshape broadband. But there are many reasons to think the Internet's future will be brighter than she fears, and that her preferred, government-run future wouldn't turn out so well. Here are just ten:
1. Broadband isn't like electricity. Crawford frequently invokes FDR's rural electrification efforts. Like electricity, she considers high-speed Internet a fundamental need--specifically, symmetrical 100+ mbps cable or fiber. But unlike electricity, consumer preferences for broadband vary remarkably, and consumers want much more from their networks than the equivalent of simply turning on a light. Like so many of her generation, Crawford struggles to understand computers that don't look like desktops--and assumes that wireless devices necessarily fit in your hand. Economist Ev Ehrlich calls her attitude "broadband effetery": the presumption that "this is what `the right people' want, and you should want it, too." It's one thing to say we should all want electricity, but quite another to insist we must use the Internet the way Crawford herself does.
2. Providing broadband isn't like delivering electricity. Crawford calls broadband a "dumb" pipe for "moving bits from Point A to Point B"--just like electricity. She worries about vertically integrated network providers intervening in the flow of bits. But the Internet isn't so simple. There's a heated debate ongoing at the FCC over regulating the "IP Transition"--replacement of outdated telephone networks with all-IP infrastructure. Smartly managing such networks facilitates services and quality improvements unavailable today, but it means broadband networks are becoming considerably more than just "dumb pipes." Even Crawford's "dumb" electrical networks are slowly getting smarter--and less "neutral."
3. The public utility model doesn't work well for dynamic services. Electric utilities deliver plain vanilla service. They've struggled to innovate, failing to deliver broadband over power lines and taking years to roll out smart grid technologies. The same is true for railroads. The nationwide fiber network Crawford calls for sounds like long-standing dreams of high-speed rail. But the reality would probably look a lot more like Amtrak: slow, grossly over-budget, heavily subsidized, and unable to compete with more nimble competitors. And let's not forget that Crawford herself notes the perils of regulatory capture at the FCC and local regulators. Her idealized network may not be what consumers want anyway, and many may choose options that elites like Crawford look down their noses at: Bolt Bus is to Amtrak as 4G iPads are to Crawford's high-speed fiber.
4. Crawford paints too-rosy a picture of government-run broadband. Some municipalities have built wi-fi and fiber networks, but none has been the success Crawford claims. The wi-fi schemes mostly fizzled. Google originally had planned to wire San Francisco and Mountain View with public wi-fi, but ultimately rolled out service only in the area around its own offices in Mountain View (population 75,000). Even that network is plagued with reliability issues. (Google plans a second network in New York, but again, only in the Chelsea neighborhood around its office). A few muni-fiber schemes claim success, but even with heavy capital subsidies, service is expensive and the systems will break even only if take-up rates increase dramatically or if taxpayers foot the bill. As a London School of Economics report notes, "subsidising the deployment of superfast broadband to reach 92% of households would generate only £0.72 of consumer surplus for every £1 of subsidy"--not obviously a good investment. Or as Charles Kenny, a Fellow at the New America Foundation itself, writes in his study, "Superfast: Is It Really Worth a Subsidy?," "[t]his paper suggests fiber to the home may be no more worthy of subsidy than Concorde." And how much easier would government surveillance or censorship be if government actually ran the networks?
5. Competition isn't over. Crawford sees broadband as a natural monopoly, with economies of scale making competition impossible. Well, Google doesn't seem to agree. Its Kansas City fiber network isn't just a stunt; Google expects it to make money. AT&T is eager to replace its outdated switched networks with all-IP ones. This will bring U-Verse (45-75 mbps) to nearly a third of the country. Most importantly, wireless services can check the power of wireline. One study predicts that, "By 2015, more U.S. Internet users will access the Internet through mobile devices than through PCs or other wireline devices." As Crawford herself acknowledged at a recent New America Foundation event, explaining why she would probably block a cable/wireless merger, each currently has an incentive to build new infrastructure to draw customers from the other. That's called competition. Even full-length video streaming, supposedly the unassailable lynchpin of the "cable monopoly," is well within the technical capacity of wireless: Consumers increasingly prefer to watch such videos on phones and tablets, and mobile video now comprises the majority of all mobile traffic. While doubtless some of this traffic flows over wi-fi, some of it doesn't, and 4G download speeds and advanced devices clearly facilitate increasing wireless/wireline competition.
6. Things in the US today are better than Crawford claims. While Crawford claims that broadband is faster and cheaper in other developed countries, her statistics are convincingly disputed. She neglects to mention the significant subsidies used to build out those networks. Crawford's model is Europe, but as Europeans acknowledge, "beyond 100 Mbps supply will be very difficult and expensive. Western Europe may be forced into a second fibre build out earlier than expected, or will find themselves within the slow lane in 3-5 years time." And while "blazing fast" broadband might be important for some users, broadband speeds in the US are plenty fast enough to satisfy most users. Consumers are willing to pay for speed, but, apparently, have little interest in paying for the sort of speed Crawford deems essential. This isn't surprising. As the LSE study cited above notes, "most new activities made possible by broadband are already possible with basic or fast broadband: higher speeds mainly allow the same things to happen faster or with higher quality, while the extra costs of providing higher speeds to everyone are very significant."
7. Even if she's right, she wildly exaggerates the costs. Using a back-of-the-envelope calculation, Crawford claims that slow downloads (compared to other countries) could cost the U.S. $3 trillion/year in lost productivity from wasted time spent "waiting for a link to load or an app to function on your wireless device." This intentionally sensationalist claim, however, rests on a purely hypothetical average wait time in the U.S. of 30 seconds (vs. 2 seconds in Japan). Whatever the actual numbers might be, her methodology would still be shaky, not least because time spent waiting for laggy content isn't necessarily simply wasted. And for most of us, the opportunity cost of waiting for Angry Birds to load on our phones isn't counted in wages--it's counted in beers or time on the golf course or other leisure activities. These are important, to be sure, but does anyone seriously believe our GDP would grow 20% if only apps were snappier? Meanwhile, actual econometric studies looking at the productivity effects of faster broadband on businesses have found that higher broadband speeds are not associated with higher productivity.
8. She wildly exaggerates cable's profitability. Cable companies simply don't, as Crawford claims, "reap profit margins of 95 percent." In fact, their margins are very small when you consider their massive capital costs: As Matt Starr and Will Rinehart note, "Comcast...has averaged just a 4.5% ROIC [return on invested capital] over the last five years. Time Warner Cable's 5-year average is -1.3%. Compare those with Apple (32%) or Google (16.1%)."
9. Vertically integrated content distribution isn't the menace she claims. Most of all, Crawford fears vertically integrated "gatekeepers" using their power over content to artificially constrain the range of content available and competitors' ability to deliver it (think Netflix). If content is so valuable and powerful, why don't content companies just engage in such abuse on their own? Somehow the distribution network's ownership of content transforms "content is king" into "distribution is king." Crawford spends 200 pages of her book on this, specifically the NBCU/Comcast merger. But she never really explains the complex dynamics of this market and ultimately fails to demonstrate that integrated content distribution is a singular brand of evil. The harms she suggests are merely speculative, and she offers no evidence to demonstrate that Comcast has actually acted to foreclose competition.
10. "Independent" content isn't dead. Specifically, Crawford fears that Comcast's control over content will kill "independent" programming--diversity of content. But there's a trade-off between quantity and quality; and there's no easy way to prioritize one over the other. Moreover, by "independent" she means "not affiliated with a distribution network," which amounts to a preference for ABC's "The Bachelor" (owned by Disney) over NBC's "The Biggest Loser" (owned by Comcast). Both "The Voice" on NBC and "Survivor" on CBS were developed by the same independent producer. But how likely is it really that Comcast would refuse to distribute "Survivor," or forego the licensing fees and withhold "The Voice" from competing distributors? The incentives are complex, but that is exactly the point: The market's complexity makes it impossible to draw the simplistic conclusions that Crawford does.
There's nothing wrong with Crawford's impulse--her sense that something's in need of fixing. But intuition is a poor guide for policy-making. If government does have a role, it should be only when rigorous analysis suggests more good than bad will come of it, weighing the realities of both market failure and government failure.
So how do we guard against the possibility of consumer harm without making things worse? For us, it's a mix of promoting both competition and a smarter, subtler role for government.
Despite Crawford's assertion that the DOJ should have blocked the Comcast-NBCU merger, antitrust and consumer protection laws do operate to constrain corporate conduct, not only through government enforcement but also private rights of action. Antitrust works best in the background, discouraging harmful conduct without anyone ever suing. The same is true for using consumer protection law to punish deception and truly harmful practices (e.g., misleading billing or overstating speeds).
A range of regulatory reforms would also go a long way toward promoting competition. Most importantly, reform local franchising so competitors like Google Fiber can build their own networks. That means giving them "open access" not to existing networks but to the public rights of way under streets. Instead of requiring that franchisees build out to an entire franchise area--which often makes both new entry and service upgrades unprofitable--remove build-out requirements and craft smart subsidies to encourage competition to deliver high-quality universal service, and to deliver superfast broadband to the customers who want it. Rather than controlling prices, offer broadband vouchers to those that can't afford it. Encourage telcos to build wireline competitors to cable by transitioning their existing telephone networks to all-IP networks, as we've urged the FCC to do. Let wireless reach its potential by opening up spectrum and discouraging municipalities from blocking tower construction. Clear the deadwood of rules that protect incumbents in the video marketplace--a reform with broad bipartisan appeal.
In short, there's a lot of ground between "do nothing" and "regulate broadband like electricity--or railroads." Crawford's arguments simply don't justify imposing 19th century common carriage regulation on the Internet. But that doesn't leave us powerless to correct practices that truly harm consumers, should they actually arise.
1. Americans pay more for slower speeds than people in other countries. European consumers have more choice and better prices.
2. Americans should have fiber.
3. Cable dominates the wire line networks and there is a duopoly between cable companies Comcast and TimeWarner.
4. Wireless is a duopoly of AT&T and Verizon.
5. The poor in America are particularly underserved.
A response to Crawford's points:
Crawford attempts to simplify the explanation of connectivity by describing networks in three batches: copper, fiber, and mobile. While this is a helpful construct for new students of the topic, it can fail to explain the differences between the US and Europe. Each country has a different history, geography, government, and regulatory regime. We can however discuss some trends and generalizations from the European experience to help inform the discussion.
For example, I am American who lives in Denmark and enjoys low prices for connectivity. One month of wireless access costs the same as a large pizza and a 2 liter bottle of Coke. This country of just 5.5 million people has 4 mobile network operators and more than dozen virtual mobile operators. So indeed, there is some truth to what Crawford writes about some European countries having it better than Americans, though end user prices don't explain everything.
Wire line options in Denmark are cable, DSL and fiber, and despite that the old incumbent controls more than 50% of at market, there are still low prices. This is because competition is not driven by the number of players, but rather technology. Mobile operators are in race to upgrade their infrastructure. Thus the old incumbent keeps its prices down to keep its DSL customers from flocking to mobile. Crawford maligns consumers' switching from wire line to wireless networks, but the wireless route is the increasing choice of people around the world. Building wire line infrastructure is expensive in the developing world, just as it is in the USA.
Europeans attempted to create infrastructure based competition by beginning with service based competition (Martin Cave's "Ladder of Investment Model"). A fixed low wholesale price was offered. However, most entrants on this model have been content to stay as service providers, not upgrade to infrastructure. It turns out that there are a set of competencies to be retailer vs. an infrastructure provider.
The US opted for a different course. They believed they needed to start with competition at the infrastructure level. Unfortunately many new entrants have tried but failed to succeed (Sprint, MetroPCS, Clear etc). They paid so much for licenses that they had no money left to run their businesses. On top of that, they made strategic mistakes in choosing the wrong technologies (CDMA, WiMAX). Crawford points out that people are leaving the upstarts to go to the incumbents. But should we blame the incumbents for their competitors' missteps, and is the role of regulators to compensate for companies that can't run their businesses well?
The lesson for the USA is that just having more players in the market will not ensure competition. If the FCC wanted to promote competition today, it could offer an aggressive strategy to seed mobile network virtual operators (MVNOs). Furthermore, the emphasis on infrastructure seems misguided. Infrastructure CAPEX comprises 15% of a carrier's sales budget, but sales and marketing costs account for 20-25% of sales. So it would seem that regulators should subsidize marketing cost rather than infrastructure.
The FCC must certainly be disappointed with Crawford's book. She claims that they provide "no oversight". This strikes me as a harsh overstatement. On the FCC homepage one can submit a complaint on more than a dozen issues, and by law, the FCC must respond. Further the FCC notes, "The United States leads the world in key areas of wireless infrastructure and innovation, including being the first country to have 4G Long-Term Evolution (LTE) technology networks at scale and to enable unlicensed use of white space spectrum." Their National Broadband Map on broadband.gov contradicts Crawford's assertions about the lack of competition, where it notes much of America is served by 4 or more providers.
The transparency requirements from the FCC are some of the most stringent on any industry in the USA. Imagine if there were such disclosures for mobile phones, websites, and other products and services.
Crawford insists that Americans must have fiber and advocates the 100 Mbps by 2020 plan so popular with governments now. The problem with fiber is that the numbers don't add up. Not only is there not a business case to build it, there is hardly the need. Crawford provided data from Netflix, the single service that creates more data traffic than any other in America today. Though it runs best on fiber at 2.5 Mbps for a just a fraction of its customers, the vast majority enjoy Netflix on cable or DSL at much lower speeds. When almost 60% for internet traffic is for real time entertainment today, do we need faster, better pipes bringing even more music and movies to our homes?
Crawford rightly points out that there are parts of the USA that are underserved today, but at the same time, she does not mention that there are areas of oversupply. Adding fiber to the mix, especially under government subsidy, seems tremendously misguided when there is a need to address those worse off first.
Look at it another way. Where is the business value in innovating a higher bandwidth service? Around the world, we see content and application providers optimizing down their services so that they can be consumed at lower speeds. Also, consider the world of content delivery networks (CDNs), which transmit 80% of the world's content. The cash flow for that industry is the same as it was 10 years ago, but more CDN companies distributing more content. Technology innovation, rather than bandwidth increase, has driven the efficiency. Even with Moore's Law, how realistic is it that the demand for broadband speeds to be 50 times what is available today in less than 5 years?
Crawford cites Google Fiber as a "disruptive" success story, but I can't agree. Google Fiber is available in only one city in America, and the $120 monthly service fee with a $300 hookup nearly killed the program before it started. As such Google has waived the hookup fee, and this could have never got off the ground without many concessions from the local Kansas City government. In any case, Google does not have plans to become an infrastructure provider; they simply don't have the cash flow. AT&T and Verizon together invest $70 billion a year in infrastructure in the US, almost twice Google's global annual revenue. Furthermore, they pay high rents to landlords and municipalities to erect mobile masts and antennas.
Also consider that the average price of fiber to the home (FTH) is about $5000 per subscriber. Even with the various price points for Google Fiber ($120, $70) and the sign on fee, the breakeven point for a carrier takes many years and requires major government subsidies. Even so, Crawford wants subsidies for fiber, but it seems hard for me to justify when she herself points out that wireless and wire line players have a lot of free cashflow. Needless to say, wireless looks all the more reasonable given other options. You can see the link for Google Fiber at fiber.google.com/about/
Crawford offers some statistics about the poor in America, particularly people in rural areas with low-income who have no internet access. This is indeed a terrible thing. However, to think that addressing poverty can simply be resolved by providing access to the internet is wrong. You can't ignore the role of fundamental neglect of education and employment in rural America and then simply blame the telecom industry for the problem. That's the same as blaming Harvard and the many nearby educational institutions for not doing their part to improve life in Western Massachusetts.
To build her case for the "more than one-third of Americans without internet access", Crawford cites the report from the U.S. Department of Commerce, "Exploring the Digital Nation: Computer and Internet Use at Home", a survey based on some 55,000 households, which is to be representative of America. Crawford fails to point out that the number one reason why one third of Americans don't have internet is not because they can't afford it, but because they don't want it (47%). The issues of affordability (24 percent) and an inadequate computer (15 percent) affect fewer Americans.
With the rise of inexpensive smartphones and tablets, we can at least see that the 15% of the unconnected Americans will have a better chance to get internet access. The report was published in 2010, and today, more than half of all Americans have a smartphone.
The more interesting number is the 47% of unconnected Americans who don't want internet access. This goes to the heart of all the grandstanding about 100 Mbps by politicians, academics and policymakers. Ostensibly these free-thinking Americans realize that there are other things to do with one's time than be online: relax with family and friends, enjoy the outdoors, or read old-fashioned books. Indeed these people probably enjoy watching a movie on a DVD player, like the majority of Netflix's customers today who still use the DVD by mail service.
Crawford also complains that phones and connectivity are taking up more of consumers' budget than in the past. But we could say that about a number of things. As for the price increasing on phones and connectivity, you get more for your money today than 5 or 10 years ago: more speed, more content, more functionality. Do we complain about the cost of cars rising? Clearly a car made in 2013 offers more than one made 30 years ago, and naturally, it is priced higher.
Consider what the typical American spends on a daily Starbucks run, about $5 bucks a pop. Telecom, web and mobile service is about half that per day. If we are quibbling about these amounts, then it's time for the FTC to put a price ceiling on lattes.
Crawford is right to point out that more needs to be done to address competition for connectivity and access for rural poor, but her suggestions are not the way to go. She doesn't mention MNVOs at all, but this strategy is the fastest, cheapest way to serve everyone. In summary Crawford puts a lot of blame on the telecom industry and the FCC, but she doesn't seem to consider that individuals make their own decisions about what kind of connectivity they want.