Thursday, August 04, 2005

Faster, cheaper, open-er

A four prong strategy
Today's news that FCC Chairman Kevin Martin is trying to persuade one of the Democrat Commissioners to lift Title II requirements on telcos' broadband offerings provides an opening for setting a precedent that could help ensure that the broadband Internet is open to customer choice.

The Left likes network neutrality. The telcos (eg Verizon) are willing to implement Chairman Powell's Internet Freedoms. The cablecos are less willing to say the least, particularly in the light of the Brand X ruling - but the Chairman needs a vote. A deal could signal Congressional Republicans about the importance of the Internet Freedoms.

It's a necessary, but not sufficient, step to encourage innovation and strengthen the Internet. Since it all costs money, one needs four parallel tracks:

  1. Require "basic" open Internet access, but allow netops to discriminate among content providers for the rest
  2. Subsidize rural broadband build-out
  3. Support integrated rural development strategies in preference to agriculture subsidies.
  4. Hold the line against content regulation on the Internet, but keep an open mind about taxation.

The key issue is to make sure there is fast, affordable, open access for all.

  • Fast: There is no hard-and-fast definition of "broadband". Faster is simply better. At the moment, tens of Mbps seems to be the reasonable limit in urban areas, but that's out of reach for most Americans, even those in metros.
  • Affordable: There's no point having 25 Mbps service if it costs $80/month. Fast broadband in Korea is around $30/month, but that's with a big subsidy. Competition (where you have competition) will push prices down.
  • Open: The consumer Internet flourished as a result of its openness, which is the upshot of the common carriage status of modem calls over POTS. As everybody knows, that's not the case over cable today, and won't be for DSL once the Telecom Act rewrite gets done - unless Congress ensures it.

Remember "Faster, better, cheaper, pick two?" Network operators ("netops", for short: cablecos and telcos, mainly) argue reasonably that building a fast network takes a lot of investment. If service is going to be affordable, they contend, they need a cut of the profits content providers generate over their wires. This goes against "open"; while big players like Sony, Microsoft, Disney etc. may well be able to pay the toll, innovative small outfits won't be able to sustain the overhead.

The mythical "third pipe" isn't in the offing. Wireless broadband will help in rural areas, but will never be a viable competitor to the wireline players. Wireless just doesn't have enough capacity. Every wire owner is essentially their own FCC - they the entire electromagnetic spectrum at their disposal in the wire. Wireless will always have just tiny slivers in comparison. We're stuck with a duopoly in the US, and it will have to be watched carefully.

The four prongs work this way:

First, find a mid-point between "no carriage obligations" (Title I information service) and "common carriage" (Title II telecommunications service) that advances openness while allowing netops to recoup their investments by milking content owners who want premium service. There needs to be (a) a requirement to provide basic Internet access with no strings attached, with (b) the freedom for netops to to offer more, and charge more, for higher quality access. "Basic" will be like basic cable; part of the network's capacity to which the Internet Freedoms will apply.

Second, find a USF-like mechanism to subsidize the build-out of rural broadband while minimizing structurally distorting hand-outs to rural telco monopolies. I'm in favor of a scheme where subsidy is tied to customer preference. Since one has to handle both operating expenses (easy with per-customer payments) and capital expenses (hard), you'll probably end up with a long-term averaging rather than a per-year pay-out.

Third, reorganize funding for rural areas away from agricultural subsidies to large farmers, and towards development assistance to support local entrepreneurs. The broadband loan program is a possible approach, but I hear it's going down in the budget cuts. The Bread for the World Institute outlines the dynamic of rural development in his 2005 Hunger Report.

Fourth, and changing gears away from infrastructure, take a hands-off posture on content regulation. There is going to be increasing pressure to apply broadcast obscenity regulation to new media. The cable industry has successfully averted that requirement on their pipe by arguing that it's not a public asset, but once you add in Hollywood's worries about losing control over their IPR and worries about the security implications of peer-to-peer technologies, the cards are thrown into the air. I think it's premature to think about clamping down on content that flows over the web. However, and this gets us back to $$, I think the whole approach of "don't tax the Internet" is a pipe dream. I'm not advocating special taxes on the net. However, general taxes should probably apply to the net, both as a transport and for content, as it applies to other media. Tax content and traffic - don't regulate it.

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