Transcript: Community Broadband Bits Episode 185

This is Episode 185 of the Community Broadband Bits Podcast. Chris debates Ryan Radia, Associate Director of Technology Studies at the Competitive Enterpise Institute, on local governments, Internet access, and bandwidth caps. Listen to this episode here.

 

Ryan Radia: It’s undoubtedly true that if a city comes in and says, “We’re going to invest a lot of money in building a broadband network that’s better than the one that currently exists.” That’s to put pressure on the incumbent to offer better service. The question is whether that overall outcome is better for consumers.

Lisa Gonzalez: Hello, you’re listening to episode 185 of the Community Broadband Bits podcast from the Institute for Local Self-Reliance, I’m Lisa Gonzalez. The question of what is best for subscribers is at the heart of technology policy. In this episode, Chris takes up a friendly debate with Ryan Radia, associate director of technology studies with the Competitive Enterprise Institute. The power of incumbents and their role, the reach of regulation and how municipal networks fit into the landscape are only a few of the issues Chris and Ryan discuss in episode.

Not only do we need to think about these matters in the context of today but we need to consider them as technology advances and try to develop intelligent policy that will embrace the future. Now here are Chris and Ryan Radia of the Competitive Enterprise Institute taking up different views and presenting their arguments on technology policy.

Chris Mitchell: Welcome to another edition of the Community Broadband Bits podcast, I’m Chris Mitchell and today we have a bit of a treat, we’re going to have a debate. A debate that discusses the viewpoints from both my point of view and my guest, Ryan Radia, the associate director of technology studies with the Competitive Enterprise Institute, Welcome to the show.

Ryan Radia: Thanks for having me Chris.

Chris Mitchell: Ryan, you’ve been involved in these technology policy discussions for a while, we’ve been on some radio shows together where we have opposing points of view. I’ve come to think of you as someone that, I don’t know, I think of you as someone who thinks deeply about these issues in ways that I appreciate even though I may not get to the same point you do. Why don’t you tell us a little bit about CEI?

Ryan Radia: Sure so CEI, the Competitive Enterprise Institute where I work is a think tank that advocates the public interest as we see it in particular with the focus on free markets, on voluntary institutions and civil society with the goal promoting consumer choice and individual freedom. My work there folks is primarily on technology and information policy.

Chris Mitchell: When I proposed this show I listed some things in which I thought that we would agree and some things in which I thought we would strongly disagree. It was interesting to me because in my mind I think so often of the existing incumbents as being one of the main barriers to better consumer choices in the market that I thought we would agree on that and you pushed back. Let me just state my case which would be I think that the incumbents tend to be one of the biggest factors that limit consumer choice because of their overwhelming market power in a variety of ways that I think we can get into in the next few minutes.

Ryan Radia: I disagree with that in part. If you look at the history of broadband in the United States, you do have some clear evidence I think that especially in certain areas, certain parts of the country where the incumbent telephone company or the incumbent cable company was sluggish or didn’t have a 2nd rival, the markets didn’t work very well. On the other hand, I think especially more recently, due in  part to changes in the structure of the market and due to some technological innovation, not just on the wireline side but on the wireless side, the degree to which I worry about incumbents has been diminishing to the point where I think the things that we need to be focused on if want to make broadband markets work better are more on the limit barriers to the entry and competition side rather than the limit incumbents force them to open up their networks, regulate their prices and so forth.

Chris Mitchell: I think I would agree with you, I think for different reasons in the terms of … I don’t put my energy in terms of encouraging us to open up the networks of the incumbent providers. I don’t frankly want to get into a big fight about price regulation because I think it’s a ground in which the public interest which I think we broadly claim and I’m sure that people such as yourself would rightly chafe at the idea that you’re not the public interest. I’ll just note that we can have a disagreement there. The groups that typically call themselves a public interest, I don’t think we have a very good chance of winning in a price regulation fight and in how to open up the networks. My argument with the incumbents is that I’m worried that they have too much ability to engage in predatory pricing.

Actually that’s one of the reasons I support municipal networks because I feel like the private sector, if you are an entrepreneur who’s trying to compete with Comcast in a small or a moderately sized city, I think you’re going to have just tremendous difficulty trying to be able to compete because Comcast will just lower their rates artificially, temporarily they can engage in cross-subsidization and engage in what we would call predatory pricing where you’re pricing below the costs to run the temporary competition out of the market. I would think that we’ve seen that example many times with small, private entities that tried to compete. The reason I think municipals are a little different is I think they are in a position where they can withstand that for extra years in ways that make it harder for predatory pricing to prevent competition. I am curious from that angle, if you have any strong reactions?

Ryan Radia: Well I should note that predatory pricing under certain circumstances where it is intended to foreclose competition where it involves a company with monopoly power pricing below cost in a way that makes it essentially impossible for entry to be economical is illegal under current law although it’s fairly uncommon for the anti-trust authorities to successfully bring those cases in part. I think it turns out that predatory pricing isn’t as common as it often seems. Of course to be sure when we’ve seen companies enter new broadband markets for instance when we’ve seen Google Fiber come into a handful of cities and growing number of cities across America offering generally better throughput at lower prices than existing incumbents we have seen incumbents often come in and match the services that Google’s offering.

I’m not sure if in those cases the incumbents are actually losing money, it’s a tough situation to assess really what the proper metric is because of the way in which the costs are spread around throughout, throughout a regional area, throughout a city and of course the cost of acquiring access to other networks which varies by ISP. Incumbents for instance, some of them have to pay for transit, others are involved in peering arranges because of their traditional rules as T1 networks. On the question of whether municipal broadband networks can come in and check that, it’s undoubtedly true that if a city comes in and says, “We’re going to invest a lot of money in building a broadband network that’s better than the one that currently exists,” that’s to put pressure on the incumbent to offer better service.

The question is whether that overall outcome is better for consumers. It might seem counter intuitive to say that it’s not but I’m just not sure that the outcome of a city’s investing a lot of money in a network which may involve raising money through issuing bonds. Then the end result being, gigabit broadband being available is as beneficial as it might seem, it might even be costing on that simply because in many cases the incumbents tend to offer … Especially recently … Tend to offer fairly decent broadband packages at fairly modest prices. That of course varies by incumbent when you look at a Comcast or a Verizon or a Charter, you tend to see pretty reasonable prices and services.

There are other parts of the country or even neighborhoods where you’re limited to older DSL technologies where the cable company is smaller, hasn’t invested in upgrading its network where maybe the boost from a municipal broadband entry can be valuable. I just think it’s hard to say as a general matter that a municipal broadband is an unqualified good. I think that there are good reasons why voters and city officials should be skeptical before they pursue these networks. As a principle matter, I think that there should be a pretty strong presumption that when you have a service that looks like a private good in the sense that you can have competition where the people who benefit are the people who pay for it, where you can exclude and so forth out of the economic sense of a private good.

We should really be looking first and foremost to markets to deliver them because that’s the model which seems to have worked throughout the rest of the economy. Of course again I recognize as you’ve said that there are instances where you can point to an incumbent sort of getting the kick in the pants to deliver better service as also municipal broadband. I’m just not sure if that’s always an outcome that’s on net good. Even if it is good for people who like being able to download Halo 5 in a matter of minutes instead of hours or do many other things.

Chris Mitchell: I think that’s one example of how people use their internet and it’s one that frankly I think actually has real world consequences in terms of property values and things like that. I also think that when I look at the rise of bandwidth caps now, I was just shocked to see that my wife and I who stream almost all the media that we watch and I’m also a very active internet user although I do zero Torrenting or  other file trading that artificially pops up you bandwidth usage. I’m using between 415, 500 gigabytes per month on my Comcast connection. When I look at the kind of caps that they’re considering, there again I start to get concerned and there again I start to think about …

Historically we’ve often looked at speeds and I think you’re right, that Comcast and some other providers although certainly not all have up their game and I think that’s in response to a variety of factors. I also see some of these things looming on the horizon and I really worry about whether as a Comcast customer who has no other option for high speed internet, if I’m going to be really seeing my cost go up suddenly to use the same amount I’ve been using currently.

Ryan Radia: The bandwidth cap issue is an interesting one. Years ago when … We’ve been involved in this for a while, people were worried about 50, 75, 100 gigabyte caps per month. In those situations I was very sympathetic to skeptics of those caps as being problematic from the standpoint of a reasonable internet user. Comcast 300 gigabyte caps strikes me as more reasonable if you look at the statistics. 95-98% of their subscribers depending on which press release you look at or which data you look at aren’t going above that. It’s my understanding that most HD for instance, a lot of folks stream HD as you mentioned, high definition content over say Netflix or Amazon Prime, 5 megabits per second, you’re maybe looking about 300 gigabytes getting used if you use it to stream high def.

You’ve got several hundred hours, maybe often 200 hours, 300 hours of stream. Now of course if a household of multiple individuals who are voracious media consumers and are really relying on streaming rather than traditional television, it is conceivable that folks will hit that amount. It is worth noting though that whereas in New Year’s past we saw that the word cap really meaning cap. You would see on dslreports.com and other forums people getting removed, their accounts would be terminated if they went over, if they use what you’re using now in some cases I think. Now instead they’re moving toward a model where they’re charging extra and that has gotten a lot of criticism. I think some of that is misplaced because it focuses on this idea for instance that if there’s not congestion, there shouldn’t be a limit which I think is a misnomer.

I don’t think in many cases on the wireline side the reason why these limits are being instituted is because of congestion although there may be congestion during peak hours at some points in time. It’s more about figuring out a way to address this over the client and average revenue per user that cord cutting is causing along with the fact that … Again, it’s not just about speed, it’s about usage. It’s not clear why my neighbor who transmits a fifth of the data as I do every month should pay the same amount as I do.

Chris Mitchell: Let me actually answer that because I actually think that the answer is because the cost of providing the service are effectively pretty much the same. The marginal cost of providing my high usage versus my neighbor that uses less is pretty small from as I understand the economics of it. The biggest cost tends the capital cost of building the network and we have the same components.

Ryan Radia: That’s right, I agree with that. I agree that it’s not about the cost so the analogy that I would use is if you look at buying plane tickets. Of course if you buy near the date of travel the fares are a little more expensive. Now in many cases that’s because there are simply fewer seats so it is really about scarcity. If you look at a flight that’s say half empty and flights go out half empty all the time in the United States.

Chris Mitchell: I believe you, it’s just never the ones that I’m on.

Ryan Radia: No, you’re right, it’s not common, by all the time I mean maybe 5% of flights will go out half empty. It happens thousands of times every week but the point is, for the small percentage of flights where the airline knows it’s probably going to go out empty because there are occasions it’s just going to be flights where you need to move the plane, you’re not going to be able to fill it up but you might as well have some passengers, they’re still charging those higher prices during closing. The reason is because they’re trying to essentially capture the value from the consumers that demand the service the most in a way that leads to an overall revenue pie that creates a sustainable product.

To me it’s more that the providers are trying to figure out, “Who really cares about the service? We’re going to charge them more than we charge the people who care less.” The result being in theory an increase in overall surplus. Of course, you ask an economist whether that is good for consumers and they’ll say it depends. It really genuinely does depend on the specifics of the situation. I’m not saying that these pricing policies can’t have harmful impacts but the idea that they are always bad I think is also wrong. I think there are lots of parts of the economy where you just don’t want pricing to be based on a cost because the marginal cost is just so low.

Same with movie release window, there’s a reason why if you want to rent a movie on demand at home you pay a much higher price right after it comes out than you would a year later when it might be over your television for free. It’s not a cost difference it’s about figuring out how to capture value in a way that creates an overall sustainable industry. Again, it doesn’t mean it can’t be bad but it’s just not always bad.

Chris Mitchell: I want to pivot and end this show with a little discussion about conduit and what we might call passive investments. One of the things that we recently saw was that TechFreedom came out in support of municipalities building what I believe were called the freedom conduits in the parlance of the TechFreedom organization. An organization that I tend to have strong disagreements with but it just so happens that we’ve long been very supportive of cities building passive investments, we think that that’s … It can be a smart strategy in some cities, in other places we don’t think it goes far enough to address the goals that cities may have. Can you tell me a little bit about your thoughts in terms of cities investing in passive infrastructure, this will be like dark fiber, conduits that would be available on accessible terms, reasonable terms to parties that would then themselves provide competition?

Ryan Radia: I think it’s a great idea. Too often I think you see governmental entities fall into the trap where their focus is just on generating revenue. If the goal is to maximize revenue maybe an exclusivity deal is what you want. I think that the way the city oft be generating revenue is through broad based taxation and user fees that are reasonably commensurate to what the city is providing. To the extent that cities are in a position to offer conduits that make it easier and less expensive for either existing  incumbent providers to expand their networks to replace copper with fiber or for new networks to be built. Even if these networks aren’t necessarily being deployed city wide, that seems to me to be a very positive outlet especially in the commercial broadband space where you actually see some really robust facility based competition in dense urban business areas in terms of being able to purchase high end fiber connections.

Not so much one or two, but several providers that have been able to attain its access. I think it’s a great way that municipalities can encourage competition in a way that doesn’t really cost anything, it doesn’t really put any major financial risk on tax payers but can deliver real results to consumers.

Chris Mitchell: To some extent I feel like I’ve given up on poles. I feel like pole owners have so much power and the agreements are so difficult to unravel and to deal with the different tights of different entities on poles plus poles are just so ugly and aesthetically I think they present a real loss to society and neighborhoods that have them. Just going through Seattle where they have beautiful sight lines that are constantly marred with above grade wires. Actually one of the reasons I really support more conduit and making it accessible in this way is that I think I’d like to live in a future where we have choices in providers and it doesn’t require having even uglier aesthetic views above ground. I’m curious, as someone who looks at all these pole issues and rights of way, do you think I’m not to something or am I confusing issues in your minds in terms of giving up on poles?

Ryan Radia: I think tactically, yes, they have a lot of power. I also agree that aesthetically they’re not pleasing, I certainly like to see wires underground. Of course when you’re talking about weather related outages, not just of broadband but also of electricity, you often see that being less of a problem where you don’t rely on poles so there’s certainly lots of benefits. I also understand there are costs to … There are some insignificant costs to going underground in terms of insulating wires, of course this can be a bigger problem with copper versus fiber. I’m not sure that a pole free future would happen in the short term or even that it should happen but certainly in the long run, I think it’s highly unlikely that we’re going see these poles everywhere in 100 years.

I think we’ll figure out better ways to do it and it may involve wireless point to point infrastructure which I know has taken off in terms of providing backhaul for cell towers in part because of concerns that you can’t get a good enough deal from an incumbent. I think that you make a fair point and it sounds like if we can get away from the pole issue that that would be a better place for us to be as consumers.

Chris Mitchell: Well I think there’s a lot of other things that I’d like to continue discussing and depending, if people enjoy this, I really hope they’ll reach out and tell us because I’d like to do more of them. I think we are going to draw the line there and call that a show. Thank you so much Ryan for coming on from the Competitive Enterprise Institute.

Ryan Radia: Right, thanks again for having me, it’s always good to talk to you Chris.

Lisa Gonzalez: That was Chris talking with Ryan Radia, associate director of technology studies with the Competitive Enterprise Institute. Send us your ideas for the show, email us at podcast@muninetworks.org. You can follow Chris on Twitter, his handle is @communitynets. You can also follow muninetworks.org on Twitter where the handle is @muninetworks.org. Thank you to Arne Huseby for the song, “Warm Duck Shuffle” Licensed through Creative Commons. Thank you for listening to episode 185 of the Community Broadband Bits podcast.

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