Open Access: The Third Way

Andrew Cohill, Design Nine
Publication Date: 
Monday, 2010, February 1

Andrew Cohill of Design Nine has released a report about Open Access networks: "Broadband for America: The Third Way." I wanted to highlight this report because open access is an important idea that should be promoted and discussed. I believe open access is the most promising way to create the world most people want to live in - fast and affordable networks offering many choices in services and service providers to all Americans. However, though I hold Andrew in high regard, I have some disagreements with the paper that are noted below. This paper comes at an important time. For more than a decade, we have ended each year with less broadband competition than we started with. Politicians and regulators have abandoned policies aimed at promoting competition despite their continued lip service in favor of it. Incumbents have more and more power over both subscribers and entire communities. If we want competition in broadband and cable (and I certainly do!), open access is the only feasible approach. The cost of building the networks is fantastically high whereas the cost of offering services to an additional user are tiny. The result is a network with strong natural monopoly characteristics. Without a network that shares infrastructure (wires, poles, CPE, etc.), the market will trend toward monopoly or duopoly. Wireless complements wired broadband but cannot provide the high speeds and reliability of fiber-optic networks. Even if some metro areas can support multiple networks, most rural areas can barely support one network. Without open access, significant parts of the country cannot have a choice in service providers. Further, when the infrastructure is publicly owned and encourages competition, difficult problems like network neutrality quickly fade. Network neutrality legislation is needed because of profit-maximizing companies who are emboldened by too little competition. Publicly owned infrastructure requires less federal regulation because its incentives are to be responsive to community needs, not to maximize profits. I recommend reading his paper before reading the issues I raise below. Though I am agreement with the majority of his points, I want to note that we will continue opposing state laws that require communities to build wholesale-only networks (where the community does not provide retail services) because communities must be free to choose the business model that suits their needs. Communities must be empowered to invest in the infrastructure they need and they must be free to choose what model they use in building it. Wholesale-only networks are extremely difficult to finance in the early years and communities may want to offer retail-services while building up the network and establishing a reputation before opening it to competitors and then ceasing to offer retail services. The only part of this report that raised red flags for me was the repeated claim that by providing infrastructure and not services, the government is not competing with the private sector. Before discussing the merits of that argument, I want to rebut the idea that government should not compete with the private sector as this is one of the biggest talking points of incumbents who really don't want to compete with anyone. They use this talking point because it causes many to focus on government as the problem rather than the real problem of unaccountable, absentee companies that control access to essential infrastructure. The simple fact is that governments compete with the private sector in many ways on a daily basis. Libraries compete with book stores, schools with private schools, public transit with taxis, police with security firms, even municipal golf courses and swimming pools with privately owned leisure destinations. Without public competition in the form of the Rural Electrification Authority, much of the country would still not be wired for electricity or phones. The idea that broadband breaks a historical tradition of government not competing with the private sector is inaccurate. Local governments have long invested in necessary infrastructure for the community, especially when the private sector was doing a lousy job of it. Governments generally do not want to compete with the private sector but reluctantly do so when necessary. In the case of broadband, relying on existing carriers to build fast and affordable broadband in many areas will greatly damage the community because people do not want to live or locate businesses in communities with poor broadband access. Communities must take charge of their future, not delegate this responsibility to absentee companies focused on profits rather than what the community needs. The question of whether a publicly owned, wholesale-only network constitutes competition between the local government and the private sector is disputed. Even if most of us can agree such a network does not represent public v. private competition, incumbents like Comcast and Qwest strenuously disagree. As recently as December in Brigham City, Utah, Qwest fought the city's efforts to expand the publicly owned UTOPIA open access network with claims that it was unfairly competing with Qwest. Most incumbents, particularly the large national companies, are not interested in competing fairly on an open access network. They want to own the network because that allows them to restrict competition and own the customer. Inviting incumbents to use an open access network is a great argument for gaining public support (who want more competition) but has not prevented incumbents from fighting such community-owned networks. Getting incumbents on the network is a chicken and egg problem: open access networks greatly increase in value the more subscribers they have. So long as incumbents refuse to use the superior network and retain significant customers, open access networks struggle -- and this is why the incumbents fight them so strongly. They want to strangle this baby in the crib, preserving their monopolistic model. Over time, the larger open access networks become, the more tempted incumbents will be to use them to gain access to millions of new subscribers. Thus, we should expect open access networks to continue creating massive opposition from national service providers until one of them breaks and starts to offer services. Unfortunately, all the open access networks in the U.S. probably have less than 20,000 customers. We are nowhere near the scale needed to break the incumbent-opposition dynamic. I hope my disagreement with the report on one small issue does not detract from my agreement on the importance of open access networks. With publicly owned open access networks lie a future with greater freedom for all of us to choose what services we want on faster networks. Though the vast majority of America will benefit from this approach, national companies that prefer to own the customer have a lot to lose -- take a look at the profits of Comcast, AT&T, and other telecom companies throughout the recession. They don't want to deal with competition, they will fight open access, and they have a ton of power in our political system because of the profits they are defending.

Photo courtesy of Gideon Burton via flickr