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Fast, affordable Internet access for all.
competition
Content tagged with "competition"
Broadband Policy: Beyond Privatization, Competition, an Independent Regulation
Larry Press takes a rather quantitative approach to demonstrating that the deregulatory telecommunications policies of the past few decades have failed to produce the desired outcomes. We are currently at a key turning point in history: the policies we enact today will have repercussions throughout the entire decade. Fiber is replacing copper, the question is who will own it because owners make rules.
During the last 25 years, telecommunication has moved away from government–owned or regulated monopolies toward privatization with competition and oversight by independent regulatory agencies — PCR policies. We present data indicating that PCR has had little impact on the Internet during the last ten years in developed or developing nations, and discuss the reasons for this. We then describe several ways government can go beyond PCR, while balancing needs for next generation technology, decentralized infrastructure ownership, and immediate economic stimulus. We conclude that there is a need for alternatives to the expedient action of subsidizing the current Internet service providers with their demonstrated anti–competitive bent. The decisions we make today will shape telecommunication infrastructure and the industry for decades.
Frequently Asked Questions
F.A.Q.
- What exactly is a Community Fiber Network?
- Who offers services?
- What does public ownership mean?
- Why publicly owned? Aren't private companies more efficient?
- I heard there is tons of dark fiber available - why do we need more fiber?
- What if a better technology comes along in a few years?
- Doesn't fiber break easily?
- Don't existing companies already have fiber networks?
- DOCSIS 3, isn't that as good as fiber?
- Should government compete with the private sector?
- Do we really need faster connections?
- Symmetric? Asymmetric? Huh?
- Why not wireless?
- What happened to the whole muni-wireless thing?
- What about WiMAX?
- What about broadband over powerlines?
Answers
What exactly is a Community Fiber Network?
A Community Fiber Network is a community-owned broadband network that uses fiber-optic cables to connect all subscribers. It can offer phone, television, and Internet access. The capacity on the network is so great that it could offer tens of thousands of television channels while allowing thousands of people to talk on the phone while still offering Internet access at faster speeds than a cable modem system or DSL currently offer.
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In some communities, the local government (Monticello) or public power utility (Chattanooga) has a department that provides video, phone, and Internet services. In others, the network is only open to private service providers who compete for customers on equal terms (this would be an open network, Report: Open Access: The Third Way). Some cities have used a hybrid approach where the city offers services and offers non-discriminatory wholesale access to other providers and competes against them.
Communities generally would prefer not to offer services; unfortunately, the pure open access or open services model often does not generate enough revenue to pay the start-up costs.
What does public ownership mean?
Public, or community ownership is discussed in greater depth on our public accountability page. Briefly, it means that the public has some measure of self-determination over the network. Much like the water department is accountable to the public and therefore does not raise water rates unreasonably, those running the network would be accountable to the public. If the community decided to offer subsidized connections to those living below the poverty line, they could do that. If they wanted more than a few community channels, they could easily create them. (Report: Breaking the Broadband Monopoly)
Why community owned? Aren't private companies more efficient?
We have an entire page discussing the importance of who owns the network. The thumbnail sketch is that the community now depends upon broadband and cannot rely upon private companies to act in the community's best interest. Refusing to upgrade infrastructure may be more profitable for a private company, but damages the community. (Policy In-Depth: Debate over Muni Broadband Competing With Private Sector)
I heard there is tons of dark fiber available - why do we need more fiber?
Dark fiber, or fiber cables that are currently unused (or "unlit") is not always in convenient places and rarely extends all the way to homes. While dark fiber may help in some areas, it is unavailable in most.
What if a better technology comes along in a few years?
As we discuss on the page dealing specifically with fiber networks, fiber networks are future-proof. The speeds capable on fiber networks are still increasing with new electronics. These networks will have paid for themselves many times over before becoming obsolete.
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As we discuss on the page dealing specifically with fiber networks, fiber cable deployments are surprisingly strong. There are problems when fiber is cut, but there are similar problems when phone lines or power lines are severed. That said, they have proven more resilient than power lines in ice storms and tornadoes.
Fiber networks have been used for decades and the tools for keeping them running 24/7 are mature.
Don't existing companies already have fiber networks?
Most telecom and cable companies have fiber as parts of their network, but they do not connect everyone to the network with fiber. That said, Verizon is increasingly building fiber all the way to homes in some areas of its footprint. The others run fiber to your neighborhood but connect the last mile with slower copper wires that create a bottleneck, resulting in slower speeds that leave us less competitive in a world increasingly requiring faster speeds. Non fiber-to-the-home networks cannot offer the same experience or guarantee the same high level of service that a true Community Fiber Network offers. You can learn more about fiber on our fiber page. (see: AT&T CEO Admits DSL is Obsolete)
DOCSIS 3, isn't that as good as fiber?
DOCSIS 3 is a standard for cable modem networks that will greatly increase the available speeds offered by cable companies. However, the cable network remains a massively shared loop, leaving it vulnerable to a few subscribers hogging bandwidth and degrading service for everyone else. We briefly discuss DOCSIS 3 on the fiber page
Should government compete with the private sector?
Statements like "the government should not compete with the private sector" ignore the many ways in which we already accept important government services that "compete" with the private sector. Libraries might take customers from bookstores. Police forces compete with private sector security guards.
But in other ways, government is clearly crucial to the private sector. Whether by building and maintaining roads, educating the future workforce, or offering clean water at very affordable prices, our private sector economic growth over the past century depended on public infrastructure.
When phone and cable companies try to make this into a public v. private argument, they miss the fact that the question of ownership is actually one of phone/cable companies against everyone else. When the private phone/cable companies refuse to invest in competitive connections, everyone suffers. Private businesses have to pay more for slower services than their competitors in other communities.
The idea of a level playing field between government and the private sector misses fundamental differences between the two. The private sector has a mission to maximize profit and shareholder value, primarily in the short term. The public sector maximizes social benefit and focuses on the long term. Understanding these differences in important to understanding why infrastructure has historically been owned or closely regulated by the public sector. We would not want GM owning the roads; they would find it quite profitable to ban competing car companies or force them to pay more to access the same roads.
Broadband networks have become infrastructure, and private companies should not be the sole arbiters of who gets 21st century infrastructure and when they get it.
(Report: Publicly Owned Broadband Networks: Averting the Looming Broadband Monopoly, Free Press Responds to 'Sloppy' Incumbent Broadband Arguments)Do we really need faster connections?
Some of us do. When Eisenhower decided to push the Interstate system, it was not with the idea that everyone would have to use it. However, business and government functions were greatly improved by this massive infrastructure project. Over time, more and more people recognized its value.
We need more choices. Those that need fast and affordable connections should have the option.
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Symmetric connections have the same downstream speeds as upstream. This means that you can send a file to someone else just as fast as you could get it from them. Asymmetric connections tend to offer much slower upload speeds, which can slow usage of the modern Internet to a crawl. Both cable and DSL networks are typically asymmetrical by design.
10 years ago, when DSL and cable offered cutting edge, fast speeds, most Internet users simply consumed content and they did not need faster upload speeds. However, the Internet has changed and people increasingly want to send large files that require faster upload speeds (for instance, parents want to send photos and videos of their children to family members living across the country).
A purely symmetrical experience is less important than the objective to have fast speeds at affordable prices. But having upload speeds at 1/10 the download speed is clearly too asymmetric to take full advantage of the modern Internet.
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We discuss the merits of wireless here. In short, Wi-Fi is great for mobility, but does not offer competitively fast speeds or the reliability of wired connections. Fiber is a long term investment that facilitates wireless, but wireless is not a replacement for a full fiber-to-the-home network.
A fiber network could actually lay the groundwork (literally) for a wireless network. The fiber network would offer more potential locations to add wireless access points, which need backhaul.
What happened to the whole muni-wireless thing?
Communities around the country have investigated wireless networks. Some entered into contracts with private companies, such as Earthlink, who promised to build the networks at no cost to the city. When Earthlink failed to make a profit, for a variety of factors, it turned the networks off and abandoned the cities. These are the failures that have led the press to pronounce all municipal wireless efforts as dead.
Municipal wireless is far from dead. There are a variety of business models that are achieving variable levels of success. The main advantage of wireless is that it allows users to be mobile. However, mobility comes at a price - wireless connections tend not be as reliable or fast as wired access (especially when connected to a full fiber-to-the-home network. More information on wireless here.
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We touch on WiMAX in our wireless page. Briefly, WiMAX is unproven and cannot compare with fiber in its ability to reliably deliver the fastest speeds. Additionally, the nature of WiMAX locks subscribers into a single vendor in ways that do not encourage competition. (see: Stories on WiMAX)
What about broadband over powerlines?
Broadband over electrical power lines is ultimately too expensive, delivers speeds that are too slow, and has too many bad side effects.
Additional questions may be posed to broadband@muninetworks.org.
Bureaucrats as Entrepreneurs: Do Municipal Telecommunications Providers Hinder Private Entrepreneurs?
We consider how government-owned enterprises affect privately owned rivals. Specifically, we compare the types of markets that municipally owned telecommunications providers in the United States serve to the types of markets that competitive local exchange carriers (CLECs) serve. We find that CLECs focus on potential profitability while municipalities appear to respond to other factors, such as political considerations or the desire to provide competition to incumbents. As a result, municipal providers tend to serve markets that CLECs do not. We also find that the presence of a municipal provider in a market does not affect the probability that a CLEC also serves that market. Our results suggest municipalities may not pose a significant competitive threat to CLECs and do not preclude CLEC participation.
Empirical Study: Does Municipal Supply of Communications Crowd-Out Private Communications Investment?
There are 2,007 municipalities across the United States that provide electricity service to their constituents. Of these, over 600 provide some sort of communications services to the community. An important policy question is whether or not public investment in communications crowds out private investment, or whether such investment encourages additional entry by creating wholesale markets and economic growth. We test these two hypotheses – the crowding out and stimulation hypothesis – using a recent dataset for the state of Florida. We find strong evidence favoring the stimulation hypothesis, since public investment in communications network increases competitive communications firm entry by a sizeable amount.
Who Will Own Minnesota's Information Highways?
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Competitive broadband service and pricing is within reach of most Minnesotans if anti-competitive polices and practices are removed and municipal governments build broadband infrastructure, according to a new report released today by the Institute for Local Self-Reliance (ILSR). The findings are contained in "Who Will Own Minnesota's Information Highways?", a report issued by the New Rules Project of the Institute for Local Self-Reliance.
"Minneapolis and Saint Paul have a once-in-a-lifetime opportunity to develop an affordable, high quality broadband infrastructure that would benefit city offices, consumers and businesses," said co-author Becca Vargo Daggett, a former information systems administrator for a private company.
"But to make that a reality, Minneapolis city leaders must revisit their decision to depend on a private company for future information needs," Daggett warned. "Given that Minneapolis has spent the last 10 years trying to get its cable company to live up to the provisions of its original franchise contract, it is remarkable that it wants to travel that same privately owned information highway in the future."
When cities offer broadband services, the competition with private companies drives prices down and improves service. The experiences with community-owned systems in Buffalo, Chaska, and Windom, Minnesota support that conclusion. The city need not act as a service provider, however. Publicly owned networks in Philadelphia and Western Utah will sell network access to private service providers, who will in turn sell services to consumers.
Level Playing Field
Many private, often incumbent and monopolistic, providers use the term "level playing field" as code for ensuring communities are unable to build their own networks. They do not actually want a "level playing field," they want more advantages for their businesses.
Consider the fight in 2009 over this issue in North Carolina:
HB 1252 would create extraordinary financial accounting and administrative burdens on municipal broadband providers that would render their existence fiscally difficult, if not impossible. The bill also subjects municipalities to the new jurisdiction of the North Carolina Utilities Commission, while not requiring the same of private providers. Also troubling is the injunctive relief provision, which could encourage litigation for purposes of gaining competitive advantage. Furthermore, the legislation appears to prevent municipalities from pursuing alternative funding sources, such as broadband grant programs included in the Federal stimulus bill, the American Recovery and Reinvestment Act of 2009. Source: Save NC Broadband Blog
Additionally, the process in North Carolina reveals the extent to which private providers like Time Warner buy legislation in some states.
While big companies like Time Warner Cable pretend to be the underdog compared to community networks, the reality is that big national corporations have far more advantages than any local government. We created this video to illustrate the point:
Cross-Subsidizing
Cable and telephone companies are able to cross-subsidize their networks - they can charge more in the areas they serve where there are no competitors in order to charge less in a competitive community. Numerous state and federal laws prohibit public entities from cross subsidizing across services. Further, when private companies are forced to have open meetings and disclose their business plans like their public sector counterparts, we will be closer to a "level playing field."
Who Has the Advantage?
In 2005, the Florida Municipal Electric Association rebutted many of the common charges levied against publicly owned networks. The following charts are from "The Case for Municipal Broadband in Florida." It must be noted that different states have different laws, but in general, claims that the public sector has overwhelming advantages over the private sector are absolutely false.
| Taxes and revenues | Public | Private | Gross Receipts Taxes | Yes | Yes |
|---|---|---|
| Sales Tax | Yes | Yes |
| Communications Services Tax | Yes | Yes |
| Documentary Stamps | Yes | Yes |
| Intangibles Tax | Yes | Yes |
| Property Tax | Yes* | Yes |
| Payment in lieu of taxes | Yes | No |
| Corporate Income Tax | No | Yes |
| * Under dispute at the Florida Supreme Court | ||
| Regulatory Requirements | Public | Private |
| Public purpose requirement | Yes | No |
| Public records law | Yes | No |
| Open meeting law | Yes | No |
| Competitive bidding | Yes | No |
| Civil Service | Yes | No |
| Public hearings on budget/financing | Yes | No |
| Public election or recall of CEO (Mayor) | Yes | No |
| Conflict of interest standards | Yes | No |
| Intra-fund transfer restrictions | Yes | No |
| Investment restrictions | Yes | No |
| Local regulation via referendum and initiative | Yes | No |
"Private sector companies have completely different goals, driven by shareholders’ and the financial community’s demand for high, near-term profits from user revenues. In the face of this reality, it is completely inappropriate to use of conventional Wall Street metrics to judge whether a municipal project is successful. The metric for success certainly should not be: “If this were a private firm, would Wall Street like it?”
Source: Jim Baller and Casey Lide - "The Case for Public Fiber-to-the-User Systems"
The very idea that one could somehow balance the advantages and disadvantages of different providers is suspect, as explained by the Georgia Public Service Commission (cited by Baller and Stokes):
Preventing anticompetitive practices, unfair competition, and abuse of market position does not mean that the Commission must impose conditions on every applicant which has some advantage not shared by every other applicant. The Commission is required to treat all LEC's [Local Exchange Providers – i.e. phone companies] equally, not make all LEC's equal. BellSouth and the large cable companies certainly enjoy better capital costs than a typical small business owner. Does this put the small company at a competitive disadvantage? Of course. Should the Commission determine which LEC has the highest capital costs and require that all other companies impute that amount into their rates to level the playing field"? Certainly not. If Marietta has to comply with expensive open records requirements or expensive municipal bidding requirements, should those costs be imputed into the rates of all private companies? Again, no. Similarly, if BellSouth has a large tax write-off one year, it would be ridiculous to require that they impute into their tax rates the taxes they did not have to pay merely because some other company may not have had a tax write-off that year.
What is undeniable is that the public sector and the private sector serve different ends. In general, the private sector excels at maximizing returns for investors and focuses on the short term. The public sector primarily invests for the long term and in order to maximize social benefits. Therefore, the public sector and private sector use different balance sheets.
How public balance sheets differ from private
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If a broadband network encourages economic development because it offers fast speeds, reliability, and affordable prices, a public balance sheet benefits tremendously as the community prospers. However, private balance sheets would not reflect many of the social benefits because they cannot be monetized for shareholders. |
If a broadband network discourages economic development by foregoing costly upgrades that would improve service, the private balance sheet may benefit but the public balance sheet would suffer due to a decrease in social benefits. |
When subscribers make their monthly payments, it shows up once on the private balance sheet (assuming the owner is located outside the community). Some of that money returns to the community in the form of taxes and salaries for technicians. However, on a public balance sheet, the revenue has a larger multiplier effect because that money stays in the community.
Another significant difference between the balance sheets is how much profit is necessary. On a private balance sheet, there is a pressure to profit quickly and increase profits year after year. On the public balance sheet, if it takes ten years to break even, that is acceptable (when was the last time a road "broke even?"). The pressure to profit on the private side results in off-shoring or cutting back on local support that degrades service. On the public side, if a network takes an extra year to generate net income because it has hired another local technician to ensure prompt service, the community benefits.
We are not opposed to profit -- in fact, we work regularly with small businesses to create an environment that encourages them to succeed. In order to succeed, they need access to fast, affordable, and reliable broadband connections. But networks that prioritize profit first tend not to deliver the connections on which all other businesses depend.
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