Transcript Internet Access as Essential Infrastructure: Public Utility, Private Utility or Neither? A Presentation at The Legal and Political Debate Over Network Neutrality University of San Francisco.

Internet Access as Essential
Infrastructure: Public Utility, Private
Utility or Neither?
A Presentation at
The Legal and Political Debate
Over Network Neutrality
University of San Francisco School of Law
January 26, 2008
‘
Rob Frieden, Professor of Telecommunications and Law
Penn State University
[email protected]
Web site : http://www.personal.psu.edu/faculty/r/m/rmf5/
Blog site: http://telefrieden.blogspot.com/
Absent Market Failure Should Governments Stimulate
Broadband Investment, Subsidize Service,
or Become a Carrier?

Few would dispute the view that broadband access contributes to regional and global
competitiveness, especially in the hinterland where distance insensitivity has a greater
impact, e.g., cheap telecom promotes outsourcing.

“This country needs a national goal for…the spread of broadband technology. We
ought to have…universal, affordable access for broadband technology by the year
2007, and then we ought to make sure as soon as possible thereafter, consumers have
got plenty of choices when it comes to [their] broadband carrier.” President George
W. Bush, March 26, 2004
http://www.whitehouse.gov/infocus/technology/economic_policy200404/chap4.html

The Internet provides a case study of successful government incubation, anchor
tenancy and privatization.

Governments historically have operated public utilities, or conferred lavish financial
benefits to private utilities.

Even non-utilities, e.g., local exchange telephone companies, have qualified for
generous subsidies, e.g., over $7 billion in universal service funding annually.
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Using Current Broadband Statistics, One Can Reach
Vastly Different Conclusions About Conditions
in the U.S.
The broadband marketplace in the U.S. is doing
well and could do better if government
deregulated further to remove regulatory
uncertainty and disincentives for investment.
versus
True broadband, i.e., 786 kilobits per second or
greater, shows marketplace failure in many
regions where two or less facilities-based
carriers operate.
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Lines by Information Transfer Rates in the Faster Direction as of December
31, 2006 (Includes only lines exceeding 200 kbps in both directions)
Source: FCC (2007); available at: http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCCState_Link/IAD/hspd1206_tables.xls
70,000,000
60,000,000
50,000,000
40,000,000
30,000,000
20,000,000
10,000,000
0
Dec 1999
Dec 2000
Dec 2001
Dec 2002
Dec 2003
Dec 2004
Dec 2005
Dec 2006
4.7%
37.0%
> than 200 kbps, < than 2.5 mbps
≥ than 2.5 mbps, < than 10 mbps
≥ than 10 mbps
58.3%
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The U.S. Has 100% Broadband Penetration With Consumers in 84% of All
Zip Codes Having 4 or More Broadband Choices
Source: FCC (2007); available at: http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCCState_Link/IAD/hspd1206_tables.xls
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Dec 1999
Dec 2000
Dec 2001
Dec 2002
One or More Providers
Dec 2003
Dec 2004
Four or More Providers
Dec 2005
Dec 2006
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D
Ne enm
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a
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The U.S. Ranks 15th Among OECD Nations in
Terms of Household Penetration
source: OECD (2007) www.oecd.org/sti/ict/broadband
OECD Broadband subscribers per 100 inhabitants, by technology, June 2007
35
30
DSL
15
Cable
Fibre/LAN
Other
25
20
OECD average
10
5
0
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The U.S. Lags Most Nations in Broadband Penetration
On the Basis of Per Capita GDP
source: OECD (2007) www.oecd.org/sti/ict/broadband
35
90,000
Broadband penetration (subscribers per 100 inhabitants, June 2007)
80,000
GDP per capita (USD PPP, 2006)
70,000
30
25
60,000
20
50,000
15
40,000
30,000
10
20,000
5
0
10,000
0
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Case Study: Port Matilda, PA
The FCC reports I have nine broadband options (source: FCC, Number of
Holding Companies Reporting High-Speed Subscribers by Zip Code as of June
30, 2006
available at: http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCCState_Link/IAD/hzip0606.pdf at p. 569)
The options range from DSL (Verizon not available in my neighborhood, but
presumably somewhere in the zip code) at $14.99 (up to768 kbps downstream/
up to128 Kbps upstream) to Satellite (Wild Blue $79.95 up to 1.5 Mbps
downstream/ up to 256 kbps upstream, plus $368.95 hardware, installation and
activation fees).
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Case Study: Port Matilda, PA (cont.)
Making an “apples-to-apples” comparison, which factors in actual
price cross elasticity, there are three distinct market segments:
1) Non-mobile residence and businesses that can access cable and possibly DSL service;
available for as a low as $14.99 for DSL (with a 1-2 yr. service commitment) up to
$37.99 (no service commitment for up to 3 Mbps downstream/ up to768 kbps
upstream); cable modem service ranges from $27.99 for up to768 kbps
downstream/up to128 kbps upstream) to $42.95 for up to 6 Mbps downstream/ up to
128 kbps upstream) for customers that currently subscribe to Comcast Cable or
Comcast Digital Voice. Without bundling: $59.95;
2) Users that want mobile access; service available for as a low as $26.95 for 10 Mbps
plus about $10 in surcharges and fees (no throughput specified, but GPRS and Edge
do not come close to wireline speeds); up to $59.95 (one-two year service
commitment 5 GB quota and throughput of up to 600 kbps – 1.4 Mbps and at claimed
average upload speeds of 500 Kbps – 800 kbps); and
3) Non-mobile rural users lacking access to cable modem or DSL; satellite service
available for as low as $49.95 for up to 512 kbps downstream/up to 128 kbps
upstream, plus $368.95 hardware, installation and activation fees; $79.95 for up to
1.5 Mbps downstream/ up to 256 kbps upstream, plus $368.95 hardware, installation
and activation fees.
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U.S Broadband Rates: Quite Cheap to Some
and Quite Expensive to Others (source: OECD 2007)
Broadband price ranges, October 2007, all platforms, logarithmic scale, USD PPP
Sw itzerland
Denmark
Netherlands
Turkey
United States
Slovak Republic
New Zealand
United Kingdom
Sw eden
France
Finland
Ireland
Belgium
Greece
Spain
Poland
Germany
Japan
Australia
Norw ay
Canada
Hungary
Austria
Italy
Luxembourg
Portugal
Mexico
Iceland
Korea
Czech Republic
1.00
5.80
6.06
7.74
10.75
Switzerland
Denmark
Netherlands
Turkey
52.15
72.62
87.68
117.18
United States
14.99
199.99
Slovak Republic
15.82
266.93
New Zealand
16.15
119.70
United Kingdom
16.54
62.76
Sweden
16.79
89.60
France
16.99
74.01
Finland
17.92
49.04
Ireland
18.14
154.03
Belgium
18.59
72.66
Greece
19.34
90.43
Spain
20.09
233.64
Poland
20.75
132.48
Germany
21.02
45.19
Japan
21.22
131.57
Australia
21.66
108.45
Norway
21.93
163.04
Canada
21.98
97.63
Hungary
22.18
166.94
Austria
22.88
102.33
Italy
24.13
54.44
Luxembourg
25.29
90.83
Portugal
26.75
91.71
M exico
28.71
157.52
Iceland
30.44
79.38
30.56 Korea 50.93
Czech Republic
33.38
321.88
10.00
100.00
1000.00
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U.S Broadband Rates: Moderate to Many (source: OECD 2007)
Average broadband monthly price per advertised Mbit/s, Oct 2007, USD PPP
Japan
France
Italy
United Kingdom
Korea
Luxembourg
Sw itzerland
Germany
Norw ay
Portugal
United States
Finland
Hungary
Ireland
Netherlands
New Zealand
Czech Republic
Austria
Denmark
Sw eden
Belgium
Slovak Republic
Australia
Iceland
Spain
Poland
Canada
Greece
Mexico
Turkey
3.09
3.70
4.61
5.29
5.96
7.31
8.17
8.44
9.81
11.52
12.60
13.45
14.31
14.92
15.26
16.75
17.54
17.66
17.70
18.40
18.55
19.59
21.34
22.22
22.85
25.03
28.14
29.13
63.89
97.43
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The Current Strategies Do Not Appear Ideal

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e-rate subsidies have achieved modest goals at great expense and
inefficiency.
Municipal wi-fi networks have mixed records; compare Blackburg,
Va. with Philadelphia.
Reserving to an incumbent wireline carrier a right of first refusal
does not offer an optimal national strategy.
Regulatory forbearance based on “robust competition” ignores
evidence that over 96% of the national broadband market served by
two types of carriers (cable modem and DSL).
A broad geographic footprint does not constitute a “perfect storm.”
Failure to apply Carterfone policies to wireless carriers passes up a
lawful and inexpensive catalyst.
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Strategies Worth Considering

Adopt best practices evident in other nations, e.g., Canada, Korea,
Japan.
–
–
–
–
capping government project funding to a percentage of total cost;
creating incentives for demand aggregation;
one time project funding rather than recurring discounts;
promoting innovation and creativity in projects, including technologies
that provide greater efficiency and lower recurring costs, e.g., wireless;
– auctioning off subsidies; and
– blending government stewardship and vision with financial incentives
for private stakeholders to pursue infrastructure investments.

Apply Wireless Carterfone.

Allow e-rate beneficiaries to serve nearby residents.

Adopt spectrum allocation and management rules favoring market
entry rather than warehousing and incumbency.
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