BPBS - Broadband JPG 1400Scenario 1: So you’ve decided that you want to cut the cable and just get internet and use services like Netflix and over-the-air. You call up your cable  service provider and say ‘no thank you’ to the package that includes 160 channels of garbage,  5 channels you like and all are filled with more commercials than content.   you figure your $150 a month bill is going to go down to 40 bucks because that’s how much internet access is listed on the bill. You are of course informed that because you’re turning off all of the stuff that you don’t want there are a thousand discounts that were applied to your internet bill that don’t count anymore and your real internet charge is now $150 a month.

Scenario 2: You’re in a small suburb or in a rural area just outside of town. You know you’re stuck with DSL because the cable provider isn’t in your area.  They say you can get three megabytes of speed, it’s crazy slow today but you can make 3 Meg’s work. Only after you are moved in do realize that you are just a tad bit too far from the point of presence and are informed by the pleasant service rep on the phone that you’re lucky to get ½ a megabyte of service. In practical reality it goes down to dial-up speeds if there’s so much as a hiccup in the weather.

Broadband today is an absolute necessity for many aspects of our lives. High-quality Broadband is needed for education, communicating and entertainment. In most Broadband markets you either have a single provider or an oligopoly. In most cases, like these descriptive scenarios, you either have the pleasant option of incredibly high prices or really crappy service. This wouldn’t be a big problem if the majority of life still happened at places other than our digital devices. The problem is our communications, education, shopping and even familial connections all now require a digital internet connection. Welcome to the early 21st century.  

Like all of the Big Problems, Big Solutions articles, we ask two questions.   The first question is how did we get into the situation? The second question is how can we fix it?

Disclaimer: I have extensive experience in this area. I have written about it on my blog and I have a degree I received, in part, by researching and producing a thesis on this very subject. It’s pretty much a passion of mine. I am also highly opinionated on the subject because of the low quality of internet service to my personal residence. Although I know what the solutions are I have never written about what my preference for the solutions should be. I will rectify this today, probably with very strong (but hopefully not obscene) language.

What have we done in the past?

So how did we get here? As I have opined before, the problem with Internet infrastructure, at least in America, is that the entire infrastructure, for the most part, is built on networks that were not designed to carry data.  This is the negative of winning World War II and being on The cutting edge of industrialization for most of the last century. At one point all of our infrastructure was new and it allowed us to be leaders in the world but time has  gone on and our infrastructure including, but not limited to, communication networks are all old and simply not up to the task.

The first major wireline communications network was the telegraph network which quickly, from a historical perspective, mutated into our voice networks. Because of legislative edict, the country embarked on providing 100% access to voice service.  There were subsidies included on everyone’s phone bills for providing services to unprofitable rural areas.  In the very earliest days many people shared a line known as a party line. Eventually the networks matured and everyone got their own private line. The important thing to know about voice is that the networks were designed from the very beginning for two way communications.  Also, voice is not very bandwidth intensive, even in its analog form, consequently the wires that you needed to run voice lines were thin and brittle.  Because it was considered a lifeline service the phone systems were designed to deliver their own power.  This is why phones would still ring even though the electric power would have gone out in a storm or other emergency.  The phone networks were built so solidly they were considered to be substantially more reliable than the power networks.  The structure of the industry naturally evolved into a single government sized provider of services, AT&T which famously got broke up by congress.  In the modern era a version of it sort of reformed because the natural state of equilibrium for a network provider is a large integrated monopoly.  Their business is literally integrating networks, it’s easier and more profitable to do that when you own all the networks.  The current reality for all households is a single wireline voice provider that’s part of some major conglomerate.

When video networks, or cable TV, came along. Initially they were just communities who all hooked up to a singular antenna to receive a stronger signal with the over the air broadcasts. That quickly expanded to non network television. Without going into the history of army radio guides and cable size options, the most important thing to know about the video networks is as they were built out they used much stronger and thicker cables, but unlike the telephone networks, they were designed to provide one way communication. Since there were no national subsidies, the cable TV companies worked out deals with the local municipalities for long-term monopoly contracts.  The rationale behind this method was that the cities and towns who were getting cable TV put in did not want to get their streets dug up again and again as more and more competitors entered the market.  The different communities also got to hook up the government buildings including the school buildings as part of the deal. There was no national cry for a rural subsidy as the people in the country could just put up an antenna, and in later years buy a satellite receiver to receive broadcast television.       

There was a third network that came on the scene several decades ago.  This third network was designed from the ground up to carry data, and carry a lot of it.  Fiber optic networks were quickly (remember quick is a relative term when talking about a century and a half of communication history) developed to provide the backhaul for the voice and video networks.  If you think about it, it stopped at backhaul because it’s easier to replace a few lines going from city to city or around a city, than the lines that connect to every home in a city.  Also there was no national cry to provide new wires to everyone’s home when, for the most part, people had acceptable voice and video services.   

Then the internet happened.  Business could afford to buy leased lines from the different service providers but they were cost prohibitive for consumers.  Average families used dial up modems and the internet to them was AOL.  Still technology progressed and Cable modems and Digital Subscriber Line services took over from dialup.  They had the benefit of offering ‘always on’ service, but the negative of not being as regulated as the former voice and video services.  The limited regulation meant, among other things, that the service providers started demanding contracts and adopting crazy business models including bundling. Contracts for services for a period of a year to two years were originally used to guarantee payback on network build-outs or as equipment subsidies. These days they are almost 100% used as a customer retention tool.

The problem with cable modems was that because the networks were designed to be one way services, the way internet service was implemented on them required the data pipes to be shared.  That meant your data rates were great, until every kid got home from school and the network slowed to a crawl as they all got online.  DSL worked ok, but the smaller lines meant that the service was slow, and very limited.  Even though voice could go many miles out on a single cable, the data service can only go three miles or so and then the data rates drop off a cliff to be nearly unusable for applications like internet video.  This is why you can be in the front of a community and get 5-10 meg service, and down the street only get one megabyte service.  

We also have the redheaded stepchildren of data networks, the cellular carriers & satellite internet service providers.   In the case of both of these options, the actual amount of bandwidth available is very limited compared to the size of the population that needs to be served. The use of that bandwidth therefore is hugely expensive.  With any wireline provider the amount of bandwidth available to the different households and businesses can be unlimited depending upon the type of cable that goes to the house.  Point-to-point Wireless does exist as well.  It was designed using the best ideas of wireless and wired networks but unfortunately these solutions are not in any way close to being widespread.

So we get where we are today which is, in the United States of America, a hodgepodge of Internet service technologies, extremely limited competition, many areas with limited or no service, and high costs relative to other nations.  

What do we need to do?

We know where we have come from. Where we need to get to is just as obvious.  In an Ideal world every single household and business would have a fiber optic connection available right to the premise. The connection would have to be unbundled, meaning whoever you buy your internet service from doesn’t necessarily have to own the cable. Unbundling literally provides the ability to purchase access to the line and service on the line separately. This is something that many consumers have a hard time with as we have never provided this type of service option in the past.  It’s just hard for people to think that the line that comes to your house is a service and the stuff that’s transmitted on that line is a separate service because they have always been bundled together.

In practice most consumers would never know that the service is unbundled because access to the line would be sold at wholesale to the person selling the data services. So you could get your TV and internet from Bob’s TV and internet company, or from Charter, or from Time Warner, and they would all use the same line. The way it is now is if Time Warner owns the line only Time Warner service is available on the line.

Leaving the solution up to the private sector simply isn’t an option. It’s been tried twice by major corporations and both efforts were eventually disbanded.  The first time it was tried was when Verizon decided they were going to replace their entire network with FiOS, their brand name for fiber to the curb. When The company’s forward-leaning CEO was replaced by a more pragmatic and traditional senior manager, the lower returns on FiOS did not make sense for the shareholders and consequently the network replacement project was summarily canceled. If you’re a businessman of a publicly traded company and you make just as much money leaving things alone versus heavily investing and making the world a better place you do have a fiduciary responsibility to leave things alone.

The second great attempt was when Google,  a company that makes more money the more people are connected to high-speed lines, decided to get into the fiber optic to the home business.  Their goal was to push other service providers to stop being so lethargic with their own network upgrades and roll outs. It worked in every city it was tried because real competition always works. Google unfortunately ran into the same problem that Verizon did. They are a publicly traded company and there wasn’t enough profit to justify the enormous expense.

As an aside I’ve always felt that if the big consumer facing internet companies got together it would have made more sense rather than Google going it alone. If Amazon, Apple, Microsoft, and Google, and possibly others like Facebook et al could get over their competitive differences and all equally invest in a nationwide fiber-optic network with a goal of 100% connectivity, they would minimize their financial exposure, limit their dependency on existing operators, and have the world’s best platform custom designed for their needs far into the next century.   The only real negative would be that this approach would still only leave two to three competitors maximum per household. You would have the incumbent service provider/s and the new fiber network owned by the internet titans. It’s still is an oligopoly although light years ahead of where we are now.  

We could attempt to continue working within the existing system.  Current tweaks to the system, such as eliminating state legislation that keeps municipalities from operating their own networks or making it easier for competitive carriers to get space on phone poles is one way.  These types of changes are absolutely necessary but it’s not enough.  That type of ‘tweak the system’ is incremental change when the reality is that we need a new paradigm.  

Even though some would argue that i’m a socialist, I would say that the best solution in this case should allow a capitalists ideal of intense competition as well as heavy government involvement for facilitation but not direct oversight.   In effect government levels the playing field and let’s everybody go at it.

What’s the best option?   The best solution would be non-profit networks owned by the members similar to the electrical and phone coop’s of old.  The only caveat is that they must be unbundled and unrestricted to any reasonable service provider willing to offer services. If the co-op chooses to offer internet service and or other services on those lines they have to follow the same rules as anybody else who wishes to purchase the wholesale access for resale.

The government’s role in this would be  to create the construct allowing for the data network co ops to exist at the municipal, state, and national levels.  Legislation needs to be unrelenting in its drive to eliminate barriers for these co ops to build their networks. Financing the Network’s needs to be underwritten by federal, state, and local governments. The incumbent carriers will fight tooth and nail politically to keep this from happening as all monopolies have done throughout all of history. The government will have to fight back with all the veracity possible. I would almost argue that it should be made illegal and a criminal offense on a federal level to be found to obstruct the development of these network co-ops in any way shape or form. This is the extremist in me, if the CEO of AT&T or CenturyLink tries to fight the development of a competitive fiber optic network in their service area they need to go to jail. I say this because internet today is the same as electrical service, phone service, and water and sewer availability. It’s dang near a necessity for modern life. Imagine if a for profit  water delivery company fought to keep communities and households from getting all the water they needed?

The flip side of this is the incredible levels of competition and creative service options that will be enabled by keeping the network’s unbundled. Consumers will have a huge array of service providers they can get their service from. You’ll have the internet privacy focused  provider, the video provider, the high quality service provider, the business provider, and the low-cost option. Big guys will leverage economies of scale and little guys would compete with boutique services for the end users.

The best analogy is the highway system. Think of all the businesses that exist because anybody can put their truck on the highway and deliver their product to any customer in the world. Right now the internet highway system is a bunch of interconnected privately owned toll roads, Each of which have different restrictions.

For the record, without going into all the details because that would turn this article into a 60-page report, this model works very well in all of the areas of the world with analogous systems.

The great lessons that we have learned are that existing service providers will not provide better service unless there is a competitive need to do so.  We also know that private business will not invest if they do not see a return on their investment.  We know that large monopolistic organizations will do what is in their best interest, not the country’s best interest.  This is why getting true fiber based broadband to every home in America qualifies as a big problem.

We know that publicly owned utilities tend to work very well. We know that unbundling lowers prices and increases competition. We know that universal service availability equals huge opportunities for business creation.

The big solution is a brand new network that passes by every single home in the country. A network that allows every single service provider to provide whatever services they want to offer on it. Universal coverage with the phone system offered great benefits to this country. Even today it’s hard to comprehend the amazing things that can happen with universal fiber optic service to every single home and business, be it big or small.  

Can this kind of solution happen? Absolutely!  Will it ever happen? Probably not.  It would take a hugely bold and coordinated government effort  to pull it off.   The only way I could see something like this happening is if some State Governor and legislature uses this model and it destroyed every other state from a competitive standpoint. Otherwise our best bet is if some heretofore unknown or unpopular technology catapults a new connection revolution. If this series of Articles hasn’t proven it yet, I’m definitely a dreamer so I know I will keep dreaming of the day that everybody has Universal fibre-based Broadband access.  It’s a great dream for everybody unless, of course, you’re AT&T, CenturyLink or Verizon.  

Posted by Mike Peluso

Mike Peluso writes about the collision between between the business / professional world and life. He also writes about the journey involved with the Peluso Presents efforts including the Blog, Books, and Podcast so that others may benefit from his efforts. From Mike: I spend hundreds of hours working on these articles every year with no compensation other than support I get through donations. You can support with a tip and by Subscribing to the Podcast (and writing a review on iTunes would be really appreciated as well!) One time tips: www.paypal.me/pelusopresents https://venmo.com/pelusopresents


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