Clearing Away the Fallacies
So what’s the point here, to sell books? No. I am not sure these are even in print any more. The point is that I have “been to this rodeo before” as evidenced by the fact I have published extensively on the topic. I believe this qualifies me to chime in on the debate or at least proffer an opinion on how to best deploy emerging technology, including Internet technology. Alas, my opinion does not comport with what is circulating through Washington these days. In fact, what I see distresses me greatlyan unbridled, deregulated oligopoly of large telecom providers buying influence in Washington to advance an agenda of Internet discrimination. Let me tell you, it’s all hot air:
- There is no bandwidth shortage but what we make.
- The major telecoms overstate the cost of making more bandwidth.
The first fallacy being sold to Congress is that somehow bandwidth is scarce. The second is that it takes huge investments to develop more bandwidth. Both are incorrect. There is no scarcity of bandwidth. Eddie and I first pointed this out 15 years ago in our book when we pointed out the following fact:
Telecommunications capacity is like the old Doritos commercial: “Eat all you want, we’ll make more.”
In a world where the foundation transport technology at its most fundamental level is DWDM (dense wave division multiplexing) over fiber optics, capacity issues are easily overcome, sometimes by simply adding colors to a light beam and/or turning a laser on and off faster. The days of digging up rights of way to add new “pipes” are truly over. So where is this big investment and the need for an incentive? If such huge capital outlays are required, why do so many third-tier countries have more advanced Internet infrastructures and speeds than the U.S.? Surely their ability to raise and dedicate capital to such projects is not greater than ours. Perhaps we need to frame the question differently. Rather than a forklift upgrade of equipment and infrastructure, ask the major carriers what the Long Run Incremental Cost (sometimes called LRIC by regulators) is of turning a laser on and off faster, or using a different color spectrum in the same existing fiber strand? Or using something already in the ground in public right of way?
Let’s start with fiber. In order to upgrade fiber, it is not necessary to dig up streets and plant new fiber. It’s generally only the equipment that terminates each end of the fiber that must be changed out.
And that equipment is what is so expensive, right? Well, not exactly.
When one upgrades from “old” SONET OC-12 to “new” DWDM equipment, one does not simply consign the old equipment to a dumpster. The “old” OC-12 equipment still has substantial after-market value. Unlike a personal computer, transport technology has a long life. This means that someone in China, India, or Africa will be happy to take it off your hands because they are just now ready economically for those SONET or SDH speeds. The “new” DWDM equipment will require an investment to be sure, but it is not amortized over 3-5 years like a PC. It is paid off over 10-15 years, a schedule typical for transport equipment. In short, the “investment” by the large carriers is hardly prohibitive. The cost can actually become less and less as higher and higher capacity DWDM equipment comes into service. Besides, has anyone ever deployed bandwidth that was notat least eventuallyused?
What about using something already there like copper? Fifteen years ago, I lectured about VDSL services that are comparable to fiber, at least for some applications and within certain distances. To this day, I can make a public welfare argument about why Incumbent Local Exchange Carriers (ILECs) like AT&T and Verizon should do more in this area for potential competitors. It’s not an argument they want to hear.
Consider Ed Whitacre, the former CEO of SBC, now AT&T. Ed was always fond of referring to the Internet as “my pipes.”1 Closed-mindedness and “Bell-shaped heads” are quick to ignore the billions of dollars of public subsidies and incentives the telephone companies have received over the years.
Take into account rights-of-way, for example. The phone companies own less than 2 percent of the property where they have laid or strung their wires.2 What do they pay to use the other 98 percent? Basically nothing relative to its real value because it’s public land. Phone companies are permitted to use the public rights-of-way because, in theory, they are delivering a public service. Hence, for starters, if the major telephone companies would like to upend the public service concepts of Network Neutrality, it seems logical that they should be required to pay full price for their use of public lands.
Next, consider what lies in those right of ways. Granted, Fiber to the Home (FTTH) requires digging up a lot of yards. Digital Subscriber Line Access Modules (DSLAMs) are cheap, plentiful, and make use of a lot of existing cable investment. Instead, AT&T (under Whitacre and his successor) lobbied aggressively to get rid of copper. You see, AT&T generally has to sell copper loops to its competitors on a wholesale basis. Not so with DSL services, DSLAMs, and many kinds of “access” services. Potential competitors must pay Mr. Whitacre’s (or now Mr. Stephenson’s) price for those services due to the monopolistic lock AT&T enjoys on them courtesy of today’s “progressive” regulation.3Footnotes
1 At SBC, It’s All About ‘Scale and Scope’,” BusinessWeek Online, November 7, 2005.
2 Comments of Daniel Berninger, Senior Analyst at Tier1 Research, “Why Even Bells Need Net Neutrality,” May 9, 2006.
3 “Now what they would like to do is use my pipes free, but I ain’t going to let them do that because we have spent this capital and we have to have a return on it. So there’s going to have to be some mechanism for these people who use these pipes to pay for the portion they’re using. Why should they be allowed to use my pipes? The Internet can’t be free in that sense, because we and the cable companies have made an investment and for a Google or Yahoo! or Vonage or anybody to expect to use these pipes [for] free is nuts!” - AT&T then-CEO Whitacre comments before the United States Senate Committee on Commerce, Science and Transportation, 109th Congress (2005).