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Wednesday, August 07 2013

Debunking The Debunkers

The current debate over the state of America's broadband services and over the future of the internet is like a 3-ring circus or 3 different monarchists debating democracy.  In other words an ironic and tragically humorous debate between monopolists, be they ultra-conservative capitalists, free-market libertarians, or statist liberals.  Their conclusions do not provide a cogent path to solving the single biggest socio-political-economic issue of our time due to pre-existing biases, incorrect information, or incomplete/wanting analysis.  Last week I wrote about Google's conflicts and paradoxes on this issue.  Over the next few weeks I'll expand on this perspective, but today I'd like to respond to a Q&A, Debunking Broadband's Biggest Myths, posted on Commercial Observer, a NYC publication that deals with real estate issues mostly and has recently begun a section called Wired City, dealing with a wide array of issues confronting "a city's" #1 infrastructure challenge.  Here's my debunking of the debunker.

To put this exchange into context, the US led the digitization revolutions of voice (long-distance, touchtone, 800, etc..), data (the internet, frame-relay, ATM, etc...) and wireless (10 cents, digital messaging, etc...) because of pro-competitive, open access policies in long-distance, data over dial-up, and wireless interconnect/roaming.  If Roslyn Layton (pictured below) did not conveniently forget these facts or does not understand both the relative and absolute impacts on price and infrastructure investment then she would answer the following questions differently:

Real Reason/Answer:  our bandwidth is 20-150x overpriced on a per bit basis because we disconnected from moore's and metcalfe's laws 10 years ago, due to the Telecom Act, then special access "de"regulation, then Brand-X or shutting down equal access for broadband.  This rate differential is shown in the discrepancy between rates we pay in NYC and what Google charges in KC, as well as the difference in performance/price of 4G and wifi.  It is great Roslyn can pay $3-5 a day for Starbucks.  Most people can't (and shouldn't have to) just for a cup a Joe that you can make at home for 10-30 cents.

Real Reason/Answer:  Because of their vertical business models, carriers are not well positioned to generate high ROI on rapidly depreciating technology and inefficient operating expense at every layer of the "stack" across geographically or market segment constrained demand.  This is the real legacy of inefficient monopoly regulation.  Doing away with regulation, or deregulating the vertical monopoly, doesn’t work.  Both the policy and the business model need to be approached differently.  Blueprints exist from the 80s-90s that can help us restructure our inefficient service providers.  Basically, any carrier that is granted a public ROW (right of way) or frequency should be held to an open access standard in layer 1.  The quid pro quo is that end-points/end-users should also have equal or unhindered access to that network within (economic and aesthetic) reason.  This simple regulatory fix solves 80% of the problem as network investments scale very rapidly, become pervasive, and can be depreciated quickly.

Real Reason/Answer:  Quasi monopolies exist in video for the cable companies and in coverage/standards in frequencies for the wireless companies.  These scale economies derived from pre-existing monopolies or duopolies granted by and maintained to a great degree by the government.  The only open or equal access we have left from the 1980s-90s (the drivers that got us here) is wifi (802.11) which is a shared and reusable medium with the lowest cost/bit of any technology on the planet as a result.  But other generative and scalabeable standards developed in the US or with US companies at the same time, just like the internet protocol stacks, including mobile OSs, 4G LTE (based on CDMA/OFDM technology), OpenStack/Flow that now rule the world.  It's very important to distinguish which of these are truly open or not.

Real Reason/Answer: The 3rd of the population who don't have/use broadband is as much because of context and usability, whether community/ethnicity, age or income levels, as cost and awareness.  If we had balanced settlements in the middle layers based on transaction fees and pricing which reflect competitive marginal cost, we could have corporate and centralized buyers subsidizing the access and making it freely available everywhere for everyone.  Putting aside the ineffective debate between bill and keep and 2-sided pricing models and instead implementing balanced settlement exchange models will solve the problem of universal HD tele-work, education, health, government, etc…  We learned in the 1980s-90s from 800 and internet advertising that competition can lead to free, universal access to digital "economies".  This is the other 20% solution to the regulatory problem.

Real Reason/Answer:  The real issue here is that America led the digital information revolution prior to 1913 because it was a relatively open and competitive democracy, then took the world into 70 years of monopoly dark ages, finally breaking the shackles of monopoly in 1983, and then leading the modern information revolution through the 80s-90s.  The US has now fallen behind in relative and absolute terms in the lower layers due to consolidation and remonopolization.  Only the vestiges of pure competition from the 80s-90s, the horizontally scaled "data" and "content" companies like Apple, Google, Twitter and Netflix (and many, many more) are pulling us along.  The vertical monopolies stifle innovation and the generative economic activity we saw in those 2 decades.  The economic growth numbers and fiscal deficit do not lie.

Posted by: Michael Elling AT 08:02 am   |  Permalink   |  0 Comments  |  Email
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