Why Broadband is Not a Public Utility

August 31, 2009 | Filed Under Business, Congress, Democrats/Leftists, Economy/Finances, Free Trade, Freedom, Government, Corruption, Scott Cleland, Society/Culture, Taxes |

-By Scott Cleland

The data and evidence show that broadband is not a public utility warranting economic regulation of prices, terms and conditions; this is contrary to the assertions of net neutrality proponents: the Markey-Eshoo Bill, FreePress, the Open Internet Coalition and Google’s Internet Evangelist Vint Cerf, among others.

Why is broadband not a public utility?

First, it is a competitive service, not a natural monopoly service.

A public utility presumes “natural monopoly” economics where economies of scale and scope preclude the possibility of competitive facilities/services.

The roughly $200b in private risk capital invested in financially-successful U.S. competitive broadband facilities over the last several years is incontrovertible evidence that broadband does not enjoy natural monopoly economics.

Second, users have choice of access providers.

Public utilities exist where consumers have no alternative or choice. However, in broadband Internet access, the vast majority of Americans have a diversity of choices of broadband providers, technologies, services and features — free WiFi and pay-for-service cable modem, DSL, fiber, wireless broadband/WiMax and satellite. Consumers can choose between stationary access or mobile access and can choose among different speed and price offerings.

Third, utilities are based on single-use-facility economics.

Broadband provider facilities inherently have multi-use-facility/bundle economics; e.g. the converged telecom plant offers phone, wireless, high-speed and video; the converged cable plant offers video, phone, high-speed and, increasingly, wireless; the converged wireless plant offers wireless, high-speed and video; and the converged satellite plant increasingly offers video and high speed.

Fourth, utilities deliver uniform units, whereas broadband delivers completely variable units.

Since electric utilities only transmit electricity, water utilities only transport water, and gas utilities only transport gas, they all only require availability management. Broadband is intrinsically different. Whereas electricity, water and gas are all uniform transmissions, broadband bandwidth is inherently variable requiring network management.

Without network management, different commingled services sharing bandwidth cannot be assured their expected or contracted for quality-of-service. Unlike utility services, broadband network congestion can cause latency problems for voice or real-time services and jitter quality problems for video or high bandwidth applications.

Unlike utility services, broadband networks must contend with outside contamination and disruption of most all parts of their networks — most all of the time. Broadband networks are intrinsically different than utilities in that they must continuously, and throughout the network, manage and combat: viruses, worms, malware, bot nets, denial-of-service attacks and spam, among other harmful intrusions and infections.

Fifth, utilities are inherently “dumb” networks, while broadband networks are inherently “smart” networks.

Electric, gas and water utilities are “dumb” networks in that a central utility manager does not know if an area has or does not have functional electicity, gas or water — unless someone is at the distant location to confirm it — either a customer or a service person. Moreover, these utilities’ transmissions also largely cannot be prioritized to either help first responders or aid particular areas suffering from an emergency.

On the other hand, broadband networks are inherently “smart” networks in that they: can detect when an edge connection is functioning or not; and can be managed to prioritize to help first responders in an emergency.

Sixth, utilities are characterized by standard uniformity and glacial rates of change.

In contrast, competitive broadband facilities are characterized by diversity, differentiation and innovation because they operate in a continuously-changing competitive environment.

While utilities seldom innovate, competitive broadband providers must constantly innovate and promote “smart” network innovation: i.e. ever increasing compression with copper-based DSL; ever-increasing bandwidth optimization with cable via the DOCSIS process, currently in the 3.0 iteration; ever-increasing bandwidth with fiber and optical management; and competing wireless broadband technology standards in LTE and WiMax.

Lastly, and maybe most importantly, current law, policy and precedent have already politically, regulatorily and legally decided that broadband is not and should not be a public utility.

The Clinton-Gore Administration decision to privatize the Internet backbone via the National Science Foundation in the early 1990s was high consensus and had strong bipartisan support.

Passage of the 1996 Telecom Act signed by the Clinton-Gore Administration was nearly unanimous in Congress. It changed U.S. law and policy to move away from monopoly utility regulation and towards competition. It also established that “it is the policy of the United States to preserve the vibrant and competitive free market that presently exists for the Internet… unfettered by Federal or State Regulation…”

Furthermore, all of the FCC’s decisions to declare broadband an unregulated information service for DSL, Cable, wireless and BPL, were all unanimous/bipartisan. Finally, the FCC’s authority for these broadband decisions was upheld by the U.S. Supreme Court in the Brand “X” decision.

In closing, The data and evidence show that broadband is not a public utility warranting economic regulation of prices, terms and conditions.

Lastly, there are two particularly interesting and significant ironies/contradictions behind the net neutrality position that broadband service should be considered a public utility.

First, many of the same proponents who seek to turn the current “dumb” electrical grid into a “smart” electrical grid, want to turn the current “smart” broadband grid into a “dumb” end-to-end network grid.

Equally confounding and contradictory, many of the same proponents who seek that broadband be regulated as a public utility, don’t want broadband to be usage-priced like public utilities are. Broadband-as-a-public-utility proponents want broadband usage to be free. That is actually less of a public utility model, and more akin to a government program.
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Scott Cleland is one of nation’s foremost techcom analysts and experts at the nexus of: capital markets, public policy and techcom industry change. He is widely-respected in industry, government, media and capital markets as a forward thinker, free market proponent, and leading authority on the future of communications. Precursor LLC is an industry research and consulting firm, specializing in the techcom sector, whose mission is to help companies anticipate change for competitive advantage. Cleland is also Chairman of NetCompetition.org, a wholly-owned subsidiary of Precursor LLC and an e-forum on Net Neutrality funded by a wide range of broadband telecom, cable and wireless companies. He previously founded The Precursor Group Inc., which Institutional Investor magazine ranked as the #1 “Best Independent” research firm in communications for two years in a row. His latest op eds can be seen at www.precursorblog.com.

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