Sunday, October 26, 2014

Why the government should provide internet access

Ezra: Why do we need a public option for internet access?

Susan: We need a public option for internet access because internet access is just like electricity or a road grid. This is something that the private market doesn't provide left to its own devices. What they'll do is systematically provide extraordinarily expensive services for the richest people in America, leave out a huge percentage of the population and, in general, try to make their own profits at the expense of social good.

It really makes sense to have one wire going to your house. The problem is we've gotten stuck with the wrong wire.

When it comes to fiber penetration — that’s the world class kind of network we should have — we’re behind Sweden, Estonia, Korea, Hong Kong, Japan. A whole host of other developed countries. We should be looking the rest of the world in the rearview mirror. Instead, for more than 77% of Americans, their only choice for a high capacity connection is their local cable monopoly. So just as we have a postal service that's a public option for communications in the form of mail, we also need public options in every city for very high-capacity, very high-speed fiber internet access. That way we'll make sure and we can compete with every other nation in the 21st century.

Ezra: Why can’t the private market offer internet access that you see as acceptable?

Susan: This is a very expensive thing to build in the first place — much like the highway system also very expensive to build. As a profit-making company what they're going to try to do is focus on those areas where they feel they can get the highest rewards, and those are often the richest neighborhoods. They're going to leave out less wealthy areas and places that are more remote. But we're one country and every American needs this access just the same way every American needed a telephone line.

Ezra: The core of this argument is the idea that internet is almost a right — and not just internet, but extremely high-speed internet. Why should we see that as a right and not as a luxury?

Susan: I wouldn't frame in terms of a right, I think it's just a utility. Other countries just take it for granted. I went to Stockholm in December. They pay about 30 bucks a month for gigabit access. That’s something we can't even imagine in the United States.

Ezra: How fast are we typically?

Susan: 10 megabits per second or less. What's happening in Stockholm and Seoul and Japan and Hong Kong and a whole bunch of very reasonable Northern European countries is a 100 times faster. They just say that this very high-capacity connection is needed to power many screens with very high resolution.

The historical analog here is electricity. When electricity was first invented my grandmother would have called it "the light bill" because electricity was only used for one device in the house. We have this image of internet access just being for a single PC or a single connection by one family member inside the building. That's not where we're going. Everything we're doing is going to be powered by internet data. In order to make the new things that will be useful in that world we've got to have those very high-capacity networks.

Ezra: You talk about the internet as a utility but the way you explain it it sounds almost more like a platform. The argument is that this is a platform for the next economy just as the postal service ended up being a platform for the integration of the country. Since future products that don't exist yet can't pay for the services they'll need to thrive, taxpayers need to build the platform in order to prepare for the next economy. Is that right?

Susan: I call it a utility because that's the model of oversight that it should have. But the larger vision is that it's an input into absolutely everything we do. Particularly as economy moves more towards being an information-services based economy. We're not making things as much as we used to. We're certainly not an agricultural nation. So this is the essential input into entertainment, social life, cultural life, economic growth and everything else we do.

Ezra: One way of understanding your argument is that it's highly government-centric, and yet something you really emphasize is that the problem here is actually the lack of competition. Most people in most cities don't have a bunch of choices for the internet — they have one choice and because that choice is a local monopoly they can charge too much and deliver too little. Why has it ended up that way?

Susan: What happens is that we deregulated this entire sector about 10 years ago and the cable guys already had exclusive franchises across across the country. They were able to very inexpensively upgrade those to pretty high-speed internet access connections. Meanwhile the telephone companies have totally withdrawn. They have copper line in the ground and it's expensive for them to build and replace it with fiber. Because of both deregulation and sweeping consolidation in the cable industry we've ended up on this plateau where for about 80% of Americans their only choice for a high-capacity internet access connection is their local cable monopoly.

In a sense I'm trying to have it both ways. This is by nature a monopoly. It really makes sense to have one wire going to your house. The problem is we've gotten stuck with the wrong wire. We've got a cable wire and it should be fiber and it should be then shared by lots of competitors. That's what drives prices down. If you hand the one company the ability to control that market they'll just reap their rewards and price discriminate and make lots of profits.

Ezra: I think the numbers tend to say we're 26th, 27th, 28th worldwide in terms of speed and cost of internet access. Yet, we are by far the best at innovating atop the internet and taking advantage of what it has to offer. Does that argue that that making access better and better and better actually isn't that important? Perhaps speed isn’t the binding constraint here?

Susan: That's interesting. Their culture in these other countries is not as innovative as ours and that has been a comparative advantage for us. I went to Stockholm this week. They say ‘we have a very fast network but our city is too neat, nobody bumps into each other, there's no grit, there's no energy for innovation’. Same thing in Seoul, I visited there and the kids there said, "Well, if we invent anything Samsung will just crush us." We've got this huge advantage in innovative culture but if we don't have the networks to play with we won't be the place where new ideas come from that take advantage of very high capacity applications.

Those other countries are catching up. Stockholm gets it, they're trying to create more grit almost artificially. They're jamming together.

Ezra: Something you've done a lot of work on is the idea of the open internet. There's recently been a series of court decisions that have put net neutrality more into question. There's been news that Netflix is paying Comcast in order to get direct access to the Comcast backbone. What is the open internet and is it actually something that we need to be concerned about?

Susan: The reason the internet is the most important development in my life is that you don't have to ask anybody for permission to start something new. You can launch something in your garage and it becomes an extraordinary thing like Facebook or Google.

What the FCC did is to try to simultaneously say, "here's some rules for the internet but we're not going to label internet access as a utility," and the DC Circuit just a month ago or so said, "You can't have it both ways. You can't both say the internet access is a luxury and have these rules about keeping this permissionless internet open."

That's why net neutrality — which is the idea that anybody can use the internet for whatever application or service they want to — is under such threat. It's because our regulator has given up its authority to say anything to the providers of high speed internet access and in that vacuum we got tremendous consolidation. Comcast is enormous company. It’s the largest media company by revenue in the world at this point. Comcast is essentially able to force Netflix to pay tribute in order to reach Netflix's subscribers.

That's possible because again our regulator has given up all oversight of these high speed internet access networks.

Ezra: If Comcast was sitting here, they would say, I think, that you began that answer by saying that the beauty of the internet is that any new company can come on to it but that, at the end of the answer, it was about Netflix, a massive incumbent who uses tremendous amounts of bandwidth. They would argue that in a limited bandwidth world, in order to keep space for the new entrants, they need to charge the incumbents taking up tremendous bandwidth. You don't think that is a reasonable response.

Susan: No, not at all actually. Right now they're charging Netflix. But Netflix got a very good price because it's so big — that’s the incumbency you mentioned. What about the next person? The next company that uses a lot of capacity could be a telemedicine service, could be distance education, they're also going to have to pay tribute to Comcast.

Comcast is making north of 95 percent profit on its provision of high-speed internet access services. Its capital expenditures as a percentage of its revenue are down to 14 percent. It's in harvesting mode. It's making tremendous amounts of money. It doesn't need to charge those companies that want to reach their subscribers, it's just can so that's what's going on.

Ezra: What is constraining cities now from building public internet options? Is the problem money? Regulation?

Susan: It's almost funny. Twenty states have passed laws saying, "Cities don't have the choice to do this." These laws have been rammed through by incumbents happy with the way things are. One thing that needs to happen is we need to block these state laws so that cities can make these decision for themselves. FCC Chairman Wheeler has announced that this would be a good direction to investigate.

Ezra: What is the argument state legislators makes when they stop the city? Why do they say it should be illegal for the city to build a fiber backbone so it has faster internet?

Susan: We went through exactly the same story with electrification. Often state legislators don't quite understand what's going on or they think of this as a luxury that should only be provided by the private market. They just say, "It's going to be a waste of money for cities to have anything to do with this," and so it's in the state’s interest to constrain the cities from wasting their own money. That's the argument. It's all a complete canard as it was in the time of electrification.

Ezra: What do you think is the political circumstance under which a project of the size you're talking about could happen? Historically, what have been the forcing mechanisms that have made it possible to make these tremendous investments and changes in the way we deliver fundamental infrastructure?

Susan: This is fundamentally a question of leadership. Without Eisenhower, the federal highway system wouldn't have happened. In the absence of Roosevelt — who really took on the electrification special interests and decided that he was going to fix this situation — it wouldn't have happened. The first step is actually leadership and someone who understands this issue and understands that we're falling further and further behind and is concerned about our future as a nation. This requires long-term thinking.

These infrastructure issues are not partisan by nature. The free market only functions if it has these level playing field inputs that are in place like electricity, communication services and roads. It isn't at all unusual for the state to get involved in these kinds of things. You add together leadership plus great unhappiness on the part of the American people plus some ability to tell the story plainly so people understand and they're not confused and I think in time you'll see quite a movement towards mass fiberization of the United States.

This text has been edited for clarity and length.

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