Wednesday, December 17, 2008 - The Progress & Freedom Foundation Blog

A Novel Thought: Focus on the Economics

The news today is filled with reports, here and here for example, of advice Obama Transition team members are receiving about improving broadband deployment and adoption. Amidst all of the calls for this or that favorite regulatory or economic stimulus program, I found a refreshing piece by Andrew Seybold in FierceWireless suggesting that policy makers focus on the economics of broadband, rather than the technology. After commenting on the FCC's fixation with the concept of auctioning the AWS-3 spectrum with conditions that it be used to build a nationwide wireless broadband service, a portion of which will be provided as "free lifeline wireless broadband," Seybold suggests that this, like other government-created attempts to increase broadband deployment -- such as muni-WiFi and Broadband Over Powerline -- will fail to achieve their goals. Such plans will be unable to provide broadband service in the inner city to those who cannot afford it as well as to rural America where it is simply unavailable because these plans have overlooked the economics of infrastructure deployment.

For these and other FCC policy moves such as opening up the TV white spaces, Seybold asks the critical question: who will make the investments necessary to make these plans work?

All of these ideas and attempts to provide broadband for the 100 million people (33 percent of the U.S. population) who either do not have access to broadband or cannot afford today's offerings are well meaning, but they miss the mark. Someone has to pay for free access. Someone has to pay for the infrastructure, the devices and connection to the Internet. For someone to invest the money for all this, there has to be a reasonable return on the investment, OR the investment has to be paid for from some other source such as the federal government or with tax incentives for those who build the system. Perhaps some of the Internet companies believe they can pay for it with ad-based revenue.

Seybold observes that, "in the end of the day, someone has to pay for all of this," and suggests a solution:

I believe we can achieve the goal of broadband to everyone only if we put together a government/private partnership and only if this partnership works together to expand wired, cable, fiber, wireless, microwave, and satellite technologies in a way that makes sense for those who invest and for those who are underserved. It makes no sense to me to keep throwing out portions of the wireless spectrum and hoping someone will finally figure out an economic model to make it work.

Seybold's observations on the need for the government to focus on the economics of bringing network deployment to under- and unserved areas are "right on the money." And his suggestions about public-private partnerships are certainly preferable to a government-rigged spectrum auction.

Broadband policy, however, need not be wholly dictated from Washington. Communications Daily reports today that many states have broadband plans that can provide the federal government with valuable lessons. For example, Connected Tennessee has mapped all forms of broadband in the state and is analyzing the uses individual communities want their broadband capabilities to provide so that it can develop public-private strategies for meeting documented needs. Neighboring Virginia is both mapping broadband markets and enlisting local participants to work toward universal service in "public-private partnerships." The state's initial approach focusing on infrastructure was similar to Tennessee's, but differs slightly by not prescribing what communities should do but letting them develop plans with state aid. This provides greater flexibility for recipients to select the technologies most appropriate for their needs. These sorts of "bottom-up" approaches to solving the problem of available and affordable broadband service are far preferable to the FCC's top-down "free broadband" regulatory regime because they focus on unmet needs in identifiable communities and the actual desires of potential users of broadband services.

As the new administration formulates its broadband strategy, it would do well to survey the many targeted state public-private broadband efforts already underway and to be leery of top-down programs, such as the FCC's AWS-3 proposed auction rules, geared to the interests of the one as opposed to the many. Solveig Singleton has produced a cogent analysis of the significant problems with FCC-designed broadband business models and federal intervention in support of one business. Her synopsis states:

FCC and legislative proposals to reserve a segment of spectrum for a content-filtered national wireless broadband provider would deprive many more entrepreneur-driven wireless services, small and large, of spectrum and capital. The risky business plan means a politically favored broadband provider looking for special treatment or bailouts in years to come.

Seybold and Singleton have it right: the proper role of the federal government is to create stable conditions for network investment, not imperil investment with top-down broadband pipe dreams.

posted by Barbara Esbin @ 4:18 PM | Broadband