Thursday, August 14, 2008

USA - arguing over broadband

Broadband Populism or Broadband Pragmatism
see also Wu in the New York Times

In his recent OPEC 2.0 op-ed, Columbia University law professor Tim Wu offered his vision of a broadband policy by declaring the broadband market a “bandwidth cartel” that has gouged the public like the energy market. To remedy the situation, Wu advocated much more facilities-based competition, particularly through municipally-provided fiber-optic Internet service and called on the government to open up wireless radio spectrum to “liberate us from wires, cables, and rising prices”. While this bash-the-corporation rhetoric may have some populist appeal, Wu’s analysis is both factually and logically flawed.

Wu began by claiming that Americans spend almost as much on bandwidth as they do on energy. But even if we ignore the fact that Mr. Wu conveniently lumps in cable television entertainment costs as a “bandwidth” expenditure, his comparison still doesn’t pass the smell test.

In fact, broadband service performance has gone up significantly while prices have declined. Wired long distance fees have almost become nonexistent because unlimited nationwide phone service costs as little as $40 a month. Wireless prices have remained relatively constant but minutes have multiplied. And broadband prices have fallen while performance has increased. Yet in recent years, gasoline consumption for the average family has gone down while prices have more than doubled. Indeed, the Bureau of Labor Statistics shows that from 1999 to 2007 electricity prices rose 60% and gasoline prices 138%, but telephone service prices fell 2% with Internet service (including broadband) prices down 21%.

Wu extends his tortured comparison with the oil industry by arguing that phone and cable companies are artificially limiting the supply of broadband to jack up prices and extract maximum profit like OPEC. But the data shows just the opposite as mobile phone minutes increased 12-fold from 1999 to 2007 according to a CTIA wireless industry survey and broadband speeds have increased many times during that period of time. So while the supply of oil has been limited, the supply of wireless and wired broadband services have expanded.

Not be deterred by the facts, Wu then argues for municipal or community owned broadband fiber networks as a way to neutralize this imaginary bandwidth cartel. It’s one thing for communities to provide their own broadband when they have no commercial broadband providers, but it’s quite another thing to publicly subsidize overbuilding. In fact, recent history suggests that such overbuilding is not a panacea. Ironically, Wu cites Utah as one of his examples of municipal fiber, but Utah’s UTOPIA and iProvo fiber broadband projects have been anything but a success. UTOPIA is facing serious shortfalls and asking their 11 member communities to increase their sales tax pledge of $202 million over 20 years to $504 million over 33 years. So in order for a small percentage of the population to benefit from fiber, the local population as a whole must subsidize those fiber customers to the tune of half a billion dollars—even as most of the area’s residents can already subscribe to broadband services provided by cable or telecom companies.

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