Thursday, January 15, 2015

How private infrastructure for public use fails us

When most people think of infrasture, we think of water, electricity, roads. We know from experience that public infrastructure, when properly managed and regulated, does a wonderful job of serving the people. No matter who you are, or where you live in a city or town, you know that you can get electricity. The same is true of water. These are two basic utilities that everyone can get. There is no discrimination.

Our public roads provide a similar example. The roads do not discriminate against traffic based on point of origin or destination. Our network of roads is designed with that in mind. To enforce discrimination against traffic would increase transaction costs dramatically. Every trip would have to be tracked in a database. Then someone would have to analyze the traffic and then someone would have automate the analysis to provide real-time discrimination. And someone would get the bill.

Unscrupulous actors could program the system to create shortages, or to benefit themselves directly or indirectly. This is what happened with Enron's participation in the electric power crisis in California in 2000 and 2001. Enron, owner of an enormous private infrastructure, manipulated the market to serve speculators rather than the people. As many of us remember, Enron crashed famously in a sea of corruption, paper companies, bankruptcy and corporate fraud.

Perhaps not so famously, we see Comcast, Verizon and even Centurylink, speculating in the broadband market. For years, our major ISPs have been telling us that data caps are required to spur investment in their networks to provide better speed and reliability. A data cap is an arbitrary limit on how much data a customer can transfer up or down, on his or her internet connection without being charged more money by the service provider. Data caps are a deceptive way to create shortages.

ISPs maintain that the cost of providing service increases with time. Inflation, wages, equipment, even the cost of meeting regulation requirements. Yet, they are not very willing to share with us what the marginal cost of transport is. That's proprietary, right?

What the internet does is transport data. When you download a file from the internet, you're asking the internet to fetch data for your viewing. This could be a web page, a picture, a podcast, or a movie. All of these actions involve something called transport. The transport happens through computer programming using a protocol called TCP/IP. It's just a system that allows my computer to talk to your computer and vice versa. The internet uses this protocol and others like it on a massive scale to transfer information.

Over the years, the equipment we use to transfer the data, the modems, switches and routers, have all improved. Even the media has improved, from copper to optical fiber. We have increased our speeds from 14.4 baud to megabits to gigabits in the span of 20 years. The cost of transport has been dropping faster than the market can adapt.

To put this in perspective, most people are connected to an ISP providing somewhere between 10 and 20 mbs (megabits per second). This would allow you to download an entire CD of data, about 700 MB, in about 3 minutes. Here is a table for comparison. Downloading CDs and DVDs is something that I do from time to time to install a new operating system. Most people use the internet to watch movies, videos, social media and email.

The cost of transport is falling fast enough that consumers are not fully informed of the marginal cost of transport. This is great if you're a cable company or telco. Raising rates and instituting data caps seems normal based on the way the media portrays the problem. Unless you go to sources of information that provide another point of view. Like

The cable and telco companies are working very hard to save a dying business model. They want to keep the consumer uninformed about the cost of transport, so that they can set pricing based on profit margins rather than keeping customers happy. They use their private monopoly power to keep competition out, usually with legislation written by them just for that purpose. By keeping competition out, they can maintain the scarcity in the market they need to justify their pricing. Remember, their primary objective as a private corporation is to serve the profit motive, to finance that second home on the coast of Spain for the CEO. Oh, wait. That was last year. This year, he wants a McLaren 650s.

Internet speeds around the globe are rising at a pace much faster than here in the US. Why? Government has stepped in to ensure higher speeds for consumers. Japan is my favorite example. The Japanese government long ago forged a public-private partnership with NTT, the largest telephone company in Japan, to build a network for everyone. The government bankrolled the buildout and NTT gets to sell access, but they must also sell access to competitors at wholesale. As a result, Japanese consumers see much greater competition, lower prices and more reliable service. The fastest service can be found in Seoul, South Korea, and it's a public service at 1 gigabit per second.

The profit motive simply isn't enough to build and maintain these networks for the public good. The profit motive provides incentives for artificial scarcity, speculation and corruption. Infrastructure is a public good and the value of infrastructure is diluted by the profit motive. This is why Comcast and Time-Warner, two of our biggest infrastructure owners, are also two of the most hated companies in the US. The profit motive overcame the public good.

This is also why public infrastructure works well when properly managed and regulated. Chattanooga, TN has internet access provided by the Electric Power Board. Since the EPB is motivated by the public good rather than profit, they have happy customers. They are accountable to the public they serve through municipal government. They are focused on their purpose and they're making enough money to cover the costs of business while saving money to improve the equipment and maintain it.

In contrast, Comcast is reluctant to invest in their network, preferring a model of scarcity to pump profits rather than to serve the public good. Comcast owns a private network as public infrastructure, but they don't act like a public infrastructure company.

Community broadband is the public option. I am not advocating community broadband to the exclusion of private providers. I am advocating a public option to keep the private networks honest about the cost of transport. There are those who will tell us that private enterprise will beat government every time. But one look at Chattanooga tells us that when it comes to public infrastructure, private enterprise is getting their butt whipped.
Post a Comment