What Google Fiber, Gig.U, and US Ignite say about Regulatory Waste and Overload

by on August 6, 2012 · 5 comments

On Forbes today, I have a long article on the progress being made to build gigabit Internet testbeds in the U.S., particularly by Gig.U.

Gig.U is a consortium of research universities and their surrounding communities created a year ago by Blair Levin, an Aspen Institute Fellow and, recently, the principal architect of the FCC’s National Broadband Plan.  Its goal is to work with private companies to build ultra high-speed broadband networks with sustainable business models .

Gig.U, along with Google Fiber’s Kansas City project and the White House’s recently-announced US Ignite project, spring from similar origins and have similar goals.  Their general belief is that by building ultra high-speed broadband in selected communities, consumers, developers, network operators and investors will get a clear sense of the true value of Internet speeds that are 100 times as fast as those available today through high-speed cable-based networks.  And then go build a lot more of them.

Google Fiber, for example, announced last week that it would be offering fully-symmetrical 1 Gbps connections in Kansas City, perhaps as soon as next year.  (By comparison, my home broadband service from Xfinity is 10 Mbps download and considerably slower going up.)

US Ignite is encouraging public-private partnerships to build demonstration applications that could take advantage of next generation networks and near-universal adoption.  It is also looking at the most obvious regulatory impediments at the federal level that make fiber deployments unnecessarily complicated, painfully slow, and unduly expensive.

I think these projects are encouraging signs of native entrepreneurship focused on solving a worrisome problem:  the U.S. is nearing a dangerous stalemate in its communications infrastructure.  We have the technology and scale necessary to replace much of our legacy wireline phone networks with native IP broadband.  Right now, ultra high-speed broadband is technically possible by running fiber to the home.  Indeed, Verizon’s FiOS network currently delivers 300 Mbps broadband and is available to some 15 million homes.

But the kinds of visionary applications in smart grid, classroom-free education, advanced telemedicine, high-definition video, mobile backhaul and true teleworking that would make full use of a fiber network don’t really exist yet.  Consumers (and many businesses) aren’t demanding these speeds, and Wall Street isn’t especially interested in building ahead of demand.  There’s already plenty of dark fiber deployed, the legacy of earlier speculation that so far hasn’t paid off.

So the hope is that by deploying fiber to showcase communities and encouraging the development of demonstration applications, entrepreneurs and investors will get inspired to build next generation networks.

Let’s hope they’re right.

What interests me personally about the projects, however, is what they expose about regulatory disincentives that unnecessarily and perhaps fatally retard private investment in next-generation infrastructure.  In the Forbes piece, I note almost a dozen examples from the Google Fiber development agreement where Kansas City voluntarily waived permits, fees, and plodding processes that would otherwise delay the project.  As well, in several key areas the city actually commits to cooperate and collaborate with Google Fiber to expedite and promote the project.

As Levin notes, Kansas City isn’t offering any funding or general tax breaks to Google Fiber.  But the regulatory concessions, which implicitly acknowledge the heavy burden imposed on those who want to deploy new privately-funded infrastructure (many of them the legacy of the early days of cable TV deployments), may still be enough to “change the math,” as Levin puts it, making otherwise unprofitable investments justifiable after all.

Just removing some of the regulatory debris, in other words, might itself be enough to break the stalemate that makes building next generation IP networks unprofitable today.

The regulatory cost puts a heavy thumb on the side of the scale that discourages investment.  Indeed, as fellow Forbes contributor Elise Ackerman pointed out last week, Google has explicitly said that part of what made Kansas City attractive was the lack of excessive infrastructure regulation, and the willingness and ability of the city to waive or otherwise expedite the requirements that were on the books.(Despite the city’s promises to bend over backwards for the project, she notes, there have still been expensive regulatory delays that promoted no public values.)

Particularly painful to me was testimony by Google Vice President Milo Medin, who explained why none of the California-based proposals ever had a real chance.  “Many fine California city proposals for the Google Fiber project were ultimately passed over,” he told Congress, “in part because of the regulatory complexity here brought about by [the California Environmental Quality Act] and other rules. Other states have equivalent processes in place to protect the environment without causing such harm to business processes, and therefore create incentives for new services to be deployed there instead.”

Ouch.

This is a crucial insight.  Our next-generation communications infrastructure will surely come, when it does come, from private investment.  The National Broadband Plan estimated it would take $350 billion to get 100 Mbps Internet to 100 million Americans through a combination of fiber, cable, satellite and high-speed mobile networks.  Mindful of reality, however, the plan didn’t even bother to consider the possibility of full or even significant taxpayer funding to reach that goal.

Of course, nationwide fiber and mobile deployments by network operators including Verizon and AT&T can’t rely on gimmicks like Google Fiber’s hugely successful competition, where 1,100 communities applied to become a test site.  Nor can they, like Gig.U, cherry-pick research university towns, which have the most attractive demographics and density to start with.  Nor can they simply call themselves start-ups and negotiate the kind of freedom from regulation that Google and Gig.U’s membership can.

Large-scale network operators need to build, if not everywhere, than to an awful lot of somewheres.  That’s a political reality of their size and operating model, as well as the multi-layer regulatory environment in which they must operate.  And it’s a necessity of meeting the ambitious goal of near-universal high-speed broadband access, and of many of the applications that would use it.

Unlike South Korea, we aren’t geographically-small, with a largely urban population living in just a few cities.  We don’t have a largely- nationalized and taxpayer-subsidized communications infrastructure.   On a per-person basis, deploying broadband in the U.S. is much harder, complicated and more expensive than it is in many competing nations in the global economy.

Under the current regulatory and economic climate, large-scale fiber deployment has all but stopped for now.  Given the long lead-time for new construction, we need to find ways to restart it.

So everyone who agrees that universal broadband is a critical element in U.S. competitiveness in the next decade or so ought to look closely at the lessons, intended or otherwise, of the various testbed projects.  They are exposing in painful detail a dangerous and useless legacy of multi-level regulation and bureaucratic inefficiency that makes essential private infrastructure investment economically impossible.

Don’t get me wrong.  The demonstration projects and testbeds are great.  Google Fiber, Gig.U, and US Ignite are all valuable efforts.  But if we want to overcome our “strategic bandwidth deficit,” we’ll need something more fundamental than high-profile projects and demonstration applications.  Most of all, we need a serious housecleaning of legacy regulation at the federal, state, and local level.

Regulatory reform might not be as sexy as gigabit Internet demonstrations, but the latter ultimately won’t make much difference without the former.  Time to break out the heavy demolition equipment—for both.

  • http://twitter.com/binarybits Timothy B. Lee

    “Kansas City isn’t offering any funding or general tax breaks to Google Fiber”

    Isn’t KC giving Google rent-free use of its buildings and free power? Those seem like examples of taxpayer dollars being spent to support Google Fiber.

  • http://www.ivpcapital.com/blog Michael Elling

    Governments and regulators (along with capital markets) have clearly demonstrated a penchant for information monopolies.  We are 498 days away from that fateful Kingsbury Commitment 100 years ago.  More recently the government has remonopolized a sector that gave rise to 3 enormous waves of digitization: long-distance, data/internet and wireless.  In the process America reemerged as an advanced economic, technical and political power.  So it’s not just local, but state and national regulation that gets in the way of competitive networks.

    What all this points to is the failure of most people to get the network effect (aka Metcalfe’s law).  Demand in KC has less to do with what is going on in KC as it has to do with what is going on in LA, NYC, and increasingly the middle of Iowa, Nebraska, and other places of cheap real estate or fiber or high concentrations of competitive long-haul/internet access.

    The Google model should be noted for its horizontal approach.  One sees that they have an understanding of marginal cost across all layers and boundary points of the “service provisioning stack”.  It’s not perfect, but they have a tremendous price/performance advantage in the process.  We last witnessed this pricing model, btw, in 1996 when a small Canadian provider become the first digital wireless entrant offered 10 cents/minute; fully 90% below average incumbent rates.

    It took 3 years, but finally they woke up to the value of their capacity.  Hopefully the other fiber players will understand this as Google has and we start seeing similar pricing approaches.

    The monopolies today, both wired and wireless, are so overpriced that they are ripe for disintermediation.  They need to understand how IBM reoriented itself in the early 1990s to confront the horizontalization of the data processing stack. 

    15 years ago the US had the fastest and lowest cost access around the world.  10 years ago bandwidth pricing disconnected from Moore’s and Metcalfe’s laws.  Pricing of bandwith is 20-150x greater than it should be as a result.

    Local governments should realize that their economic vibrancy is a function of how cheaply they are connected to all the other networks.  By removing roadblocks to competitive networks they can ensure their competitiveness in a knowledge economy.

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