December 4, 2011

Internet Access and the New Divide -

This story begins with a recounting that Cyber Monday's online sales volume in 2011 exceeded that of Black Friday's retail sales setting a new record. I thought I'd read about the good news that America's online experience was only getting better. Nope. We've got to do better...
 "Such numbers may seem proof that America is, indeed, online. But they mask an emerging division, one that has worrisome implications for our economy and society. Increasingly, we are a country in which only the urban and suburban well-off have truly high-speed Internet access, while the rest — the poor and the working class — either cannot afford access or use restricted wireless access as their only connection to the Internet. As our jobs, entertainment, politics and even health care move online, millions are at risk of being left behind."
Now, further into the story, Ms Crawford suggests it's time for regulators to intervene and fix the digital divide.
"IT doesn’t have to be this way, as a growing number of countries demonstrate. The Organization for Economic Cooperation and Development ranks America 12th among developed nations for wired Internet access, and it is safe to assume that high prices have played a role in lowering our standing. So America, the country that invented the Internet and still leads the world in telecommunications innovation, is lagging far behind in actual use of that technology.
The answer to this puzzle is regulatory policy. Over the last 10 years, we have deregulated high-speed Internet access in the hope that competition among providers would protect consumers. The result? We now have neither a functioning competitive market for high-speed wired Internet access nor government oversight.
By contrast, governments that have intervened in high-speed Internet markets have seen higher numbers of people adopting the technology, doing so earlier and at lower subscription charges. Many of these countries have required telecommunications providers to sell access to parts of their networks to competitors at regulated rates, so that competition can lower prices."

But how will this happen? Will regulation be combined with government subsidies to build fiber optic networks to every home, which Ms Crawford suggests is the 'right' technology? She doesn't describe the new economics underlying the regulatory policy she believes is necessary. Lot's of advocacy, but little detail and the devil is always in the details.

I can hear the screams now from many quarters, "Don't regulate my Internet"

The fact is that the costs of fiber to the home for all of America are just too high unless there is long term revenue to pay for it.

One only has to look at Burlington, Vermont (in my backyard) for an example of a first rate fiber-to-the-premise system, built and managed by a city of 40,000, that cannot support itself because the costs of construction far exceeded estimates and the take rate of cable, voice and high speed Internet services provides insufficient revenue to pay for the costs of construction (debt service) and operations.

It will be fascinating to learn what Google's experience will be in Kansas City where they will do a similar thing.

In America's last century, we built a nationwide telephone system as a tightly regulated monopoly with massive internal subsidies for high cost areas. That regulatory model won't be repeated in this century, so I'm at a loss to understand what 'regulatory policy' will build an 'affordable' fiber network to everyone's home. Please elaborate, Ms Crawford.

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