Friday, June 15, 2012

The Sad State of American Broadband


When it come to access to broadband, America ranks 15th or lower depending on which survey you look at.  One area of broadband where the country does rank at the top is something that should concern us, cost.

If you listen to the cable and phone monopolies they will tell you the problem is rural customers, but that simply just doesn't hold up.  While it's true about 18 million people have no access to broadband, that number barely accounts for 6% of the entire country.  To top it off, those big telco and cableco monopolies that make those claims don't even serve rural customers anymore.

The truth is broadband penetration and prices are the way they are in this country because of lack of competition.  In the vast majority of cities cable companies collude to not compete with each other.  Here in Kansas City, their are clear lines where Comcast serves and Time Warner Cable serves but the two never areas never intersect.  The telcos also are doing little to improve broadband.  AT&T is still trying to use legacy DSL networks to provide broadband, even their U-verse service which offers a little better performance, relies heavily on DSL technology for the connection to the home.  Verizon, who was the only major monopoly to deploy Fiber-To-The-Home with their Fios service has begun cutting back and making deals with competitor cableco's not to compete.

Kansas City is probably one of the few bright spots in the country.  Aside from the monopolies, we do have a couple competitors.  Surewest, formally Everest, is a competing cable company that is actually connecting homes with fiber in much of Johnson County.  Google Fiber is currently under construction in KCMO and KCK.  Finally, in North Kansas City Linkcity is offering fiber connections to the few homes and businesses that are inside the small city that is completely surrounded by KC proper.

Competition is alive and well, at least for some residents, in Kansas City, but it didn't get that way through natural market forces.  You see, it is very difficult and expensive for companies to get regulatory approval to law new lines and build out networks.  Small companies must lobby city officials for the right to go and dig up people's yards, at the same time they have to fight the telco and cableco monopolies who will be lobbying against them.  

Even if they get right of way approval, it takes millions of dollars to build out the network.  Investors are not willing to pony the large amount of funds it would take to get off the ground because they have seen the entrenched monopolies do everything they can to crush any upstart competitors.  They file numerous lawsuits, they follow their construction crews around and offer dirt cheap rates to customers in the areas they are working, and when those efforts don't work they lobby the state and federal government to put up other barriers to entry.

Everest, Surewest now, although a private company now, began as a subsidiary of Aquila, a Missouri based power utility.  Their position as a monopoly utility did a couple things for them, it gave them access to funds that were guaranteed because they were subsidized by electric rates, and they already had right-of-way approval.  But even that wasn't enough.  With a tactic mentioned previously, Time Warner Cable followed their crews around and offered every channel to customers for just above $20/mo, something other TWC customers were paying more than a $100 for.  It wasn't long before Aquila was scared away.  They halted any new investment in the company and eventually spun it off into its own entity.  Everest was stagnant for sometime just living off the few areas they served until a California based company bought them.  The two companies merged and became Surewest.

LinkCity is not a private entity at all.  It is owned and operated by the North Kansas City government, who treats it like a utility.  The service does not offer TV services and must rely on third party for phone service because a Supreme Court decision prevented them from doing so.  You might be wondering how that happened when the 1996 Telecommunication Act which deregulated telecommunications clearly states governments could not prevent "any entity" from competing.  Well, when NKC announced their new fiber initiative, the first thing Time Warner Cable did was sue them to try and stop it.  Years of legal battles resulted in the case ending up before SCOTUS.  There the justice ruled that the meaning of "any entity" was "any non-governmental entity".  With that NKC was allowed to build their network, but they could only offer data services.  Today the network is in place, but loses more than $3 million per year.  A city the size of NKC wouldn't normally be able to absorb those kind of losses with out raising taxes, but fortunately they have plenty of tax revenue from the casinos that operate there.

City owned networks like LinkCity are known as municipal broadband and thanks to the telco and cableco monopolies and their lobbyists, 14 states have already banned the practice.

Google Fiber is closer to what we'd consider competition, but even then it's not really natural market driven competition.  Google Fiber is a quasi-municipal fiber project where Google and the cities of KCMO and KCK have struck a deal to get special access to utility polls and other rights of way not normally available in exchange for providing free services to the city.  Even despite this, Google's network is expected to operate at a significant loss.  The project is already more than a year behind schedule, because as you might expect, the entrenched monopolies have been doing everything they can to stop it.  Time Warner Cable has lobbied hard to try and stop the arrangement unless they are also given preferential access to utility polls.

Yesterday, President Obama signed an executive order to try and help the broadband situation in America.  Unfortunately, the initiative he is calling "Ignite", does nothing to further consumer access to next-generation broadband networks.  Ignite provides tax payer dollars to companies who will build 100 gigabit backbone connections between cities.  The problem is our problem isn't backbone connections, there is plenty of dark fiber available, it is the last mile.  Worse, the companies that have lined up to get a slice of tax payer money are the same monopolies that have been doing everything they can to prevent competition while failing to innovate so they can protect their highly profitable legacy networks.