
Don’t Blame Big Cable. It’s Local Governments That Choke Broadband Competition - apu
http://www.wired.com/2013/07/we-need-to-stop-focusing-on-just-cable-companies-and-blame-local-government-for-dismal-broadband-competition/
======
zdw
The fundamental problem here is that in most places we've arbitrarily decided
that certain things like:

    
    
        - Roads
        - Water/Trash/Sewer
        - Police/Fire service
    

Are a part of municipal government, whereas:

    
    
        - Electrical
        - Telephone
        - Cable TV
    

Are frequently not, but are regulated. Frequently, one of these last 3 will
own the poles (usually the Electrical company, but sometimes the municipality)
and the Phone/Cable companies lease the poles to put up their lines.

So, what do you do? Make the Electric company put up New Companies A-Z's lines
for free? That doesn't work and would quickly lead to companies covering the
lucrative part of town (read: "rich") and widening the digital divide.

It comes back to the bad decision that didn't force Cable to be a common
carrier. Had that happened, we'd end up with a situation like DSL where there
are multiple vendors, except the lines would have the same speed capabilities
as Cable.

So, in short, it comes back to a bad FCC decision. Requiring a bunch of new
physical infrastructure isn't needed when the existing could just be broken up
and leased out as dumb pipes.

~~~
nostromo
The problem is that eliminates the incentive for companies to build faster,
better internet. We'd be stuck with what we have now for a very long time.

I do think it's fair to blame municipalities. Look at something that is much
easier to build out: wireless networks. Cell coverage has dramatically
improved over the past 10 years. In part, that's because multiple carriers are
competing for customers and municipalities have largely stayed out of their
way.

One could even argue that we're reliant on cable providers because there were
no incentives for the highly regulated phone line providers to improve their
networks.

~~~
bduerst
Nope.

Regional competition for services which require expensive infrastructure is
non-existent once the first player has entered the market.

Any competitor trying to enter would need to build out the expensive
infrastructure, only to be undercut in the following price war and lose
because of recent costs. It's textbook game theory.

This lack of competition leads to a deterioration of quality of the service as
the sole market holder doesn't need to continue to invest in infrastructure.
Instead they can invest in lobbying which helps further cement their hold on
their market, or invest in advertising to take customers away from shittier
service alternatives, like DSL.

Quality is the exact reason why something like transportation is handled by
local governments, as opposed to letting private toll roads dominate the
market, which have no incentive to patch pot holes when it's the only option
available.

~~~
pdonis
_> Regional competition for services which require expensive infrastructure is
non-existent once the first player has entered the market._

This is just as true when the first player is a local (or State) government as
when it's a private company.

 _> Quality is the exact reason why something like transportation is handled
by local governments, as opposed to letting private toll roads dominate the
market, which have no incentive to patch pot holes when it's the only option
available._

Local governments often don't do a good job of patching potholes either. (Nor
do State governments, which often own major highways.)

~~~
bduerst
Not so. Public sector monopolies are not aligned with profit-hungry
shareholders, board of investors, executives looking for bonuses, etc. Instead
public sector monopolies are aligned with quality, and making enough revenue
to break even.

And don't cherry pick some individual poorer counties for road performance,
even though on a whole they are better. I could cherry pick Somalia as an
example of privately maintained transportation monopolies.

------
yaur
Municipally owned/maintained FTTH with ISP access from an analog to a CO is a
good thing IMO and something that the incumbents have used the courts to shut
down in the past[1]. The Wired piece makes a seemingly legitimate argument
(franchise agreements increase the cost for new entrants) while ignoring the
actual alternative (which would dramatically decrease the cost for new
entrants) that those outside of the industry may not even be aware of and in
that regard is a bit dishonest.

Why is this coming up now? One of the interesting tidbits I picked up from
industry coverage[2] of the current round of FCC rule making is "Wheeler
intends to nullify state laws that prevent local governments from establishing
broadband service". Which is something I don't think the industry wants to
happen. So, yeah open access is great but giving cities the "If you don't
provide acceptable internet service we will" stick is valuable as well.

[1] [http://arstechnica.com/uncategorized/2008/07/telco-wont-
inst...](http://arstechnica.com/uncategorized/2008/07/telco-wont-install-
fiber-sues-to-keep-city-from-doing-it/) [2]
[http://www.cedmagazine.com/blogs/2014/05/fcc-four-more-
month...](http://www.cedmagazine.com/blogs/2014/05/fcc-four-more-months-of-
bickering-about-net-neut)

~~~
Spooky23
Hopefully, they are successful. Municipal governments aren't equipped to make
these decisions.

In my city (Albany, NY), the city signed a 10 year franchise agreeing giving
Time Warner a monopoly on tv services, which makes the city much less
attractive for FIOS, which is available in most surrounding communities.

Why did they do this? Some idiot activists got the city to demand that TWC
provide a public access channel (hello, 1982) and to build a "TV studio" in
the local high school.

------
imgabe
So the cable companies aren't aggressively lobbying municipal governments to
keep out competition? Where do you think these costs came from?

And god forbid the municipality try to build out its own network. That will
just inspire the incumbent cable company to take them to court until the
project gets scrapped.

No, I think we can pretty easily blame Big Cable for this one.

~~~
ericingram
Governments create and enforce laws, so they must be held accountable for
them. If the government didn't have such discretionary power, lobbying would
not be a thing at all.

I don't blame the big cable companies for doing it, since they'd be at a
competitive disadvantage otherwise.

Remember that humans operate companies and governments alike. Except
governments use force and companies are subject to it.

~~~
dhmholley
It astounds me how people will happily let companies off the hook for causing
negative externalities, while simultaneously blaming the government for
failing to regulate them effectively and decrying the regulation in the first
place.

"Remember that humans operate companies and governments alike. Except
governments use force and companies are subject to it."

What utter drivel.

~~~
smsm42
He who wields the weapon is responsible for the results. Government wields the
power of coercion, thus the results of coercion is their responsibility - and
the shared responsibility of those that consent to such government. Yes, the
lobbyists who abuse the coercive power of government share the blame - but so
do you, if you support the existence of this coercive power and their ability
to abuse it. If somebody tricks you into shooting yourself in the foot by
claiming your foot is a space alien intending to eat you - he is to blame for
tricking you, and you are to blame for being an idiot. You can say we should
get the world rid of the people who are willing to trick idiots for their own
profit, but I say it may be much more practical to try and be idiots less
frequently. Because the former is not very likely to happen anytime soon.

------
Aloha
I work for a major wireless carrier - we see this all the time with permitting
- many of our rural sites dont even require a permit - we can just go out and
swap the equipment on the pad, hand the new stuff on the tower. Our urban
sites, some of them are just now getting permits that were applied for in
2011, not to mention the couple hundred bucks in fees (or more) to get said
permits - all to simply change a bit of hardware bolted to a concrete pad -
and on top, often costs for reinspection once were done bolting the new stuff
on.

------
wnevets
Bullshit.

When local governments (i.e counties) attempt to roll out their own broadband,
big cable (i.e comcast) sue to prevent it from happening.

------
rayiner
I think it is absolutely key to look past all the rhetoric and see what Google
is actually asking for in return for building fiber.

> In Kansas City and Austin, local governments wanted Google Fiber more than
> they wanted kickbacks. So they expedited the permitting process, gave Google
> rights-of-way access for little to no cost, and allowed Google to build-out
> selectively — i.e., in neighborhoods where consumers actually expressed
> demand.

Kansas City agreed to get the permits done in 5 days. Provo sold Google for $1
a fiber network they had spent over $30 million constructing. Most if not all
of the cities declined to impose build-out requirements: enough users had to
sign up in each "Fiberhood" to justify Google deploying there.

This stands in stark contrast to what happens when companies try to deploy
fiber or cable in other places.

Read Comcast's franchise agreement for Wilmington, DE, a small, poor, city of
about 70,000 people:
[http://www.wilmingtonde.gov/docs/1320/3716Rev1.pdf](http://www.wilmingtonde.gov/docs/1320/3716Rev1.pdf).

In addition to the hefty franchise fee, paid out of gross, the city extracts a
couple of million dollars in funding for government programs, and imposes a
built-out requirement that requires Comcast to build out to every neighborhood
above a certain (low) density, even if enough customers don't sign up to make
it profitable. Similar build-out requirements killed FIOS deployment in the
city: [http://www.fiercetelecom.com/story/verizon-defends-honor-
wil...](http://www.fiercetelecom.com/story/verizon-defends-honor-wilmington-
fios-talks/2008-12-08).

In short, I can't have FIOS because Verizon wasn't willing to build it out to
all the neighborhoods in the city that have 30-50% of its residents living
under the poverty line.

This sort of article typifies the local response:
[http://seattletimes.com/html/businesstechnology/2023420101_b...](http://seattletimes.com/html/businesstechnology/2023420101_briercolumn21xml.html).

("Once cities provide these handouts, they don’t have much leverage. They’ll
end up bowing and scraping and hoping that Uncle Google throws a bit more
fiber their way, someday. The experience in Kansas City — where suburbs are
stuck waiting for Google to extend its fiberhoods — suggests that cities in a
region targeted by Google Fiber should work together on setting expectations
and deadlines. Yes, a provider like Google may abandon a city that doesn’t
play along. But is that such a loss if the company ends up cherry-picking and
making the market less attractive to other providers — including public
utilities — that might come and provide fast broadband for everyone?")

In other words, they want to subject fiber deployment to the typical class
warfare that characterizes municipal politics. It's better for nobody to have
fiber than for wealthier areas to get it while communities that can't afford
it don't. In New York City, the mayor has turned Verizon's FIOS deployment
into an economic justice issue and hired a civil rights lawyer:
[http://www.crainsnewyork.com/article/20140219/TECHNOLOGY/140...](http://www.crainsnewyork.com/article/20140219/TECHNOLOGY/140219845/mayor-
pushes-verizon-to-discount-fios-for-poor).

Who do you blame for not having fiber? How many cities would already have
competitors deploying fiber if they had adopted the kind of regulatory regimes
Google is demanding as a pre-condition for launching fiber?

~~~
qq66
Ensuring universal service is something that governments try to do for things
considered "essential": electricity, water, postal service, and broadband
Internet.

The reason that Verizon signs contracts to serve all of a city like
Wilmington, DE is that there are enough households who can afford it to make
it worth their while. If Google comes and picks off the highest-value
customers, the mix of remaining customers may not be worth serving from
Verizon's perspective, and they may exit the market. (And even if Google is
blocked by municipal governments, alternatives like WiMAX and its successors
are much harder to block).

I don't think there's an easy solution to this problem. If you just let the
market do its thing, then fewer people will have access to Internet overall.
The tradeoff isn't easy.

~~~
jessriedel
There is an easy econ 101 answer response. If you're really trying to help the
poor at the (presumably managable) expense of everyone else, then subsidize
the subscriptions of the poor households by explicitly taxing. This
dramatically reduces market distortions and makes clear exactly what's
happening. Putting up rules that require the rich to indirectly subsidize the
poor in the way being described (making the tax invisible) predictably leads
to an awful situation.

People often reply "this isn't politically feasible", but that's giving up the
game. If the opaque, inefficient, and difficult-to-measure strategy is
politically feasible but the transparent one is not, that's a good sign it's a
bad choice.

~~~
rwl
> If you're really trying to help the poor at the (presumably managable)
> expense of everyone else, then subsidize the subscriptions of the poor
> households by explicitly taxing.

Isn't this exactly what local governments are doing? It's just that the tax
falls on the (shareholders of) broadband companies, who are presumably not,
for the most part, local residents. The reason this is more politically
feasible is not that it isn't a tax, but that the tax is not being levied on
voters. Or does the name matter that much?

~~~
nardi
The problem is that taxing entrants into the cable market creates a very high
barrier to entry. The tax is not being levied _directly_ on voters, but
indirectly, by creating a monopoly that provides poor service, when they could
instead have competition providing great service.

~~~
rwl
> The tax is not being levied directly on voters, but indirectly, by creating
> a monopoly that provides poor service, when they could instead have
> competition providing great service.

But isn't the point here precisely that without the tax or other barriers to
entry, "they" would _not_ have great service? Some might -- but it seems
likely that far fewer would get it than with build-out requirements and so on
in place. I think the government has an obligation to avoid leaving those
people behind in this case.

------
adventured
Where I live Comcast is barred from offering me Internet access due to the
small city I live in offering another cable company a long term monopoly.

So I pay $75 for 15 mbps. I could be paying $25 less and getting twice the
speed if I lived 10 minutes another direction.

Local governments are at least half the problem, but it's clearly a public +
private collusion problem, in which both parties work together to establish
monopolies. And the solution is simple (but will never happen): all telecom
monopoly contracts should be voided nationally, immediately.

~~~
rayiner
The 1992 Cable Act made it illegal to grant exclusive cable franchises. Since
the franchises were generally renewed every 10-12 years, very few places (I
don't know of any) still have legal monopolies.

------
saalweachter
If I'm reading Wikipedia correctly, Wired is owned by Conde Nast, which is
owned by Advance Publications, which also has a large stake in the Discovery
network.

Hooray for an independent press!

------
higherpurpose
Blame both. The cable companies asked for the local monopoly in the first
place...

------
stcredzero
We seem to be in as bad a situation now, as we were in when the telephone
company had a monopoly running right up to the jacks in your house. (And most
likely sold you the phone that plugged into that jac on top of it!)

~~~
Sanddancer
Oh, it was worse than that. You used to not even own your phone, only rent it
from the telephone company; a lot of elderly couples are still getting charged
for that phone they rented, and threw out, decades ago [1]. Thankfully, most
customers are now at least allowed the tiny luxury of their own cable modem.

[http://www.consumerwarningnetwork.com/2009/03/25/is-
grandmom...](http://www.consumerwarningnetwork.com/2009/03/25/is-grandmom-
still-renting-her-old-telephone/)

------
tormeh
Who would want an ISP to innovate? Latency, bandwidth and cost are the only
things that matter. ISPs should be prohibited from offering anything else than
internet access. No phone, no video, no toilet cover delivery.

~~~
NoPiece
Doesn't it require innovation to improve latency, bandwidth, and cost?

~~~
dublinben
Not by the ISP. All their equipment is made by other companies (like Cisco,
Juniper, etc.) who do that kind of innovation. They're just buying the pieces
and snapping them together.

~~~
NoPiece
Fair enough, but AT&T does spend ~1 billion in R&D. Verizon doesn't report
their number but supposedly it is less. Innovation isn't just hardware
development, and even if they are relying on other companies, they are pushing
innovation by paying Cisco/Juniper.

------
NorthGuy1
Can I blame both?

~~~
closetnerd
yes please

------
VikingCoder
Wow, it can _double_ the cost?

Well, then we should have seen $150 billion in delivered broadband, since we
have given $300 billion in tax subsidies to broadband providers, in exchange
for broadband development.

We have not seen $150 billion in delivered broadband value.

Ergo, this argument is wrong. I do blame Big Cable.

~~~
NoPiece
Do you have a primary source for the $300 billion tax subsidy claim (which
would be an indictment of the telcos if true). Something besides a link to a
link to a link to something Bruce Kushnick has claimed?

I've read his reports, and while there seems to be a kernel of truth, the
numbers are not, IMO, substantiated. He gets big numbers by claiming the
telcos are making undeserved profits, which even if true, is not a subsidy.

~~~
mikeyouse
You can easily get to $200B from the spectrum value alone.

In 2008, as part of the digital transition, 52 MHz in the 700-band were
auctioned off for $19B. The telcos were gifted 295mhz of spectrum for the
digital expansion when they agreed to invest in broadband. Even if it's only
half as valuable as that 52 MHz allotment, simple math indicates a value of
over $400B.

LA Times article from the era making the same point (valuing the spectrum at
$70B at the time) --
[http://articles.latimes.com/1998/dec/07/local/me-51464](http://articles.latimes.com/1998/dec/07/local/me-51464)

~~~
rgbrenner
The article you linked to does not say anything about broadcasters agreeing to
invest in broadband.

and I have no idea what TV broadcasters and fiberoptic broadband have to do
with eachother... they're entirely different industries. Comcast and Time
Warner don't use TV airways--that's why they call it "cable".

~~~
mikeyouse
Apologies if my earlier post was unclear, I deleted a few sections in favor of
brevity but it was left confusing.

The spectrum giveaway to broadcasters was predicated on 'Universal Service'
being supplied by telecom companies.[1] That digital TV spectrum would be
immensely valuable for wireless communication today, so it should absolutely
be considered a subsidy as a result of the Telecom Act.

The more direct subsidies come from many other places. A good place to start
is the Universal Service Fund[2]. Every landline bill, every cable bill, every
mobile phone bill has a line item for "Universal Service" on it. These funds
are collected from consumers then 'disbursed' to companies for them to provide
service extensions. This has been happening since 1997. They've disbursed over
$80B back to telecom companies as part of the telecom act, the GAO isn't too
impressed with how it was being spent.[3] Besides the direct subsidies, they
got favorable depreciation schedules, and tax relief.

The oddly interesting Robert Cringely did a special for PBS on the mess, which
is probably the origin of the $200B number[4]:

    
    
        Over the decade from 1994-2004 the major telephone companies profited
        from higher phone rates paid by all of us, accelerated depreciation
        on their networks, and direct tax credits an average of $2,000 per
        subscriber for which the companies delivered precisely nothing in terms
        of service to customers. That's $200 billion with nothing to be shown for it.
    
    
    

[1] -
[http://object.cato.org/sites/cato.org/files/serials/files/ca...](http://object.cato.org/sites/cato.org/files/serials/files/cato-
handbook-policymakers/2003/9/hb108-41.pdf)

[2] -
[http://en.wikipedia.org/wiki/Universal_Service_Fund](http://en.wikipedia.org/wiki/Universal_Service_Fund)

[3] -
[http://www.gao.gov/modules/ereport/handler.php?1=1&path=/ere...](http://www.gao.gov/modules/ereport/handler.php?1=1&path=/ereport/GAO-11-318SP/data_center_savings/Economic_development/Improved_design_and_management_of_the_universal_service_fund_as_it_expands_to_support_broadband_could_help_avoid_cost_increases_for_consumers)

[4] -
[http://www.pbs.org/cringely/pulpit/2007/pulpit_20070810_0026...](http://www.pbs.org/cringely/pulpit/2007/pulpit_20070810_002683.html)

------
closetnerd
no blame both big cable AND local governments ... its always a distraction to
polarize the argument ...

------
Goronmon
So, say that every town/city in the country streamlined the process for
handling "right of way" and reduced the asking price for access.

Would this actually lead to an increase in competition or would it just lead
to greater profits for the incumbents?

~~~
Sanddancer
There are a number of cities in the San Francisco Bay area that do offer such
agreements, and competition has sprung up. When I used to live in Daly City,
there was a choice between Comcast and Astound, and from what I could see by
reviews, both services seemed to be better than the neighboring cities because
of it.

------
sp332
Every local government in America?

~~~
Aloha
No, but the places that HN commentators are likely to live, yes. The bigger
the city, the more likely.

------
z3t4
I'd say blame the people that don't want more then 10 Mbit. And think that
everyone who has 10+ Mbit only use it for "illegal activities".

------
ozten
Many local governments have given exclusive rights to a single private
company. I wish that opinion editorial had some data to backup it's
assertions.

------
jinushaun
Seattle and SF

------
dba7dba
Wow, really? It's the local govt fault that our internet connectivity sxxxxs?

~~~
spikels
Yes - were it not for municipalities' ability to enforce monopoly rights we
would often have multiple landline, cable, garbage, electric and other
providers competing on quality and cost. Some say these are "natural
monopolies" but there are cities around the world where consumers have a
choice of providers for these services. True natural monopolies are very, very
rare but are almost always created by government action. Patents are another
example.

~~~
bsder
> Yes - were it not for municipalities' ability to enforce monopoly rights we
> would often have multiple landline, cable, garbage, electric and other
> providers competing on quality and cost.

You are conflating different types of problems.

Things which are natural monopolies are phone, cable, internet, electricity,
water, etc. It is needlessly expensive to lay in multiple cables/pipes to a
house solely in order to provide competition. Oddly, cable/internet is one of
the few places where this actually isn't completely true since pulling a
single fiber is almost as expensive as pulling multiple fibers.

I don't know why you cite garbage collection, though. Garbage collection is
completely different. I know many towns that have multiple garbage collection
services. You don't have to lay in an infrastructure in order to collect
garbage.

