The premise of deregulation was that it would lead to increased infrastructure spending. And it has: the late 1990's and the 2000's saw massive investment into cable and wireless. People assumed at the time the money would go into fiber, but demand exploded in wireless so investment went there instead.
They got tax breaks for $200 billion, so not made up. They talked about building fiber in congress to get the tax breaks. That's why people feel like they didn't live up to their bargain.
There's actually a book about this, which is online: http://www.ntia.doc.gov/legacy/broadbandgrants/comments/61BF.... Read page 210-223, especially page 222.
The number is calculated by starting from the premise that telecom companies should be regulated as utilities, and make regulated returns on their investment. It also starts from the premise that the price of features should be proportional to their cost.
From that premise, it computes $103 billion as the "excess profits" when the telcos are compared to other utilities. Another $78 billion is chalked up to "excessive depreciation." This, in turn, is based on a calculation rooted in "[a]ssuming that depreciation rates should have remained constant after divestiture." (Page 220). Of course the assumption that the depreciation rate should have remained constant before and after the internet boom is ridiculous. Another $25-50 billion is "cross-subsidization overcharging for long distance, DSL, and wireless." This estimate is based on the claim that the telcos added charges to phone bills that should have been accounted as costs to non-regulated services.
None of this amounts to getting a direct subsidy or even a direct tax break in return for building fiber. The whole point of the 1996 changes in the law was deregulation of the industry. The whole idea was that deregulation of the industry would lead to higher capital investment, which it did (just not in the areas people expected at the time). Nobody hid the ball on the fact that the 1996 law was about deregulation--everyone referred to it as such. Well, in a deregulated industry, if a company raises prices, we don't call that "excess profits." If they cross-subsidize their business lines, we don't call that "excess profits."
Did the telcos make a ton of money between 1996-present? Yes, they did. Demand for internet exploded, and demand for mobile exploded, and they invested the money to build the infrastructure that made all that possible. That's why they made all those "excess profits."
The book, as a whole, is handwaving. It's based on two fundamentally flawed premises:
1) That the internet and mobile booms are unrelated to deregulation and should not be factored into the analysis. Of course, that's ludicrous. For decades up to the mid-1990's, telephone service was an industry with steady demand growing based on population growth. Then the internet happened, and mobile happened, and demand skyrocketed. At a basic economic level, why should we not, then, expect: 1) providers of the infrastructure underlying those boom industries to profit more after than they did before? 2) providers of the infrastructure underlying those boom industries to depreciate infrastructure and invest in new infrastructure faster than before?
The $200 billion figure is fundamentally rooted in assuming that the answers to those two questions should be "no."
2) That 1970's-style rate-regulation doesn't have an adverse impact on capital investment. If companies can make 30% returns investing in Twitter and 10% returns investing in laying fiber, then the money will go where the returns are. If these folks had been in charge of regulating wireless, we'd still be using 2.5G phones (but at least we wouldn't be "overcharged" for text messages!)
Were provisions for a particular level of broadband penetration and performance included in the 1996 Telecom Act? If so, was the inclusion of these provisions tied in any way to the more provider-friendly regulatory posture granted as a result of the Act?
Assuming the answer to first question is yes, were those provisions met? If not, was it because they were just unrealistic, or was it because of some other reason?
What I think: yes, yes, no and a little of both.
What I don't think: doubling down on deregulation at this point - which is what this fast-lane stuff seems like to me - will be a long-term benefit for consumers, which (as a consumer) is what I currently care most about.
To answer your questions:
- Of course infrastructure providers enabling a boom industry should profit from their efforts. I also expect the provider to upgrade their infrastructure out of these profits, not go around with their hand out trying to get everyone else to pay for it every upgrade cycle.
- I don't understand how this supports your argument. Isn't a part of the argument that they are not upgrading infrastructure fast enough?
- re: 70's style regulation... Did you say handwaving?
I'm not really disagreeing with you that companies should profit. However they want to try and do that is also fine, they basically have the right to try and earn profit however they want. But it's got to be OK to decide no, this method you're trying is unseemly and we're not going to permit it. That's what I think is happening here w/ Comcast, and I'd prefer if regulation was not changed (or established or whatever the appropriate term is) such that it's not only OK, but a big green light for _every_ provider to start running around doing the same thing.
Yet it has somehow become conventional wisdom, parroted in every thread on this subject.
> Were provisions for a particular level of broadband penetration and performance included in the 1996 Telecom Act? If so, was the inclusion of these provisions tied in any way to the more provider-friendly regulatory posture granted as a result of the Act?
No. The purpose of the act was deregulation of the industry, not giving regulatory concessions in return for particular performance outcomes. Whether deregulation is "provider-friendly" depends on who you ask. In theory, deregulation is consumer-friendly. E.g. whenever Uber or AirBnB come up, people on HN champion deregulation of those markets, on the theory that deregulation is good for consumers. That was the operative theory underlying the 1996 Telecom Act.
Now as for whether the pitch back then lived up to the results, the answer is of course "kinda." The state of U.S. internet is really much better than people say. Read my post about what Akamai has to say about actual connection speeds in the U.S. versus Europe (that we're ahead of the big European countries like the UK, Germany, and France): https://news.ycombinator.com/item?id=7709948.
What people fixate on is the lack of fiber in major cities, and that has much more to do with dysfunctional municipal politics than national telecom regulation. In Chicago, for example, many folks have a choice between Comcast and RCN (which has a mostly fiber network). This is not because Comcast didn't bribe enough alderman, but simply because the city tends to have a pretty functional and hands-off approach to regulation, which reduces the roadblocks to market entrants. The city also has never instituted rent controls, and unsurprisingly has pretty affordable housing for city of its size and density.
> What I don't think: doubling down on deregulation at this point - which is what this fast-lane stuff seems like to me - will be a long-term benefit for consumers, which (as a consumer) is what I currently care most about.
The problem with "pro-consumer" regulation is that it's often short-sighted. Throughout the U.S. in the 1970's and 1980's and 1990's, and in Europe in the 1980's, 1990's, and 2000's, industries were deregulated, and it was largely a positive thing. The biggest problem with "pro-consumer" regulation in telecom is that it makes investment in regulated telecom unattractive, which causes investment dollars to flow into areas that are more attractive.
When I say "1970's style regulation is discredited" I absolutely mean it. Governments across the political spectrum have backed away from that style of regulation and embraced ones better-rooted in economic reality. But utility and telecom regulation is rooted in that same failed ideology. It's the ideology where regulators think it's a good idea to set prices instead of letting the market do so, or tell companies that they can only achieve a 10% return instead of whatever the market will bear. This style of regulation ignores the basic fact that the economy is inter-connected. If you tell companies in an industry that they can't raise prices, all the capital will flow to an industry where they can.
That's exactly what happened with telecom. Post-1996, the most heavily regulated communications infrastructure was the telephone system. Cable was less regulated, and so was wireless. And what happened? All the capital flowed to upgrading cable and wireless networks, and DSL was essentially killed as a potential competitor because there was not sufficient profit motive in DSL.
Now, I'm not saying network neutrality is 1970's-style regulation, it's not. It's not rate setting, or regulated rates of return, or anything like that. But when people say "the telcos took $200 billion and didn't give us fiber" well that's absolutely a contention that only makes sense if you buy into the 1970's ideology: that the public would've saved $200 billion had the industry continued to be regulated the way it was pre-1996, but that despite these regulations we'd still have the level of infrastructure investment we do today.