Cleland served as Deputy United States Coordinator for Communications and Information Policy in the George H. W. Bush Administration. Eight Congressional subcommittees have sought Cleland’s expert testimony and Institutional Investor twice ranked him the #1 independent analyst in his field. Scott Cleland has been profiled in Fortune, National Journal, Barrons, WSJ’s Smart Money, and Investors Business Daily. Ten publications have featured his op-eds. For a full bio see: www.ScottCleland.com.
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Net neutrality activists succeeded last week in getting the FCC to officially consider ruling that private broadband companies should be price and profit regulated like public utilities in order to ensure maximal net neutrality.
As part of the FCC’s proposed Open Internet rulemaking, America will hear a debate over the next several months about whether the FCC should reclassify broadband as a Title II telephone monopoly service.
To make the issue more understandable to those interested, consider the top ten reasons why broadband should not be considered a natural monopoly warranting public utility regulation of profits, prices, terms and conditions.
Physics: The physics of broadband delivery facilitate competition while the physics of electricity, water and gas delivery facilitate monopoly. Electricity, water and gas can only be delivered in one basic physical manner unique to that service. In contrast, broadband can be delivered electrically over many kinds of metal wires, optically over fiber optic cables, and wirelessly in a wide variety of ways.
Digital: The simple binary ones and zeros of digital computer technology inherently enable many different technologies and physical mediums to interchangeability serve as broadband networks. Electricity, water and gas public utility networks are non-digital and inherently not interchangeable like broadband networks are.
Economics: Public utilities are based on single-use, high-capital-intensity, “natural monopoly” utility economics, where economies of scale and scope preclude the possibility of competitive facilities and services. Being digital, broadband provider facilities inherently have dramatically better economics because of multi-use-facilities, service bundles, rapidly declining digital equipment costs, and lower capital-cost intensity via wireless.
Choice: Public utilities exist for services where consumers have no alternative or choice. However, in broadband Internet access, the vast majority of Americans have a diversity of choices of broadband technologies, providers, services and features; i.e. free WiFi or pay-for-service via cable modem, DSL, fiber, wireless, or satellite. Consumers can also choose between stationary, mobile or hybrid access services and select from a wide variety of speed and price offerings.
Competition: As one of the top-advertised services in America, consumers know they can get broadband from their local cable company, local phone company, four national wireless broadband companies (Verizon, AT&T, Sprint, & T-Mobile), and two national satellite companies.
Private Investment: Private investors have invested $1.2 trillion of long-term risk capital in competitive broadband facilities in the U.S. over the last decade under the assumptions that broadband is a competitive service with growth potential and no prospect of utility regulation. This massive and unparalleled infrastructure investment is incontrovertible economic evidence broadband service is not a “natural monopoly,” or likely to become one.
Change: Public utility services are characterized by standard uniformity and glacial rates of change. In contrast, competitive broadband services are characterized by diversity, differentiation, rapid-change, and continuous innovation.
Speed: Public utilities like electricity, water and gas, are designed to deliver a set and uniform delivery speed to everyone that is never expected to change. Competitive broadband networks are all about constantly improving the speed of delivery and offering the choice of differentiated speeds by price based on consumers’ ever-changing needs, wants and means.
Prioritization: Public electricity, water and gas utilities deliver uniform unchanging service that requires only availability management. In contrast, competitive broadband providers deliver variable, constantly changing service that requires ongoing reasonable network management. Broadband providers must filter unwanted, harmful or illegal traffic like spam, viruses, malware, bot-nets, denial-of-service-attacks, and other intrusions and infections. In addition, reasonable network management is needed to address congestion, and to deliver quality-of-service to ensure different types of traffic enjoy the necessary real-time delivery – no latency, jitter or buffering – and minimal down time or packet loss.
Common Carriage: Utility “common carrier” regulation is an obsolete form of network regulation in the U.S., and the Public Switched Telephone Network (PSTN) is the last common carrier utility regulated network industry. Less than a quarter of Americans still use the PSTN exclusively and it is in the process of being transitioned out of service in the next few years. Congress ended common carrier regulation for railroads in 1976, for trucking and bus lines in 1980, and airlines in 1984.
Broadband networks do not have any of the most relevant characteristics of public utility services.
Any fair and fact-based analysis by the FCC will confirm the statements above, and show that FCC reclassification of broadband as a common carrier-regulated utility is unnecessary, unwarranted, unwise and unfair.
Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, a research consultancy for Fortune 500 companies, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests.