Tuesday, June 28, 2005

Discovering Japan*

The United States ranks somewhere in the mid-teens in access to broadband, even using the FCC's ridiculously inadequate 200 kilobits per second definition.

Thomas Bleha, writing in the May/June edition of Foreign Affairs magazine, says this spells economic trouble. Worse still, he says current U.S. broadband policy of competition among cable and telephone companies (established under the lead of Michael Powell) has locked the country into a slow growth, slow innovation approach that will depress our economic competitiveness for years (perhaps decades) to come. The Supreme Court's decision yesterday which said the FCC was right to allow cable companies to bar independent ISPs from their networks will only make matters worse by entrenching this mistaken approach.

Bleha, a veteran foreign service officer who spent eight years in Japan, says that country has gained significant competitive advantage over the U.S. due to its aggressive roll-out of ultra-fast, fiber-based broadband.

Here are some key passages:
Until recently, the United States led the world in Internet development. In the late 1960s and 1970s, the Department of Defense's Advanced Research Projects Agency conceived of and then funded the Internet. In the 1980s, the National Science Foundation partially underwrote the university and college networks -- and the high-speed lines supporting them -- that extended the Internet across the nation. After the World Wide Web and mouse-driven browsers were developed in the early 1990s, the Internet was ready to take off. President Bill Clinton and Vice President Al Gore showed the way by promoting the Internet's commercialization, the National Infrastructure Initiative, the Telecommunications Act of 1996, and remarkable e-commerce, e-government, and e-education programs. The private sector did the work, but the government offered a clear vision and strong leadership that created a competitive playing field for early broadband providers. Even though these policies had their share of detractors -- who claimed that excessive hype was used to sell wasteful projects and even blamed the Clinton administration for the dot-com bust -- they kept the United States in the forefront of Internet innovation and deployment through the 1990s.
When Michael Powell ascended to the chairmanship of the FCC, Bleha says,
[t]he Federal Communications Commission (FCC) showed little interest in opening home telephone lines to outside competitors to drive down broadband prices and increase demand.
Recall that this policy of cutting off competition was precisely what the Regional Bell Operating Companies (RBOCs) were clamoring for when they weren't actively working to subvert the line sharing requirements required by law and the FCC.

The results of this incumbent-friendly, competition-hostile policy quickly became evident:
When the United States dropped the Internet leadership baton, Japan picked it up. In 2001, Japan was well behind the United States in the broadband race. But thanks to top-level political leadership and ambitious goals, it soon began to move ahead. By May 2003, a higher percentage of homes in Japan than in the United States had broadband, and Japan had moved well beyond the basic connections still in use in the United States. Today, nearly all Japanese have access to "high-speed" broadband, with an average connection speed 16 times faster than in the United States -- for only about $22 a month. Even faster "ultra-high-speed" broadband, which runs through fiber-optic cable, is scheduled to be available throughout the country for $30 to $40 a month by the end of 2005. And that is to say nothing of Internet access through mobile phones, an area in which Japan is even further ahead of the United States.
Let's review that startling paragraph. It took only two years of the 'competition between the duopolies' of phone and cable incumbents for the U.S. to lose its edge. It's also worth noting that $40 per month for fiber-borne connectivity is just about what LUS will offer residents; that is, if a customer bought high-speed Internet only from LUS, the monthly charges would run somewhere in the range between $40 and $45 per month. Again, we're talking broadband speeds at least five times (maybe as much as 20 times) faster than what is currently offered by incumbents here.

Here's Bleha's take on the implications of the growing digital divide between the U.S. and those countries (like Japan and South Korea) that are moving aggressively to make true broadband available to all their citizens:
By dislodging the United States from the lead it commanded not so long ago, Japan and its neighbors have positioned themselves to be the first states to reap the benefits of the broadband era: economic growth, increased productivity, technological innovation, and an improved quality of life.
Japan's accelerated broadband deployment was driven by government funding AND open access to network infrastructure for all providers. The incumbent phone and cable companies have funded legions of lawyers and lobbyists to enshrine their ability to shut competitors (and their innovatioins) from their networks. It is worth noting that incumbents continue to 'game' their networks in order to block even certain types of services from their customers, such as voice over Internet Protocol (VoIP).

To understand the implications of the closing off of these networks, answer this question: Name a network technology innovation developed by either the RBOCs or the cable companies over the past 20 year. This is a tough question because there is scant evidence of any such innovation. Innovation was invariably brought in by entrepreneurial innovators. Killing innovation does the country no good; it does, however, satisfy the incumbents (check your local papers for stories on the Brand X case).

In making is case for a change in national broadband policy, Bleha points out just how large an economic advantage Lafayette would have over other U.S. cities if the LUS referendum is approved by voters on July 16:
Barely more than 600,000 U.S. offices and homes had fiber connections at the end of 2003. Verizon plans to bring fiber to 3 million of the United States' 115 million households by the end of this year, with speeds ranging from 5 to 30 megabits per second.
So, the LUS fiber to the premises project will vault Lafayette to a position of broadband access leadership in the U.S. Our 50,000 to 60,000 homes and offices will constitute a full 10 percent increase in the number of such connected entities.

Why does this matter? Because economic development is a competition focused on relative advantage. Having fiber to every home and business will give Lafayette a significant competitive advantage over much larger cities because we will have access to abundant and affordable bandwidth. Bleha explains why that is important:
By dislodging the United States from the lead it commanded not so long ago, Japan and its neighbors have positioned themselves to be the first states to reap the benefits of the broadband era: economic growth, increased productivity, technological innovation, and an improved quality of life.
Bleha also addresses the notion (expressed by opponents of the LUS plan) that the incumbents are giving us all that we need:
But these new services will probably appear only slowly, and competition between the telephone and cable companies will remain limited. The reasons are simple: cheap, high-speed broadband would lead to widespread use of Internet telephones and thus threaten the phone companies' lucrative voice-telephone business, and more inexpensive broadband would multiply outside video and movie offerings and endanger the cable companies' profitability. So, although both the telephone and cable companies could provide cheap, high-speed broadband if they chose to, they are not rushing to develop it.

The lack of strong incentives to encourage competition has, in other words, doomed broadband in the United States to remain much slower and more expensive than in Japan. Over the next five years, service is likely to get only marginally faster and cheaper. Meanwhile, at current transmission speeds, the next "killer" application -- Internet telephone service -- will remain shaky and unreliable.

The development of ultra-high-speed fiber broadband service, which is just beginning to appear in the United States, will also lag. Barely more than 600,000 U.S. offices and homes had fiber connections at the end of 2003. Verizon plans to bring fiber to 3 million of the United States' 115 million households by the end of this year, with speeds ranging from 5 to 30 megabits per second. SBC Communications, which dominates the Midwest and Southwest markets, and BellSouth, the leader in the Southeast, are also laying fiber, although at a much slower rate. But they plan to stop the work after spending about $10 billion (the estimated cost of bringing fiber close to about 10 million U.S. homes and offices) and then examine whether further investment is justified. As a result, the pace of roll-out will be slow. And the emergence of the substantial market needed to inspire innovative new products and services for those with fiber Internet access remains years away.

The implications of this snail's pace roll-out of fiber-based connectivity by the incumbents:

The United States is losing considerable ground to Japan and its neighbors, and they will be the first to reap the economic benefits of these technologies. It is these countries, rather than the United States, that will benefit from the enhanced productivity, economic growth, and new jobs that high-speed broadband will bring. In 2001, Robert Crandall, an economist at the Brookings Institution, and Charles Jackson, a telecommunications consultant, estimated that "widespread" adoption of basic broadband in the United States could add $500 billion to the U.S. economy and produce 1.2 million new jobs. But Washington never promoted such a policy. Last year, another Brookings economist, Charles Ferguson, argued that perhaps as much as $1 trillion might be lost over the next decade due to present constraints on broadband development. These losses, moreover, are only the economic costs of the United States' indirection. They do not take into account the work that could have been done through telecommuting, the medical care or interactive long-distance education that might have been provided in remote areas, and unexploited entertainment possibilities.
So, the country will pay a heavy economic price for the inability of the incumbent phone and cable companies to roll-out world-class network infrastructure to communities across the country. Those communities that content themselves with waiting for the incumbents to bring them into the future will suffer economically.

Lafayette has been offered a choice on July 16. We don't have to wait. We can choose to take our own path, one that puts our community on equal infrastructure footing with communities in countries with more aggressive network infrastructure roll-out approaches.

The choice is clear and stark: We can invest in ourselves or we can muddle along in the middle of the pack of medium-sized cities in a nation that is falling behind the rest of the world in the kind of infrastructure investments that will define economic success in the 21st century.

Forward or backward?

Progress or decline?

For Fiber or not?

LUS or nothing.

I'm voting Yes For Fiber on July 16!

* Apologies to Graham Parker for borrowing his song title.

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