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Susan Crawford: Internet is Critical to Society and Should Be Regulated Like a Utility

Susan Crawford’s Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age is not your average advocacy book — it is more like a call to arms.

Crawford effectively describes, in detail, the multitude of problems with the communications landscape and makes the issues accessible so almost anyone can understand them, despite their esoteric and intricate nature. The book makes it exceedingly clear that these problems are felt by millions of Americans, both in their wallets when they pay their internet bill and in their minds when they think to themselves, “why am I paying so much for my internet bill?!” With this kind of impact, everyone should, and I think in the end does, care about these issues.

This book teaches its readers what led to our current system and how the system has allowed for large-firm incentives that are harmful to competition and consumers (although completely rational from a business perspective). The high-level implications of our current system are at least twofold.

First, the U.S. could lose its global competitiveness if it refuses to require, or encourage, investment in next-generation technologies (like fiber-optic cables all the way to end-users’ homes). Second, at an individual level, bottle-necked, throttled, or capped Internet connections (imposed because providers would rather extract rents from artificial scarcity rather than invest in new and smarter infrastructure) could make it difficult, or even impossible, for Americans to benefit from the next cool idea, which may be comparatively bandwidth-heavy. The book expands in great detail on these and other points.

The Rocky Communications Landscape

We as a country and society have allowed those that provide us telephone, cable TV, and internet access to consolidate to the point that pre-divestiture AT&T is now back together (but this time with little government oversight) and in the wired and wireless markets there are but a few major players. To use Crawford’s words, “the United States now has neither a competitive market for high-speed wired internet access nor government oversight.”

To illustrate this problem, Crawford delves deep into the trenches of the Comcast/NBC-Universal (NBCU) merger, a major transaction that represents the marrying of distribution and content into one — but on a larger scale than ever before. Comcast is one of the largest distributors in the nation and NBCU is one of the largest content companies. The conflicts of interest abound.

Specifically, would Comcast favor NBC content over its distribution network to the exclusion of all others? Probably not explicitly, but it certainly has the incentive to do so, says Crawford. Comcast has already used its gatekeeper role over its popular pre-merger content to force other content owners into better deals for itself. Crawford tells us that Comcast relegated the NFL Network to a higher tier of cable access with fewer subscribers because the NFL refused to license a few NFL games to Comcast’s own sport’s channel, Versus. Comcast ultimately won that battle, earning itself a much lower price when the companies renegotiated. Despite Comcast’s many claims that it has an interest in providing as much content as possible and disseminating it as widely as possible, Comcast is often the only game in town — thus, it might be more profitable to withhold independent content to ensure Comcast’s own content is seen.

Lack of competition and lack of regulation have allowed this state of networks to occur. The American communications system “has all the monopolistic characteristics of the old Bell system but none of the oversight or universality,” writes Crawford. Our country has come a long way from imposing common carrier regulations on telephones and telegraphs. (Common carriage essentially means that the provider must accept all comers and charge reasonable rates, among other requirements.)

It used to be that a provider of transport (including transport of voices over copper, or telephone service) had to charge reasonable rates and accept all customers, but in return received a government-sanctioned monopoly. Now, providers of more advanced communications systems such as cable, DSL, and fiber (so-called “information services”), do not have to charge reasonable rates, do not have to accept all customers, but in return the government tacitly allows the monopoly or oligopoly. What this means is that there is little competitive pressure to invest in new infrastructure (but see AT&T’s announcement below). This leaves our country with outdated connections, a copper last-mile that is becoming obsolete, while our industrialized colleagues in Asia and Europe increasingly get access to fiber-to-the-home speeds — the kind of speeds that will enable the next generation to further build on the platforms that previous generations have created for them.

Smoothing the Landscape

To alleviate these problems, Crawford suggests that the U.S. move high-speed Internet access to a utility model. A utility model does not necessarily mean government-run. In fact, there is ample room for private providers so long as government enables those providers to earn a profit with a reasonable business model. Crawford accepts this premise, and believes that this model would be superior to the current model that has led to today’s communications mess.

Further, Crawford would ensure separation of wholesale and retail provision and wholesale transport and content. This would alleviate conflicts of interest in favoring content in which the distributor has a financial interest, as well as allow multiple competitors over the same infrastructure as was required among dial-up internet service providers. (The latter is a point Vint Cerf, co-developer of the TCP/IP protocol at the heart of the internet emphasized recently.) Also, because these companies need access to capital to invest in state-of-the-art fiber-optic infrastructure, the solution includes giving private corporations access to low-interest loans and guaranteeing a return on investment. This is a multi-faceted solution to a multi-faceted problem.

Reasonable minds will differ as to the prudence of moving to a utility model. Even those with an eye toward more, rather than less, regulation, may not believe that a full-fledged utility model for high-speed internet access is the best way forward, at least right now. Crawford is correct to point out the lack of political will and the likely incumbent backlash. However, it would have been valuable for Crawford to further explore the implications of her proposal, including the fact that this change would no doubt require a significant ramping-up of the communications sector of the federal government and perhaps state/municipal governments too.

There are other questions that might need to be answered as well, like how would this affect how incumbents do business, would that change negatively affect consumers and how much shuffling around will be required to achieve this end? Additionally, Crawford states that it would cost roughly $50 to $90 billion to provide fiber-to-the-home connections to all Americans; but beyond the initial infrastructure investment, the ongoing costs of increased regulation, upkeep, and investment in new equipment would be a significant barrier, especially at a political time when the FCC is being used as a revenue enhancement device for the U.S. Treasury (incentive auctions). A discussion of these questions and ramifications, along with the timeframe within which to make this change, would have been a valuable addition to the book. On the other hand, these questions could potentially fill a book of their own.

One of the unfortunate aspects of writing a book is that you have to publish it sometime. Crawford’s book went to print around the same time that AT&T announced a substantial investment in its network. As some have pointed out, this does run somewhat counter to her assertion that “investment in infrastructure is down because there is no competitive pressure in either the wireless or the wired sector to increase it[.]” However, I must disagree with those that point to AT&T’s investment as the indication that competition and investment is healthy. I have two reservations about AT&T’s announcement.

First, large telecom companies have a history of overpromising and underdelivering. Crawford discusses this in regard to the Comcast/NBCU merger, specifically Comcast’s attempts to weasel out of its merger condition to “neighborhood” the Bloomberg channel with other important news channels. Even Google originally intended its fiber project in Kansas City to be open access. It is not out of the realm of possibilities that AT&T is making this investment sound sweeter than it is, especially for its wireline investment in rural areas. Second, AT&T’s wired network, “U-Verse,” is a fiber-to-the-node network — meaning it is not really all that high-speed because it still uses a copper last-mile. Based on recent Netflix data, U-Verse streams video quite poorly (ranked 11 out of 14) compared to its fiber and cable brethren. Thus, I am skeptical the investment will make an appreciable difference, at least in the wireline landscape, that would drive prices down. But, I sincerely hope to be pleasantly surprised.

Calling All Millennials

Crawford has a firm grasp of the industry, business models, incentives, and the sordid history of regulation (or lack thereof) of telecom and cable industries. This understanding comes from a long list of accolades, including a stint in the White House advising President Obama on science and technology issues and working with Kevin Werbach as leader of the FCC transition team for the Obama-Biden administration.

Through this book, she shares her deep understanding of much of the communications landscape in the U.S., including regulatory history and current business models being employed by today’s largest cable and telecom firms. Additionally, she does it in a way that readers may have an almost visceral reaction to some of the underhanded tactics of the firms involved. She does this with a clear end goal: to make the case that now is the time for high-speed internet access to be a utility.

It is time for my generation (the “millenials”) to start coordinating with the goal of changing our communications system. As Crawford states, “Americans must rest their hopes on the generation after mine ... [because my generation] has succumbed to the idea that markets fix everything and that the government has no business intervening in things like privately provided high-speed Internet access.” The first step on this path is learning what the problem is, and that is why you should read this book. It will give you a lot of the background required to understand what is happening.

Admittedly, “communications” is not exactly a sexy topic, but at a high level everyone can understand: the internet access market is monopolistic (or perhaps oligopolistic), and everyone feels it in their wallets and in their (lack of) choices of internet providers. Something should be done, or else these companies will continue to gouge their subscribers with impunity and our nation will lose our global competitiveness.

This is a call that we literally cannot afford to ignore.

Disclaimer: I was a research assistant for Susan Crawford in the very early stages of the writing of this book. However, this was my first time reading any portion of it.

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