From the Early Adopter’s Dilemma to the Game of Gigs: Building the Information Rich Commons

Blair Levin
Brookings Institute
Metropolitan Policy Project
Kansas City Gigabit Summit
January 12, 2014

Kansas City Gigabit Summit
As Prepared for Delivery

It is an honor to kick off this First Gigabit City Summit.

The arc of history is long but every now and then, its curve steepens and you can see the actual moment, not just the gradual sweep, of change.

We are at such a moment.

It entails the creation of a new commons—an information rich commons—that will define a generation of cities.

In the last 40 years our country has often overlooked the value of the commons but if there is any audience that should understand the importance of the creation of the commons, it is cities. Cities have built their foundation and created value not by investment in personal goods but by investing in what we share.

A recent example is the High Line in New York, which, as the New York Times reported three years ago, has already generated over $2 billion in private investment, often doubling the values of adjacent properties. This demonstrates something policy debates too often ignore but the real estate industry never forgets about the centrality of the commons. The eternal mantra of that business is that the three most important words are “location, location, location.” What makes one location superior to another is not an individual building, not just granite in a kitchen or marble in an entry but the commons that all in that location share, the commons that cities create.

So what is the critical commons for cities of our era?

We can see forward by looking backward.

Ask yourself, one hundred years ago, what common assets would be critical for a city as a foundation for economic and social progress in the decades ahead?

Even then, you would have known about the importance of a common infrastructure of water and electricity. If you had been visionary, you might have foreseen and created space for an airport, a distribution center or a technology focused University.

How would we answer the question today?

We know that economic value creation, which for several millenniums was based on the manipulation and distribution of physical objects, increasingly will be based on manipulating, transporting, and analyzing bits of information.

In that light, we know that the common assets cities will need includes:

• Affordable, abundant bandwidth, such that bandwidth never constrains innovation, economic growth or social progress;
• Ubiquitous devices that provide actionable intelligence everywhere and through all systems; and
• A digitally ready population and city government.

Through these, we can create the information rich commons.

This translates to a number of initiatives, including municipal Wi-Fi, open data, big data, digital training and responsive government.

You are going to hear more about responsive government from Susan Crawford, who just wrote a book on it. So I will just focus on that abundant bandwidth, which requires next generation, gigabit capable networks.

The experience with such networks to date enables me to predict something that I would guess most people here would agree with and yet is still largely unknown to many cities.

In the near future, there will be two kinds of cities in the United States: those with a market structure pitting cable v. copper and those with one in which cable competes with fiber.

Further, early data makes it easy to predict that in terms of housing prices, those with the cable/fiber structure will go up and those without will, relatively, go down.

Similarly, early data also suggests those with cable/fiber will attract more economic development, and those without will find it harder.

We can even predict, based on similar data, that cities with the cable/fiber structure will improve their economic output more than those without.

But while this vision is becoming clearer, we still have what Aaron and I have discussed over the years as the early adopters dilemma. We can see the New World. But how do we get there?

Where is our map?

What I want to do with the remainder of my time to discuss the map that has been created in the last couple of years.

But first we should discuss a question of whether we need a map? That is, some might suggest that market forces will simply provide everything we need. Why do cities need to act?

Then we will talk about the maps produced by the city efforts to date.

Lets go back to the summer of 2009, when the National Broadband Plan Team asked Columbia University to provide a report on all publicly announced broadband deployments for the years ahead.

The data was deadly.

O.K. that might be a little over dramatic, but for the first time since the beginning of the commercial Internet there was no national carrier with plans to deploy a better network than the current best available network.

The data suggested, and subsequent experience confirmed, that current market forces would not drive deployment of world leading wire line networks in the U.S.

For 85% of the country, cable had the faster network and the cheapest upgrade path. The future looked like a cable v. copper competition that would be premised on allocating scare bandwidth instead of building on technological advances to deploy abundant bandwidth.

So we thought about the question of how do move from scarcity to abundance.

That caused us to think about the prisoners’ dilemma as a way to understand the challenge.

In that classic bit of game theory, the prisoners are both better off if they both don’t talk but that requires that they trust each other not to talk.

The cop wants them to talk and to do so, must cause a defection.

Let’s substitute the idea of talking with investing.

Cable and Telco are both better off not investing in Next Generation networks but rather, harvesting from past investments.

But if we want that information rich commons, if we want to lead in the information economy, we have to cause a defection.

That’s where we were a few years ago: a vision but no map.

But things are changing, thanks to the actions of a number of cities.

Over the last few years we have seen three different kinds of cities engaged in stimulating next generation networks: cities that attract large suppliers, such as Google Fiber; cities that organize demand to attract traditional and new entrants, such as the Gig.U efforts; and smaller cities that often smartly direct some subsidies to drive an upgrade. There is certainly an overlap between the three.

While all cities face different challenges to succeeding, all face a similar economic challenge—the current math doesn’t work. That is, the new or incremental capital and operating expenses of a next generation network is not greater than the risk adjusted new or incremental revenues, plus the benefits to the system, plus the risk of loss revenues due to competition.

The path forward is to change that math, causing, where possible, cap ex, op ex and risk to go down and revenues, system benefits and competition to go up.

Starting with Kansas City, but followed by a number of other cities, three key strategies have emerged:

• Using existing assets more effectively;
• Regulatory flexibility and efficiency; and
• Aggregating demand.

Under each of these, there are a number of tactics that communities have learned that drive these strategies.

Google has done a great job about clarifying for communities how to change the math. In 2013, it sponsored a report on technical strategies. In 2014, it expanded the information to create a checklist that any city can use.

And in announcing what cities they are negotiating with have also done a great job bringing a number of other cities and potential suppliers into what we like to think of as the Game of Gigs.

Of course, we are not really at the stage where the incumbents must upgrade or die. But it would be great if they all thought they were.

And in a number of communities, it appears they do think so.

Indeed, the map in the last 12 months has changed dramatically.

A year ago, we would just be talking about Chattanooga, Lafayette and Kansas City. Now we can talk about five dozen and more.

The most significant thing about the chart below is that in 100% of the communities where Google is negotiating to provide a Gigabit service, the incumbent Telco has announced plans to do the same and the cable firms are starting to do the same.

Let’s not kid ourselves. Press releases are not the same as fiber deployments. But there is lot of evidence the defection is starting to happen, particularly in Google targeted communities.

But what if your community is not on the Google list?

There are options. Let me walk you through what Gig.U communities have been up do.

We now have over 70 cities involved with various projects that were stimulated by or include Gig.U communities. They have involved all kinds of different networks and sizes, including:

• Small zones;
• Larger districts;
• Neighborhoods and entire cities;
• Regions; and
• A statewide effort, in Connecticut, that 46 cities, representing about half the state’s population, have joined.

Frankly some efforts have stalled but others are beginning to show what communities can do it they organize well. In North Carolina, for example, the efforts have already led to two incumbent telcos starting a gigabit upgrade, a new start-up entering, and the possibility of another large player entering. Champagne-Urbana showed how to attract a local company to enter the market. Louisville created opportunities for new approaches to deployment. Maine, where the first effort got pushed back, now has developed a new financial model for public-private partnerships.

We have written a number of reports on some of the lessons learned that I will not review here but that we are working on for a composite publication in the next few months.

But I do think there is an important question that every mayor should be asking: is the network you have today good enough for ten years from now?

And I would offer three insights into answering that question and what to do if the answer—as it always is—is no:

1. Everything that happens in your city ten years from now will be enhanced or degraded depending on the quality of the networks.
2. Many things you are doing today or will do in the next few years will affect the quality of the networks you have ten years from now.
3. Broadband is bought as a community. While Individuals think they make a choice, the choice is predetermined by choices the community makes.

To illustrate this third point, let me note how at an early Gig.U meeting, a cable representative said they could sell consumers in our communities a gig for $7,000 a month. It is now facing potential competition that will sell the same product at $70 a months and what do you know? They want to sell a similar product at that price point now too. The difference was not technology or some other brilliant innovation by a company engineer. Rather, the difference lay in how a group of communities approached how they bought bandwidth by improving the math for the deployment of next generation networks.

Gig.U is not the only effort. We are thrilled that the Next Century Cities project is organizing not just university communities, which was our focus starting out, but now has over 50 communities in a self-help effort to help each other build that information rich commons.

We love reading about other efforts, such as what Monkeybrains, a small ISP in San Francisco did with a small crowdfunding campaign to deploy 300 mbps+ wireless links, using primarily Siklu antennae. Through the campaign, they got residents to pay up front for the gear, then Monkeybrains handles the install and provides service for ~$35/month. We love how New York City is using the old public payphone network to increase bandwidth, access and provide new forms of content. It’s great that Westminster, Maryland and Ting are pioneering a new form of a public private partnership to deploy a gigabit network.

And we’re excited that the President is scheduled to speak on the subject of broadband tomorrow in Iowa. While we believe cities have, and will continue to lead in the stimulating next generation networks, we welcome federal initiatives to improve the economics of affordable, abundant bandwidth.

So when it comes to the map, we are now longer in 1491. I think we are about in 1620. The difficult but necessary age of exploration is thankfully behind us. As was true in that era in history, there were some false starts, some efforts to discover a Northwestern Passage that didn’t really exist. For example, I wanted Gig.U to do a national RFP but state laws made that impractical so, like the best in the age of exploration, we kept sailing until we could find a better port.

But we have reached our Plymouth. The founders of that community spoke of their “errand into the wilderness,” a errand similar to what we have been through the last few years, but now we have a map and, thanks to the efforts of so many, we now are positioned to build a new shining city on the hill. It will not replace but rather it will reinvigorate all the great commons that cities created in the past: transportation hubs, market places, cultural centers, recreation areas and more. The new information infrastructure will create the information rich commons that will inure to the benefit of generations to come.

But that first and necessary step is to make sure that the city has a market structure that produces the affordable, abundant bandwidth on which to build that commons. We may not know the precise uses of that bandwidth, but as the recent Pew Study showed, we can have confidence that it will be the foundation of a great many uses to improve education, health care, public safety and drive economic growth.

There are many paths to that summit but the journey needs to begin now because it will take time and we already know the relative direction of those who have scarce bandwidth v. those with affordable, abundant bandwidth. And we want to be on the right side of the arc of history.

Thank you.