Levers to Intensify Broadband Competition -- Part I Spectrum

Blair Levin, who oversaw the development of a National Broadband Plan, recently spoke at length on broadband competition. We're sharing excerpts of his remarks. Today, Blair’s third question: Given the current market, what are the appropriate government levers to intensify competition at this part of the cycle?

Given the current market, what are the appropriate government levers to intensify competition at this part of the cycle?

I say appropriate because I think all agree some government actions are not appropriate even if in the short-term they would improve bandwidth abundance.

To understand the levers, first, you have to understand the environment.

In 2009, it looked like three broadband markets:

• First, a high-speed wired market, generally characterized by a single cable provider. The first government acknowledgement of that was in a slide we presented to the Commission in September 2009,(1) and recently resurrected by government officials.(2)
• Second, low-speed wired market, generally characterized by a single telephone company; and
• Third, the mobile market, generally characterized by at least 4 providers.

Some would argue that it is a single market. Certainly AT&T’s DSL service provides some competition to Comcast’s DOCSIS 3.0 service. Reasonable minds can differ but as all the previously noted speeches by the government officials concluded, the competition is not much, particularly as we move to streaming video, and will be even less as we move to 4K and Virtual Reality.

Some might also argue that wireless competes with both wires. Assistant Attorney General Bill Baer directly addressed that in noting “today wireless is too capacity-constrained and costly to provide a meaningful alternative for consumers.”

I don’t have the expertise to provide an economist’s answer to the current state of competition. But I do have the expertise to tell you how we analyzed it with the plan.

That brings us to the game theory.

In the summer of 2009, the National Broadband Plan team looked at the data and realized that 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.

As we noted in that slide, for 75% 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.

In thinking about moving from scarcity to abundance we started thinking 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.

Economic logic would suggest that if cable and telco trusted each other not to invest in next generation networks they would both be better off simply harvesting from past investments.

But if society wants to remove bandwidth constraints on innovation, economic growth and social progress, we have to cause a defection.

So this brings us to the core dynamic: how do we intensify competition between the three adjacent markets to drive each to invest in more abundant bandwidth.

Our first thought was consistent with Baer’s observation: remove capacity constraints by providing the wireless sector more spectrum. Not only is that a good in and of itself, but it also would negate the telco’s harvest strategy. It would change the capital allocation decisions for both the wireless and telco sectors, improving the economics of the upgrade for wireless, and also, by increasing competition, increasing the motive for the telco’s to upgrade.

The plan has a lot of recommendations for improving the spectrum position of the mobile providers. While there have been some problems, the government has made significant progress(3) in replenishing the empty spectrum cupboard we saw in 2009 and creating new supplies.(4)

But there are three problems with spectrum as our single strategy. First, it takes a very long time to identify spectrum bands and make them available for use. Second, the two largest wireless providers are also the two largest fixed line telcos, changing the incentives for what it would be if they were different companies. Third, the next generation of mobility, sometimes referred to as 5G, will rely on small cells, an architecture that will require greater fiber connectivity.(5)

These problems don’t mean we shouldn’t proceed, but only that we should be realistic about the timing and impact of the first leverage point of more spectrum.

1. It was also Exhibit 4.G of the Plan, where the text noted “in areas that include 75% of the population, consumers will have only one service provider (cable companies with DOCSIS 3.0 enabled infrastructure) that can offer very high peak download speeds. National Broadband Plan, Page 42.
2. Chairman Wheeler presented a similar slide in his competition speech and as Mr. Baer noted, “One characteristic stands out most of all – today most consumers do not enjoy competition for high-speed Internet access. As Chairman Wheeler put it, “as bandwidth increases, competitive choices decrease.” The Broadband Opportunities Council similarly wrote “Three out of four Americans do not have a choice of providers for broadband at 25 Mbps, the speed increasingly recognized as a baseline for broadband access.” See Broadband Opportunity Council Report at Page 6. http://www.ntia.doc.gov/files/ntia/publications/broadband_opportunity_council_report_final.pdf
3. See section on spectrum in http://scholarship.law.edu/cgi/viewcontent.cgi?article=1556&context=commlaw, at pp. 294-296
4. I have financial affiliations with several enterprises seeking to bring more spectrum into the marketplace. Each has a idiosyncratic issue that prevents the spectrum from being utilized. Now is not the appropriate place to discuss these issues except to note that while there is a political consensus that our country needs to put more spectrum to work, when it comes to specific cases, the consensus breaks down.
5. It has always been true that most of the distance a “mobile communications” travels is over a wired network. It will be even more true in the future.