Opinion
Network engineer Will Duquette adjusts power wires in a fuse panel at Great Works Internet in April in Biddeford, Maine. ( AP Photo/Pat Wellenbach) Network engineer Will Duquette adjusts power wires in a fuse panel at Great Works Internet in April in Biddeford, Maine. ( AP Photo/Pat Wellenbach)  

The railroading of broadband consumers

Photo of Zack Christenson and Steve Pociask
Zack Christenson and Steve Pociask
American Consumer Institute
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      Zack Christenson and Steve Pociask

      Steve Pociask is president of the American Consumer Institute, an educational and research nonprofit organization.

      Zack Christenson is a research fellow for the American Consumer Institute Center for Citizen Research, a nonprofit educational and research institute.

The Internet should be regulated as a public utility – like electricity and water or as the railroads once were – according to a new book by Susan Crawford, a professor of law and a former tech advisor to President Obama at the National Economic Council. 

A basic tenant of her argument is that the broadband Internet has become a necessity, as important to everyday life as a telephone, heat or electricity. She writes in her book that “truly high-speed Internet access is as basic to innovation, economic growth, social communication, and the country’s competitiveness as electricity was a century ago; and she claims that limited number of American’s have access to it, can’t afford it, and its being run by monopolies.  

Crawford’s conclusions are heavy on opinion, but light on facts.

The idea that a “limited number of Americans” have access to high-speed Internet is absurd, when the government’s own data shows that 123 out of 130 million household have access to wired broadband services, nearly 95% of all US households. When you include wireless broadband access, it gets closer to 98% of all Americans who have fast, reliable access to the Internet. In addition, there are satellite services that can reach consumers even the most remote locations.

Her claims of falling investment don’t add up. According to the trade group Broadband for America, the industry has invested over $250 billion in infrastructure since 2008, and a recent announcement ponied up another $14 billion on a broadband network.

Another claim to bolster her argument is that Internet costs for low-income consumers are prohibitively high. This argument ignores the recently announced Connect America Fund that initially redirects $8.7 billion of subsidies to consumers.  

Crawford laments that the broadband market is a monopoly market, like the steel and railroad markets of long ago. By definition, of course, broadband providers are not a monopoly, which would imply a single market provider. Among wireline high-speed connections, the FCC reports that 96.6% of census tracks have two or more competitors and 78.8% have three or more competitors, as of June 2011. When you add in the several wireless service providers that cover each market, as well as including  satellite and WiFi services, it plain to see that consumers have at least a handful of options outside of old dialup services. 

What about her claim that broadband prices are rising?  Again, not true.  According to Bureau of Labor Statistics data, the Consumer Price Index for Internet services fell 50% in the last 10 years, in inflation adjusted terms. Similarly, wireless service prices between 1999 and 2009 dropped by about 50%, according to a 2010 report on the wireless industry published by the General Accountability Office (GAO). 

One idea Crawford thinks will solve her perceived problems is for the creation of public Wi-Fi networks, blaming the lack of the networks on industry lobbying. What isn’t mentioned is the reason these laws have been passed—it’s been tried over and over and over again, always with the same result of taxpayers losing millions on networks that don’t work. One network in Utah saw 11 cities teaming up to pay for it—it racked up $202 million in debt, 4 times larger than the entire debt obligation of all 11 cities combined. These cost overruns don’t take into account the poor performance of these networks or the fact that they “crowd out” private investments, as well as reduce competition and choice.

Her suggestion that Internet providers should become a public utility is an attempt to take private investment and make it government.  The basic premise forgets all of the economic thought pointing to public utility waste, gold-plating, averech-johnson effects and lack of innovation that regulation brings. She makes an analogy that broadband should be regulated like the railroads were, but a review of the historical evidence will find a once unprofitable regulated industry that was saved by deregulation, and that deregulation resulted in increased productivity, significantly lower consumer prices and tens of billions of dollars in increased consumer welfare. 

Crawford is wrong, but what needs to be done?

Instead of lamenting about how we need a faster Internet at better prices, a more reasonable suggestion might be for the FCC to move faster on freeing up much needed wireless spectrum. We will need it, as users of smartphones in the US are projected to hit 192 million by 2016.

In addition, the FCC and state regulators need to allow telecommunications providers to transition from old copper-based voice networks to all Internet Protocol-based (IP) networks. For broadband companies, stranding obsolete copper plant does little to encourage investment in IP networks, it raises consumer prices and it inhibits broadband use.

One thing that Crawford is right about is that access to the Internet is important for innovation, communication, education and every day life.  Unfortunately, for the sake of consumers, her policy prescriptions take us in the opposite direction that we should be moving.

Zack Christenson and Steve Pociask are with the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization.  For more information, visit www.theamericanconsumer.org.