ShareThis
~ “In a country well governed, poverty is something to be ashamed of. In a country badly governed, wealth is something to be ashamed of.” ~ Confucius.
~ “People often overestimate what will happen in the next two years and underestimate what will happen in the next ten.” ~ Bill Gates, 1996
~ “I should be able to pick which applications I use for managing my life, I should be able to pick which content I look at, and I should be able to pick which device I use, which company I use for supplying my internet, and I’d like those to be independent choices.” ~ Tim Berners-Lee, 2013
~ “The remarkable social impact and economic success of the Internet is in many ways directly attributable to the architectural characteristics that were part of its design. The Internet was designed with no gatekeepers over new content or services.” ~ Vinton Cerf, 2012
~ “The economic impact of broadband is higher when promotion of technology is combined with stimulus of innovative businesses tied to new applications.” ~ International Telecommunications Union, 2012
~ “In poor and wealthy countries and populations, mobile phone use has enabled the expansion of markets, social business, and public services. An entire range of economic services has emerged enabled by mobile phones : banking, and financial transactions, marketing and distribution, employment services, personal services… Improvements are being made in freedoms and well-being : personal security, political participation and accountability, peace, dignity, and opportunity. “ ~ Randy Spence and Matthew Smith, 2010
~ “If we could grow NBC’s value, we would capture almost 75 percent of it, and the total cash outlay was just a little over $6 billion for all of those wonderful growing yet historic assets.We believed that there were real synergies between content and distribution. We think we can get a double-digit rate of return on our investment. “ ~ Brian Roberts, 2012
~ “Americans would be left with a grotesquely skewed communications-utility picture: the rich would pay whatever the cable companies chose to charge for wired Internet access while poor and rural Americans would be relegated to expensive, second-best wireless connections. At the same time, much of the rest of the developed world was racing to install first-best standard fiber connections to their citizens.” ~ Susan Crawford, 2013
Something has radically changed in the cost and quality of our telephone, cable TV and Internet services in recent years. It reflects a shift that has occurred gradually over a decade but with potentially devastating effect for our future prosperity and wellbeing. Prices are now significantly higher. Quality of service – notably Internet speed – in America has slipped behind that of other advanced nations. This is a sea change from the 1990-2005, when USA led the world in terms of both prices and innovation. In 2002 when I visited London UK from Washington DC, the USA had a far larger variety of mobile wireless and Internet services to choose from than the UK. Today, the situation is exactly the reverse. In the USA there are only four mobile carriers operating nationwide, where the UK has almost twenty! Correspondingly mobile phone charges that used to be higher in the UK are now higher in the USA! In the 1990s, I worked on regulatory reform and privatization of telecoms and information and communication technology (ICT) companies in emerging markets. Since then, I have observed industry trends.
My wake-up call came when – about eighteen months ago – our local telecoms carrier (Verizon) moved to raise our basic connectivity cost for bundled telephone, cable TV, Internet services by 25% overnight! I complained to our county government, which issues franchise licenses to cable TV companies offering wireline telephone and broadband services. But the two dominant local operators (Comcast and Verizon) charge almost identical prices and have captured local government leaders. So, we had essentially to eat the big price increase!
KEY QUESTIONS : – How is it that America’s ICT industry – that led the world a decade ago – is at risk of lagging behind other developed nations in quality and cost of key services? – What specific changes have taken place in the industry – notably the telecoms sector – contributing to this? – How do recent trends in innovation and technology development in America compare with previous decades – especially the 1990s, and with other advanced nations? What impact could these changes have upon our economy in future in terms of growth and jobs? What policy changes are needed now to ensure America regains its leadership globally in ICT ?
AMERICA’S ICT TODAY – RAPID CONSOLIDATION, LESS COMPETITION, LESS CHOICE : From having over a dozen or more major telecoms providers offering competing choices in mobile and wired services a decade ago, today the two major industry segments are dominated by two or three huge companies. Wired telephone and broadband are dominated by Comcast and Verizon, with the former the major player; and wireless services by AT&T and Verizon. Since the 2005 Federal Communications Commission (FCC) decision to drastically curtail its regulation and enforcement of competition through open inter-connection for competing smaller carriers to large firms networks, many small firms have collapsed or been taken over. Closing the large firms’ networks to competition has not led to expanded investment, but the opposite. Both Comcast and Verizon have given up costly plans to expand roll-out of high-speed, state-of-the-art, fiber-optic networks, in order to maximize shareholder returns. Since 2001, the FCC as a regulator has been largely captured by the big telecoms firms. This is reflected in its policy decisions and also in the large number of “revolving door” appointments of former regulators to top positions in the private industry.
Through a nationwide network of local franchise monopolies, the cable TV industry – through Comcast dominance – has effectively dominated all wired services, including wire-based high-speed Internet, as well as cable TV and telephone services. Because of the technological superiority of wire-based over wireless services in terms of speed and quality, this gives Comcast an overall dominant market position. But Comcast’s network is not up to standards of world leading advanced countries – such as France, UK, S. Korea, Japan – in terms of speeds (lower) and price (much higher).
High speed broadband prices in USA are high because cable TV prices are high – and most high-speed broadband for Internet is provided by cable TV companies. In short the bundling of services – with no effective alternative through unbundling – is in fact holding up prices. This can only be bad for any start-up company that needs to make extensive use of data – as in big data applications. The much ballyhooed recent debate over “net neutrality” hides the reality that major carriers already discriminate by charging differential prices for different speeds of service.
US BROADBAND LESS COMPETITIVE INTERNATIONALLY : In its latest Cost of Connectivity survey for 2013, the New America Foundation compiled data from 22 cities worldwide, mainly in the USA and other advanced nations. While several cities – notably Chattanooga TN – offered very high speeds, a majority of US cities surveyed offered lower speeds at much higher cost – often three to four times higher. Cities such as Seoul, Tokyo and Paris offered extremely high speed (1000mbps download and upload) for less than half the cost in comparable US cities. Add to this, recently, the five major US ISPs have been cited for throttling or limiting speed and data access to clients of firms such as Netflix in order to extract higher prices for service.
ICT BASED INNOVATION AND TECHNOLOGY DEVELOPMENT IN USA : As Spence and Smith note in the quote above, mobile phones and the Internet have brought about a veritable revolution in speed, quality and price of delivery of services in virtually all parts of our economy and society over the past two decades. The US Bureau of Labor Statistics in a 2013 study points to the major contribution of ICT to labor productivity – both in the ICT sector itself and in use of IT in other industries. ICT productivity grew over 6% p.a. during 2000-2010. Against this, however, analysis by a team for the World Economic Forum (WEF) shows the USA dropping from first to tenth place over 2001-13 in terms of network readiness and innovation capability. In particular, the USA has now fallen behind other advanced nations in terms of new patents issued and in terms of business environment.
RETURNING TO “COMMODITIZING BANDWIDTH” : To be sure, America remains a world leader in terms of the strength of its educational and research institutions and its major technology corporations. But the next “new thing” will most likely come in the coming aadecade from small start-up operations that begin life in a garage or a college dorm room . Such major US corporations of today as Facebook. Google, Microsoft, Apple, to name but a few began this way in 1990-2010.
A guiding aim of the reforms and innovations that drove the creation of the Internet and the explosion in use of ICT in the 1990s was to “commoditize bandwidth”. This meant taking the main product of the telecoms sector and moving it from a monopoly-supplied and therefore high-priced service to one available competitively on the world market at lower more efficient prices. The goal was to maximize the new uses of the internet and broadband that could spur economic growth, creation of higher-paying skilled jobs. Thereby also major improvements in quality of life for all humanity could be achieved : In healthcare through distance health services. In politics through much greater access to information and therefore greater accountability. Among many other uses.
Today, as Americans, we all benefit as never before from the wealth of IT applications and services we can use on our laptops, smart phones, tablets and desktops. As Frances Cairncross predicted back in 1997, we are living a 21st century revolution that is bringing about “the death of distance”. Today, I can be in Shanghai but pay all my monthly bills (mortgage, utilities, credit cards, newspaper subscriptions, etc.) as if I were still at home in Washington D.C., where I live. I can hold meetings online with colleagues in four or five cities around the world simultaneously, sharing data and documentation as I do so. Today, my doctor can examine my wife online over audio-video link with no need to be there in person. He can direct a nurse to undertake treatment more effectively this way. Today, small companies can harness the ever greater power of big data to innovate new information-based services and productivity improvements for consumers and businesses. One start-up I know harnesses world storm and weather data to help better predict and prepare for natural disasters. Farmers likewise can access advanced weather data online and via satellite to plan selection, planting and harvesting of crops. Small farmers in remote areas of developing countries can now access price information to get a better deal when selling their crops.
By effectively undoing the “commoditization of bandwidth” and returning the US ICT sector to old-style monopoly or duopoly pricing, the ongoing wholesale consolidation of US telecoms risks weakening economic and social gains – in terms of innovation, jobs, new cultural services. It risks drastically lowering growth and prosperity prospects for the majority of Americans. It risks further exacerbating already rising inequality and poverty in our society.
CONCLUSIONS : The system of dominant “gatekeepers” with a potential stranglehold over content and innovation in new services and applications needs urgently to be broken up so that greater openness, competition and efficiency pricing can once again be achieved in communications and broadband services. The FCC needs to reinstate regulations – dropped in 2005 – that ensured competing access to unbundled network services for smaller start-up telecoms companies. Absent this, local level monopoly cable TV franchises have driven the re-monopolization of the entire industry! The FCC itself needs radical reform to undo its total capture the past decade by major telecoms companies at the expense of the consumer. The break-up of existing dominant firms should also be considered.
I, for one, hope that our political and business leaders will have the foresight and wisdom to take up these challenges right now!