Subject: Why Does the US Have Expensive & Obsolescent Broadband?

From: Gordon Cook <[email-masked]>
Date: Mon, 3 Nov 2003 22:27:27 -0500

Why Does the US Have Expensive and Obsolescent Broadband?

COOK Report, Comparing US and Canada, Scrutinizes Current State of 
Regulatory Gridlock

Introduction - Eyes Wide Shut

For the full story  http://cookreport.com/12.10.shtml

The talk is all about investment in broadband. But the reality is the 
use of lobbying and lawyers to twist the framework of regulations so 
that cablecos and telcos are free to sell expensive and obsolescent 
broadband. This issue of the COOK Report scrutinizes the current 
state of regulatory gridlock in the USA. It looks to Canada to answer 
questions like why Bell Canada's cost for DSL is only 10.95 Canadian 
and most American prices are nearly $40.

We claim that building a broadband infrastructure is important. The 
tardy telcos say that they need encouragement given the huge expense 
of the buildout. However, the poor quality, broadband DSL offered is 
likely so cheap to deliver that the result is a subsidy of the 
inefficiencies of the old phone network. The goal is supposed to be 
radical change. The result is likely more of the same. As we shall 
show, policy is built on a wing and a prayer because we simply have 
no way to find out what DSL actually costs companies like Verizon and 
SBC to deliver.

This issue of the COOK Report describes how and why telecom 
regulation in the US was successful until the collapse of the bubble 
at the end of the century. In discussions with Scott McCollough and 
Francois Menard it then explains the steps that the Powell FCC is 
taking to give the ILECs and Cablecos in the US what they want. 
Starting with the cable networks American policy, destroying 
incentive to innovate, is now founded on giving free reign to the TV 
content monopoly with its huge captive installed Internet base so 
that it can pay down some of its debt and have a cash flow large 
enough to pay the demands of the sports channels for increased 
viewing fees. These people who have no clue that Internet is 
something other than another form of entertainment and have no 
regulatory oversight are investing capital in the wage demands of 
sports figures and entertainers rather than in infrastructure and 
tools necessary to enable individual Americans to compete in the 
global economy. Japan, Korea and perhaps China are instead following 
policies that will enable them to do in telecommunications and 
information technology in general in the first half of this century 
what Americans did in the last half of the century just ended.

Watching the deployment of global broadband it is hard to see the 
United States as anything else except the 21st century "new" Roman 
Empire with Washington running the printing presses and our public 
and regulatory policy captive to the local phone companies that are 
unwilling and perhaps fiscally unable to cast off their 19th century 
roots. Extend to us the freedom that you have offered to the cable 
networks they say. While once staid and traditional Japan engages in 
creative destruction (or reconstruction) of its copper local loop 
with soon to be offered 40 megabit per second DSL, in the US, the two 
mega (SBC & Verizon) and two semi mega (BellSouth and Qwest) local 
phone companies invest in armies of lawyers to co-opt the FCC and the 
PUCs in each of the states fighting for their right to deliver what 
is usually sub-megabit-per-second, "so called" DSL broadband to 
American homes.

It should not be surprising that the market for DSL equipment 
innovation is Korea, and Japan. And Europe. Not the imperial US where 
the LECs invest in lawyers rather than innovation. While in Canada 
the LEC and cableco's are effectively competing, in the US they have 
a tacit agreement not to compete with the telco's beginning to drop 
the price of DSL significantly below cable modem which, rather than 
cut its prices, increases its bandwidth download from a possible 
maximum of 1.5 to a possible maximum of 3 megabits per second . 
Consequently, a small business like The COOK Report is stuck paying 
$43 a month to a Comcast that thinks the Internet is just a different 
form of TV and delivers abysmal service. Were it not for Vonage, we'd 
happily go back to dial up.

The situation is laden with irony. Given different priorities 
stemming from less backward looking imperial leadership, there is no 
technological reason that, on short urban cooper loops, the ILECs 
could not be delivering 10 to 20 megabit per second DSL in American 
cities. American ILECs acknowledge that DSL can reach 80 to 90 
percent of their customers. But the wait is going to be a long time 
because there is no competition. As readers of our interview with 
Pedestal Networks will see, the coverage extension is achieved by 
installation in small LEC owned remote cabinets known as serving area 
interfaces. There is no way that an ILEC will give a competitor 
access to those interfaces. And with the FCC's intent to declare 
broadband an information service, the LECs are being signaled that 
they may refuse access to their networks to anyone but themselves.

Their options for pricing DSL are many and, as the articles in this 
issue show, they are so complex as to defy the ability of anyone with 
out access to multiple sets of LEC books to ascertain the true cost 
of delivering the service. We do however have some hints. Bell Canada 
can deliver DSL for $13.51 a month - a fee that includes a 15% markup 
over its actual cost. This figure is approximately 10 US dollars per 
month. Pedestal Networks asserts that their line powered remote 
installed DSLAM bricks can enable LECs to sell DSL at $19.95 a month 
and make a profit. Compare this to DSL prices of $35 to 40 a month 
with recently announced competitive prices in the $26 to 29 a month 
range.

What we see is the FCC and Congress in unholy alliance with the LECs 
to enable them to march forward on a 20 to 30 year path converting 
their networks to the new technology on a basis that is fully 
subsidized by individual and small business subscribers. Perhaps 
while condemning the United States to technology obsolescence, it 
will save the LECs and enable them to transition their networks by 
2020. And of course if it does that, it may preserve shareholders 
investments. Of course if interest rates go up substantially, with 
LECs overall business flat to declining, one should not count on 
avoiding collapse.

Contents

Tour of Regulatory Jungle Shows Powell Effort to Undo 40 Years of FCC 
Policy -- Bigger-is-Better Ideology toYield Re-monopolization and 
Harm Economy Unless Stopped By Courts p.1

Understanding the FCC Regulatory Blueprint
Why the FCC Broadband Rulemaking Is a Path to the Re-Monopolization 
of the Telephone Network p.4

What Changed at the FCC?
The Role of Chairman Powell in Articulating a Bigger-Is-Better Worldview p. 10

Ninth Circuit Weighs in with Brand X Rebuff
Can ISPs Demand Action from State PUCs in Face of Stalemated FCC Policy? p. 12

The Short Happy Life of Verizon's PARTs
Shoving, Jousting and Obfuscation in the FCC's Playing of the Tariff Game p. 22

Rapid Changes in DSL Technology - More Powerful, Compact, & Cheaper 
DSLAMs Located in ILEC Remotes Can Bring DSL to less than $20 a month 
as ISPs are Locked out of ILEC Infrastructure p. 24

But in a Fight to the Death Between Telco and Cableco Who Will Pay 
For the New Infrastructure?
An essay by Tim Denton p. 29

Why Regulatory Forbearance of Broadband, Creates a Duopolistic Death 
Match that Will Leave only Municipal Public Works Standing an essay 
by Francois Menard with assistance from the COOK Report p. 31

McCollough on Importance of Regulatory Nuances Understanding 
Differences Between Telecommunications and Telecommunications 
Services - Parsing the Relationship Between Telecommunication 
Services, Tariffs, Issues of Access, Non Discrimination and Price p. 
37

Why We Simply Don't know What it Costs SBC and Verizon to Deliver DSL 
Menard on ILEC Broadband Pricing and Regualtory Manuevers p. 41

EarthLink Shares a Jaundiced View of FCC
Brand X Reversal of Powell Holds Ray of Hope p. 47

Filling Up the Fiber:
A Look at Korean Broadband Infrastructure and Internet Traffic p. 49

Interview, Discussion, and Article Highlights p. 53

Executive Summary p. 62

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From: Harald Tveit Alvestrand <[email-masked]>
Date: Wed, 05 Nov 2003 12:07:28 -0800

Gordon,

I have asked you before not to post the advertising for your newsletter on 
the IETF list.

If you want to discuss an issue with the IETF, please talk about that 
issue, not about your newsletter.

                   Harald