In addition to our ongoing concerns about Internet Overcharging schemes like usage allowances and caps, Stop the Cap! is a strong advocate for Net Neutrality protection.  As part of yesterday’s unveiling of the Federal Communications Commission’s National Broadband Plan, FCC Chairman Julius Genachowski spent 30 minutes answering questions from CitizenTube participants about broadband policy.

Among the 18 questions asked was one from yours truly, taking on broadband industry lobbyists who make evidence-free claims that Net Neutrality will somehow kill investment in broadband expansion.

Pointedly, I pressed Chairman Genachowski about whether we had to sacrifice the Internet’s openness in order to bring broadband service to the presently unserved.  We sure don’t think so.

Based on the answer, which appears about 24 minutes into the video, he doesn’t think so either.

The false argument providers make to scare legislators is little more than hollow rhetoric, especially when you accept their claim they are not engaged in the kinds of activities today that Net Neutrality would ban tomorrow.  How exactly does prohibiting what providers claim they are not doing anyway harm investment?

Answer: it doesn’t.

What it harms are further efforts to monetize broadband from every angle in an effort to further fatten already engorged profits.

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Dampier

Yesterday, the Federal Communications Commission formally introduced its omnibus National Broadband Plan to America, Congress, and the telecommunications industry.  The FCC seeks nothing less that a transformation of broadband to better meet the needs of Americans for years to come.

The 376-page plan recognizes broadband is no longer a novelty.  It’s now becoming one of the essential utilities of life — joining power, telephone and water service as something virtually every American will eventually have in their home.  But while the Commission lays the general groundwork for future regulatory policy to help achieve that goal, it ignores the historical reality that made universal service for utilities possible.

I am a strong believer in reviewing past mistakes to avoid repeating them in the future.  That is why Stop the Cap! occasionally turns back the clock and reviews history.  Railroad robber barons, telephone company monopolies, and electric service providers all abused their positions and consumers paid through the nose for service until the government finally broke up the anti-competitive trusts that limited competition.

Just like today’s broadband players, in the early 20th century, electric companies asked for and received favorable treatment by Congress.  The industry argued such treatment was required to make investors comfortable with the enormous amount of investment required to construct power generation facilities, run wiring to homes, and obtaining easy access to American streets and backyards.  Regulations must be kept to a bare minimum, providers demanded.  Anything else, they claimed, would discourage critical private investment, would create job losses, and slow deployment of service to millions of Americans.  Sound familiar?

By the time the American public realized electric companies were abusing their monopoly positions to charge outrageously high prices, the half-measures legislators proposed to control rates and improve service were often ineffective.

Just as with electric service, any broadband plan that seeks to tinker around the edges of the problem will not solve the problem.  Providers will find loopholes, lobbyists to help water down the provisions they dislike, and lawyers to mount endless legal challenges to stall reform.

The warning signs are already apparent in the FCC plan.  The agency seeks to cooperate with some of the biggest players in the industry that are responsible for what the FCC calls “the critical problems that slow the progress of availability, adoption and utilization of broadband.”

That ultimately means working with existing providers instead of creating the right conditions to welcome new players into the market.

America's broadband duopoly - just four percent of Americans have more than two providers to choose from

The anti-competitive, de facto duopoly pricing power available to cable and telephone companies has created an enormous digital divide for rural Americans who cannot pass “Return on Investment” means tests, prices broadband service out of reach for many, and seeks even higher pricing while proposing to limit service with Internet Overcharging schemes like “usage-based billing” and “usage limits.”

Where one lives is often the most important factor when considering broadband speed and service quality.  It’s the luck of the draw.  A customer on one side of the street may have the option of Verizon FiOS, a true fiber-to-the-home service providing equal upstream and downstream speeds far higher than the national average.  Across the street, a customer may only be served by another telephone company offering 1Mbps DSL with no alternatives.

Other Americans live within viewing distance of a utility pole where cable or telephone broadband service stops, giving them the choice of paying $10,000 to extend service, or living with dial-up or satellite fraudband.

Few phone or cable companies will ever consider invading another’s turf, even if customers begged.

But it gets worse.

The service customers can obtain from a provider varies even within its service area.  Verizon FiOS and AT&T U-verse is available in some neighborhoods, but not others.  What stops or slows service expansion?  Anything from a management decision on a whim to concerns by private investors, market conditions, cost controls, or changing revenue expectations that inhibit uniform service across the community.  Local governments used to manage this problem with franchise agreements that made approval conditional on supplying service across an entire community, but companies like AT&T lobbied their way to statewide franchising reforms that can eliminate local oversight.

The cable television industry has a better track record of providing uniform broadband service to customers in their respective service areas, but at what cost?  Time Warner Cable COO Landel Hobbs recently told a group of investors pricing for its Road Runner service can be increased at the company’s whim.  Comcast has already increased prices on its broadband service. Both companies have either tested or implemented usage limits and restrictions on their customers.

What makes these things possible?  Limited competition and insufficient oversight.

The FCC’s solution to limited competition includes vastly expanding wireless frequencies available to mobile broadband providers.  But here’s the problem.  The government will auction those frequencies off to the highest bidders, which are most assuredly the dominant industry players AT&T and Verizon.  For millions of Americans, that means no extra competition at all because their phone, broadband, video, and wireless service all come from these two companies.  The only way smaller players can compete in a bidding war is through consolidating mergers, which reduce the number of competitive choices in many cities.  If the government wants competition, it should provide incentives to spur its development.

Wall Street certainly won’t help much.  They loathe heavily competitive markets now, because inevitable price wars limit their returns.  Getting initial investment to construct new networks is problematic because investors don’t want excessive competition.  Providers howl it’s unfair for government to help their competitors, but their incumbency provides them with built-in benefits unavailable to new entrants.

The FCC recognizes the importance of broadband service as America’s next utility, but is afraid to regulate them as such.  They may have good reason not to try.  Comcast is presently suing the Commission in federal court, claiming they don’t have jurisdiction over broadband policy.  Should Comcast prove its case, the National Broadband Plan could be just another thesis for improved broadband, with no backing authority to implement its recommendations and regulatory changes.

That brings us to Congress.  While the FCC may bring its best intentions to the table with the National Broadband Plan, it’s very likely lobbying will force changes to what finally gets implemented, if anything.

The telecommunications industry never has a problem finding financial resources to hire lobbyists and spread lavish campaign contributions all over Washington.

They’ve already bought and paid for an enormous astroturf group called Broadband for America with 200 member organizations, virtually every single one backed by AT&T or Verizon money or personnel, or equipment providers who stand to earn substantially from broadband improvement.  They are running TV ads telling viewers private providers should be left alone to get the job done, something they’ve had a decade to accomplish with insufficient progress in key areas.

Many in Congress, especially on the Republican side of the aisle, will agree with BfA’s “hands-off” advocacy.  Early reaction from Republicans regarding the Broadband Plan is not favorable.  Rep. Cliff Stearns (R-Florida), the ranking Republican on the House Energy and Commerce communications, technology and the Internet subcommittee, told the Washington Post he wants the agency to stay focused on bringing access to people who don’t have it.

“I am concerned, however, that the plan may contain stalking horses for investment-killing ideas, such as so-called net neutrality mandates or a return to outdated, monopoly-era regulation,” he said.

Many Democrats with large telecommunications companies headquartered in or near their districts are likely also to advocate caution.

Regardless of what the FCC recommends, Congress will ultimately control the outcome.

Here are our recommendations you should consider sharing with your elected officials:

Congress and the FCC must be willing to stand up to the telecommunications industry which is not delivering world-class broadband service.  The United States is falling behind in access, pricing, and speed.  Simply accepting the provider argument that they should be left alone in an unregulated, duopoly marketplace is not an option;

Congress must deliver to the FCC clear authority to regulate broadband service and enforce Net Neutrality.  Recent court cases argue the Commission presently lacks that authority.  Congress should take every possible step to ensure the courts this isn’t the case.

Increased oversight of the broadband industry is essential.  Why does an industry making billions in profits need to consider usage limits and usage-based billing designed to deter residential use of broadband service?  Such limits are designed to protect cable-TV revenue that could disappear if Americans dump their television channel packages in favor of watching everything online on their existing broadband account.

Congress should not stand for an unregulated duopoly controlling a service that is becoming as essential as water, energy, and the telephone.  As broadband becomes an essential utility, why is the government not stepping in when the COO of the nation’s second largest cable company — Time Warner Cable, tells investors he can raise broadband prices on a whim?  Is this the 21st century version of the Robber Baron Era?  Robust competition guarantees no executive can make such a statement.  Congress must act to bolster competition, including financial and tax savings incentives for new providers willing to enter markets of all sizes;

Wireless mobile broadband spectrum auctions do not promote competition because the biggest incumbent players are sure to win the bulk of the frequencies, guaranteeing more of the same anemic competition.  Some of the newly available blocks of frequencies should be reserved for bidders who do not currently serve the market where those frequencies are available.  Only that guarantees new competition in wireless;

Free or deeply discounted access to basic Internet service at broadband speeds should be a part of any National Broadband Plan, to ensure access to every American who wants it.

The long awaited National Broadband Plan (NBP) for the United States is here.  Unveiled yesterday by the Federal Communications Commission, the 376-page plan calls itself a mandate for improved broadband service for 200 million Americans, bringing access to those who don’t have it, and better speeds and lower prices for those that do.

The report’s authors consider the broadband revolution a transformational change for the country, just as railroads opened the door to coast-to-coast transportation, electricity changed the American household, and phone service opened the door to a new era of Americans reaching out to communicate with one another.

Today, high-speed Internet is transforming the landscape of America more rapidly and more pervasively than earlier infrastructure networks. Like railroads and highways, broadband accelerates the velocity of commerce, reducing the costs of distance. Like electricity, it creates a platform for America’s creativity to lead in developing better ways to solve old problems. Like telephony and broadcasting, it expands our ability to communicate, inform and entertain.

Broadband is the great infrastructure challenge of the early 21st century.

To meet the challenge, the FCC was commissioned to develop a national blueprint for improving broadband service in the United States.  A sense of urgency over statistics showing the United States ranking in the bottom half of nations — losing ground on speed, affordability, and access to both Europe and Asia meant the NBP must deliver concrete answers to improve the country’s competitive broadband standing.

This is a broad mandate. It calls for broadband networks that reach higher and farther, filling the troubling gaps we face in the deployment of broadband networks, in the adoption of broadband by people and businesses and in the use of broadband to further our national priorities.

Nearly 100 million Americans do not have broadband today. Fourteen million Americans do not have access to broadband infrastructure that can support today’s and tomorrow’s applications. More than 10 million school-age children do not have home access to this primary research tool used by most students for homework. Jobs increasingly require Internet skills; the share of Americans using high-speed Internet at work grew by 50% between 2003 and 2007, and the number of jobs in information and communications technology is growing 50% faster than in other sectors. Yet millions of Americans lack the skills necessary to use the Internet.

The NBP goes out of its way to recognize private enterprise’s influence on broadband development in the country, acknowledging America’s for-profit, largely unregulated broadband industry has successfully cherry-picked the most profitable customers for often excellent broadband service.  For others deemed less profitable, a lesser amount of service, or no service at all is available.  The distinction between America’s free market approach and government-run universal service is noted in the report.  For America, the private approach has created a “digital divide” — the broadband have’s and have-not’s.  The reasons for bypassing certain areas varies from the expenses to reach rural homes to affordability issues in the inner city.  Sometimes, it’s a matter of being lucky enough to have a decent provider who is aggressive about deploying service.

The NBP seeks to build upon the private free market approach to broadband and fill in the gaps in service for those left behind.

The FCC’s plan envisions broadband evolution, not a broadband revolution.  The report recommends maintaining a limited government role for broadband, and limited regulations along with it.

Instead of choosing a specific path for broadband in America, this plan describes actions government should take to encourage more private innovation and investment. The policies and actions recommended in this plan fall into three categories: fostering innovation and competition in networks, devices and applications; redirecting assets that government controls or influences in order to spur investment and inclusion; and optimizing the use of broadband to help achieve national priorities.

The NBP sets minimum actual broadband speeds Americans should expect to receive at 4/1Mbps. ADSL providers like Frontier, Windstream, and CenturyLink are already in trouble if this standard gets enforced. They routinely fail to meet these speeds in many areas today.

Among the core goals of the NBP:

• Connect 100 million households to affordable, 100Mbps service within 10 years, permitting high end video streaming and medical diagnostics;
• Define broadband as at least 4/1Mbps service, which automatically disqualifies a number of rural DSL providers and satellite fraudband;
• Pole attachment reform, which would remove obstacles providers encounter when trying to hang wiring on poles, bury it underground, or access rights-of-way;
• Improve rural broadband service and low-income access through Universal Service Fund reform, shifting up to $15.5 billion towards broadband construction and subsidies;
• Target a 90 percent broadband adoption rate among American households;
• Rely on mobile broadband to be an important competitor in the broadband industry by doubling available spectrum for wireless data and expand reach beyond today’s 60 percent coverage;
• Provide $16 billion in funding for a federal interoperable mobile broadband network exclusively for public safety agencies.

The plan is a marked departure from the FCC under former president George W. Bush.  Just two years ago, the Commission suggested there were few problems with the broadband industry as-is.  Michael Powell, who served under Bush’s first term as Chairman of the FCC, advocated free market deregulation, and dismissed concerns about the digital divide, calling it a “Mercedes divide,” suggesting broadband was like an expensive car he’d like to own but can’t afford.

Perhaps Powell can afford that car today, as honorary co-chair of industry front group Broadband for America, which has made its presence known through Powell on several national cable news channels in interviews about the broadband plan.  The BfA’s role as an industry-backed player is not disclosed in interviews.

Opposition to parts of the NBP is likely to come from:

• Broadcasters, concerned about the further loss of the UHF TV dial for wireless broadband service expansion;
• Utility pole owners who will likely oppose changes in compensation formulas for pole attachment fees;
• Incumbent broadband providers who fear the NBP may lead to government-backed competition in their service areas;
• Consumers who may balk if Universal Service Fund reform adds an additional five or more dollars a month in fees to broadband bills without price reductions from real competition.

Some of the greatest concerns about the plan come from consumer groups, who recognize the plan has many good points, but relies too much on working with the same companies that got the United States into this position in the first place.

The Senate Commerce, Science and Transportation Committee has scheduled a hearing for Tuesday, March 23 at 2:30 p.m. to review the plan. The House Subcommittee on Communications, Technology and the Internet will hold its own hearing on the plan next Thursday, March 25.

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/Bloomberg National Broadband Plan Released – Controversies 3-16-10.flv[/flv]

Bloomberg Business News carried extensive coverage about the National Broadband Plan, its winners and losers, and other implications of a coordinated plan to improve service across America. (14 minutes)

[flv]http://www.phillipdampier.com/video/CNBC National Broadband Plan Implications 3-16-10.flv[/flv]

CNBC aired more skeptical coverage about the National Broadband Plan.  Clueless Michelle Caruso-Cabrera is also back still insisting 99 percent of America already has access to broadband, but she speaks in terms of zip codes, not actual broadband coverage, and it’s unclear if she includes satellite “fraudband,” which promises broadband speeds but doesn’t deliver.  Caruso-Cabrera also bashes Net Neutrality along the way. (13 minutes)

[flv width=”448″ height=”356″]http://www.phillipdampier.com/video/NBC News Channel FCC Seeks to Expand Access 3-16-10.flv[/flv]

From a less “business news” standpoint, the NBC News Channel explained the National Broadband Plan to ordinary consumers yesterday in terms of how the plan would affect them. (2 minutes)

[flv width=”640″ height=”500″]http://www.phillipdampier.com/video/WTTG Washington High-Speed Broadband Access for All 3-16-10.flv[/flv]

Local Washington, DC Fox affiliate WTTG-TV also explains the National Broadband Plan, suggesting it will bring “high speed access for all.” (3 minutes)

New York City streets in 1890. Besides telegraph lines, multiple electric lines were required for each class of device requiring different voltages.

Broadband as a vehicle for social transformation.

What a concept.  At the heart of the public policy debate for broadband improvement are the implications of universal broadband service in every American home.  What such transformation brings to ordinary consumers, entrepreneurs, employers and employees — even the digital economy as a whole, is open for debate.  At the heart of it is an argument over who is best suited to deliver that transformation – private industry or government, or perhaps both.  It’s an argument at the heart of various public policy debates these days, be they on health care, the environment, energy, housing, or telecommunications.

It’s also a discussion Americans have had for well over 100 years.

Back in the 1880s, the topic was electrification and the debate was over who should provide it, who pays and how much, and how or if it should be regulated.

On one side were the electric companies which demanded free, unfettered access to customers with a minimum of government red tape.  On the other were social engineers who saw electricity’s potential to create a dramatic social transformation in America, redefining how Americans live, work, and play — if they could access dependable electricity at a reasonable price like the one serviced by companies such as industrial electrician Eugene.  In the middle were consumers, who wanted the service but didn’t want to get stuck with a gouging bill at the end of the month.

The parallels between electricity and broadband deployment and improvement are obvious as the story unfolds.  The implications go much further than you might realize, especially when one considers much of what we take for granted in our lives today came from yesterday’s debate over electricity.  It’s why today’s National Broadband Plan may bring about social and cultural changes far more profound than worrying about who is next in line to get 100Mbps service.

The 1880s — Electricity Arrives in Big Cities

As American business moved full speed into the modern industrial era, electricity supply moved along with it.  In earlier decades, most businesses located adjacent to natural resources that would power machinery — water being one common choice, coal another.  Water powered mills could grind wheat into flour, and many American cities grew up next to major waterways and the businesses that relied on them. Coal could be used to generate steam-power and fire furnaces capable of making wrought iron and steel, and today’s “rust belt” cities were yesterday’s economic powerhouses.  Gas powered lighting provided streets and homes with light long before electricity arrived, with all of the inherent dangers from open-flame-based lighting.

Electricity service was offered primarily for commercial use in the early days.  That’s because the costs of power generation and wiring were very expensive.  Only commercial customers could pay the rates demanded by power companies for service.  Electricity companies argued that given unfettered access in the market, with limited regulation and increased private investment, they could set about expanding service to residential homes.  From the 1890s forward, service did expand into urban neighborhoods.  Remember, this was long before the concept of “suburbs.”  Most Americans lived and worked within city boundaries.

Line capacity to homes during this era was much more limited than what homeowners find today. When the first well-to-do homeowners signed up for electrical service, they were looking primarily for home illumination.  There were few electric-powered appliances around at the time, so demand for high capacity lines simply didn’t exist for residential customers, and they were rarely offered anyway.

For reasons of price, demand and availability, the majority of revenue from electricity would come from its commercial use.

The 1910s — Great Industry Consolidation

By the advent of World War I, the days of hundreds of independently operated electricity companies were over.  Industry consolidation was rampant in the decade before the Great Depression, as locally-owned companies became part of ever-growing consolidated holding companies, or trusts.  Much like the consolidation of railroad lines, the results were not good news for consumers, unless they happened to own a lot of stock in those companies.  Rates skyrocketed, especially for residential customers.  Only businesses, threatened with higher rates, convinced electric companies they would switch to in-house power generation.  That threat kept their rates stable and relatively low in comparison.

When electric customers began complaining about ever-increasing rates and limited service areas, government began to take an interest.  Government authorities found great similarities between electric companies and the railroad monopolies.  Industry consolidation and too little competition brought ever increasing prices for consumers.  It also reduced expansion of service into new areas, because no other providers were competing to get there first.

The 1920s — Profit Motive & Public Response

During the boom years of the 1920s, electricity service was widely available in most urban areas, but few provided much more than low capacity lines suitable for lighting and small electric appliances.

Those who believed electricity would deliver social transformation to average Americans were stymied by power companies that wouldn’t deliver enough capacity to make the latest big appliances work.  Blenders, mixers, toasters and other small electrical appliances could work, assuming you didn’t have too many lights turned on at the same time, but washers, refrigerators and electric ovens were out of the question.

When consumers inquired about upgrading their service, they were refused by most electric companies.  After all, most power company executives believed “illumination-grade” service was more than sufficient for virtually every American.  In all, they consistently refused to upgrade facilities to at least four-fifths of their customers, telling them they could make do with what they had.

The electrical industry defended this position for years, and even paid for studies to defend it.  A willing trade press printed numerous articles claiming the vast majority of Americans would never require higher voltage service, and it was too expensive to provide anyway.  A select minority of customers, typically the super-wealthy, were the exception.  In fact, marketing campaigns specifically targeted the richest neighborhoods, offering “complete service,” because the industry believed it would quickly recoup that investment.  That, in their minds, wasn’t true for middle class and low income households.  In fact, low income neighborhoods of families making between $2,000 and $3,000 were often bypassed by electric companies completely.

When asked why it was fair for companies to bypass some neighborhoods, while offering enhanced service to others, the industry said it was just a matter of good business sense.

A review of 1928 revenues for 57 electric companies led Electrical World to conclude that only 10 to 20 percent of utility customers were “prospects for complete electric service at indicated competitive rates.”

But the magazine also found when full service was offered at reasonable prices, demand for appliances increased, along with the electrical usage to power them.  Despite the potential for increased revenue, the overwhelming majority of power companies kept the same high priced, low capacity service.

After regulators finished dealing with the railroad robber barons, many turned to the electricity monopolies. Towards the end of the 1920s, power companies were primarily expanding service only to those customers that guaranteed major profits.  That largely meant commercial customers.  Between 1923 and 1929, the percentage of total electricity distributed in the United States taken by manufacturers rose from 48.2 to 52.9 percent.

If you lived in an urban neighborhood, you probably had electricity, but you grumbled about the bill and the frequent brownouts from inadequate voltage.  If you lived outside of the immediate area, you didn’t have electricity and the prospects for obtaining it from a private company were bleak.  The costs to deliver it at a rate of return that would satisfy investors was simply too high.

• Part 2: Broadband: The 21st Century Equivalent of Electricity — The Progressive Movement
• Part 3: Broadband: The 21st Century Equivalent of Electricity — FDR & The New Deal

[flv width=”641″ height=”380″]http://www.phillipdampier.com/video/PBS Newshour National Broadband Plan from FCC 3-15-10.flv[/flv]

FCC Chairman Julius Genachowski sits down for an interview as part of this expansive report on America’s broadband issues aired this week on PBS Newshour (11 minutes)