By Glenn Fleishman
October 21, 2014 1:07 PM PT
Billy Madison, Happy Gilmore, and… Google Fiber?
Warning: This story has not been updated in several years and may contain out-of-date information.
[Glenn Fleishman is the editor and publisher of The Magazine, which is currently crowdfunding an anthology of the best work of its second year in publication. He writes regularly for the Economist, Boing Boing, and Macworld, and tweets incessantly—oh why won’t he stop?—at @glennf.]
Riddle me this: How is Adam Sandler like fiber-optic broadband Internet service?
Sandler made a big splash in both the tech and entertainment news recently, signing a four-picture deal with Netflix. Signing Sandler buys Netflix more customers (who sign up because they can exclusively find his movies at Netflix) and displaces or conserves expense, because subscribers will spend fewer hours watching non-Netflix-owned material, so the service can pay less as it renews deals to license content.
The same principles that motivated Netflix to sign the Sandler deal should motivate Apple, Facebook, Google, and Microsoft to do the same thing—only for fiber-optic broadband Internet service in the United States, and maybe elsewhere. And for nearly the same reason.
“Dear sir,” I hear you cry over the interwebs, “You’ve lost your mind.” No, no, hear me out, folks.
As these tech giants find themselves increasingly dependent on Internet service providers like Comcast, AT&T, Cablevision, and Verizon, and with those companies wanting “fast-lane” exemptions to network neutrality rules (which are murky at the moment following court decisions) the easy way to keep a connection to consumers without being at the mercy of the broadband providers is to build it themselves.
Google Fiber, a pilot project in a handful of cities, was clearly always intended as a shot over the bow to ISPs. Not only did it test the feasibility of super-fast Internet service, priced afforably at 1 gigabit per second, but also tested the proposition that Google might not need those big ISPs—and that consumers might not only want faster service but a different policy about Internet throttling.1
Fiber can be run to a distribution point, “fiber to the node” (FTTN), at which point phone wire handles the rest of the distance to a home or business; “fiber to the home” (FTTH) brings a glass strand right to the premises at which service is offered. That end-to-end optical connection makes it possible to offer rates of 1 gigabit per second with operational expenses comparable to much lower speeds over legacy wire. Cable firms have dramatically boosted what they can offer over their coax, and telephone companies are attempting to squeeze everything they can out of newer flavors of DSL.
But copper and coax don’t allow for competition. The telecoms used to be mostly part of one giant entity, “Ma Bell,” which could exclusively run wiring and offer phone services; cable companies were granted monopoly rights of way to make it worth installing their service, and pay a percentage of revenue in most parts of the United States for that privilege. (Many markets now allow competitive television providers, although these exist only in certain very hot markets, such as where Cablevision and Verizon’s fiber FiOS overlap in the Northeast.)
Despite Internet service being a new thing, telecoms and cable companies were able to continue to exercise monopoly-like control while evading regulation of the service at a local level—voice and cable TV are subject to local and state oversight—and blocking competitors. Starting in the late 1990s through laws, regulation, and court decisions these companies got favorable treatment to deter any requirement to offer access to third parties over their wiring whatsoever. In the rare cases where a mandate to provide access was in place, the companies could make it difficult on competitors to install and service their gear, and could charge any price, not limited to a nondiscriminatory and competitive wholesale rate2.
As a result, effective competitors have to run their own lines, and it doesn’t make sense to roll out twisted-pair copper or coaxial cable in a fiber era. Fully equipping a city can cost hundreds of millions of dollars. Seattle once did a feasibility study and developed a plan that was never implemented to leverage existing fiber-optic cabling used by the city’s electrical utility. The total cost in 2007 to reach about a third of Seattle’s population of under 300,000 households? About $450 million. The city would have sold revenue bonds to raise the money, and repaid them out of proceeds over a relatively short period. The costs would clearly be in the billions for greater Seattle and larger cities and regions.
That’s not chicken feed, but it’s also ostensibly recoverable as an investment that in itself would have only a modest rate of return compared to other investments. The indirect return, however, could be profound, because it would ensure that these large tech companies would never need to pay special fees or find their traffic messed with. And broadband users might switch to a service that is not only faster than most American networks, but one that also guarantees (and honors) non-discriminatory treatment of all traffic.
An interest in Net Neutrality
The four companies I mention aren’t the four biggest tech firms, but they are the ones with the strongest interest in reaching directly to consumers in homes and while they roam, and they have the means3. Apple’s iCloud and iTunes, Google’s YouTube and Drive and all its other businesses, Microsoft’s cloud services, and Facebook’s… everything! These services represent tens of billions of dollars a year of revenue today and continue to grow. Combine them with other non-ISP-based broadband services, and it’s hundreds of billions a year.
Google’s forays to see what it costs to equip a city, acquire and keep customers, and maintain a network are a smart investment for the company as a hedge against the future. It will also help reveal any challenges raised by incumbents when a private competitor of the same or larger scale of overall business enters a market. Building out fiber also allows a tech company to install high-speed Wi-Fi across a city or metropolitan area at an almost incidental cost, which allows mobile users to bypass cellular data restrictions.
Governments are unlikely to put in blocks against such competition: many cities solicited Google to build out in their town, and most of the issues that have prevented municipal fiber networks arise from state restrictions against public investment, often put in place at the lobbying behest of telecoms and cable companies.
The tech companies would be subject to some local ordinances, but many rules relating to telecommunications are set at a federal level, including access to utility poles. And the companies don’t have to build infrastructure divisions. There are large-scale contractors who build out at a large scale already and maintain networks; these companies would grow and spawn competitors.
Of course, broadband corrupts and high speeds of broadband corrupt highly. If these companies followed my superb advice, then the incumbent cable and telecom companies would step up. Back in the days of municipally funded or encouraged Wi-Fi, the moment a town or city started planning, the incumbents would start advertising campaigns, sponsor initiatives to block the move, and attempt to get new restrictive laws put in place. If they failed, and plans moved forward, the existing players would start spewing out limited-time price reductions while also boosting spending to increase coverage areas, features, and broadband speeds. I joked a few years ago that a city’s best investment in broadband would be to draw up plans and hire trenching equipment, without any intent to build a network.
Google and the rest would face incumbent opposition, but also competition. Outside of higher speeds and a lower speed-to-price ratio, these new fiber efforts would have to pledge to honor all forms of network neutrality. It would likely be collusion if the companies coordinated plans by divvying up which cities to approach, but the FTC and FCC might give them a pass if they agreed between them to put fiber in small and large towns alike and agree to strict enforcement.
Much of Apple, Google, Microsoft and Facebook’s competition would even be supportive. Amazon and Netflix would likely be delighted, and Yahoo should, as would any other software services company that would have a competitive disadvantage in an ISP-dominated world. CBS and HBO just announced Internet-only content access subscription plans to come, and both have no broadband lines of business4.
The data must flow
This may sound like an ugly, high-capital, low-margin mess that Apple, Microsoft, and Facebook would have little interest in sticking their fingers into. But changing the equation in broadband wireless and promoting network neutrality could be vital to protecting the future of their businesses, and wired broadband is a far easier market to crack than the wireless business. Wireless spectrum is divided and licensed in a finite fashion and it’s currently all locked up, largely by AT&T, Verizon, Sprint, and T-Mobile. Competing in that market would be ludicrous and impossible. And since wireless profits are much richer than wired services, that’s where companies that offer both (such as AT&T and Verizon) focus their efforts. Verizon is barely expanding its FTTH footprint, and AT&T decided on FTTN long ago, and has essentially finished its upgrades.
Rolling out a fiber network is not trivial, but it has known costs, some of which are dropping every day, while the capacity to move data over fiber increases. Some experiments can push a terabit per second over individual strands. Speed upgrades require new equipment at the end points, not new fiber.
Many other countries have already benefitted from either a governmental plan or private businesses that were regulated in a fashion that promoted increasing capacity over producing a false scarcity. Within current laws and regulation, these tech giants could jump-start the United States to join countries like South Korea, Japan, Sweden, and Estonia (yes, Estonia!) in a future in which capacity outstrips the data that wants to flow.
And yes, that flow includes Netflix movies that star Adam Sandler. Network neutrality means there’s no accounting for taste.
The site Broadband Communities enumerates 143 municipal fiber networks [PDF], about one third of which sell only to businesses. A few independent ISPs, notably Sonic.net in California, also run fiber; Sonic’s Fusion service is in parts of the Bay Area and Sacramento.
Some countries require this infrastruture/retail split, like England, where BT Wholesale sells DSL and FTTN at the same price to all competitors, including the parent company’s retail arm.
Samsung doesn’t make sense on this list, as despite Android handset and television set sales, it doesn’t have a big enough American presence to make this worthwhile. Amazon should be on this list, but it doesn’t have enough profit to invest in this fashion and despite its server and storage businesses, it’s not quite core enough.
HBO is owned by Time Warner, which has no business connection with Time Warner Cable. ABC and NBC haven’t revealed plans. ABC is part of Walt Disney Company, and hence has a nice Apple relationship, while Comcast owns NBC, and is currently attempting to purchase Time Warner Cable.
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