Net Neutrality Friday

Ah, well I thought I could post about Personal Finance this week. I really do want to get a chance to talk about Consumer Debt. But then our friend Tom Wheeler at the FCC decided he would talk at a startup Incubator called 1776. The topic of his talk was all about ensuring that there was lots of Broadband Competition. I felt like it was 1996 all over again and we were going to start talking about Competitive Local Exchange Carriers (aka CLECs).

Look, I think competition in the Broadband Service is a great thing. The problem is that it is hard to create. The Telecom Act of 1996 created the CLEC which was a way of creating competition by requiring that Incumbent Local Exchange Carriers (aka ILECs aka the former Bell System Companies aka RBOCs) had to rent parts of their network to others to use. This led to a lot of companies (If you look HERE, you can read about my experience with one of them) that spent money like mad but did not create a lot of innovation. There was a mini-bubble around this that collapsed as part of the DotCom Bubble.

There are 3 angles to understand: Money, History and Technology. I will cover them in order.

Money is simple. Building networks is a huge investment in capital. That capital needs to be spent up front and to create more broadband networks it needs to be taken all the way to residences. Lots of things in technology get cheaper over time. Digging up streets to lay cable to a home is not a lot cheaper than it was 50 years ago. So telling the world that a Government will encourage a new broadband competitor is stupid. Some communities who are vastly underserved are doing it and that is not something new. Many rural towns were bypassed by the Bell System and built their own phone networks 100 years ago. But there is not a brand new national broadband network going to get built. It simply costs too much and takes too long for it to happen.

History is complicated. If you go back to the pre-1984 breakup of AT&T, you will find the primary regulatory objective of agencies regulating AT&T was to make sure that it did not spend too much money. In those days, companies got a fixed rate of return on their assets. The way to grow profits was to spend money on the network and therefore raise rates. In order to keep things affordable, Regulators made sure that Bell Companies kept their spending reasonable. We still have not come up with a Regulatory paradigm that makes a company want to invest money. Governments are not good at it and the best thing they can do is provide tax breaks for companies that invest the way they want. Our current Regulatory structure is not a way for this to be done.

Finally is technology. Much of what we do in communications is very old. In this case, I want to talk about a gentleman named Claude Shannon. He is the father of information theory and gave us a simple rule. The non-technical version of it is "The Quieter a Channel is the More Information you can send over it." A bit more technical would add "For a Given Transmitted Power". So when people tell me that Wireless is going to get faster than Wireline, I just tell them that they should meet Mr. Shannon. In our current world the Noisiest to Quietest Channel Media are: Wireless, Twisted Pair Copper (aka Phonelines), Coaxial Cables (aka Cable), and Fiber Optic Cable. Once you have chosen a medium, the only way to up the maximum Information rate is to up the transmitted power. As you can imagine, we don't want to up the power that you cell phone transmits next to your ear. So, there are limits here. What we have been doing to improve things is to improve the chips, coding, materials and antennas involved so that we can implement more complicated schemes. So, what we have done is to push as close to the Shannon limit as we can. We also shorten the channels - thus reducing the noise. One of the reasons that U-verse is faster than standard DSL is that the electronics that your home communicates with in U-verse is closer than it was with standard DSL. Shorter distance equals less noise (there are actually larger capacitive effects here but hey lets not confuse folks).

This is one of the reasons this whole thing is a debate. If you are say Comcast, you have choices about how you invest your dollars each year. You are not a charity so, where do you put your money? The places with the best Return On Investment (ROI). Some people think that a relaxation of Net Neutrality will cause better ISP ROI and thus spur network investment. I would say, that I am not sure I believe that. But at least its a theory.

Have a great weekend!

Jim Sackman
Focal Point Business Coaching
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