[LONG] Arguing Against a Government-Subsidized Broadband Deployment
Economics is about the allocation of scarce resources. Broadband in general and fiber in particular is just another scarce resource. Economics will allocate broadband to those users willing to pay for it. Which is as it should be. Much more on this below.
"The people that lost those billions lost the money willingly. They took a risk and lost. The existence of downside risk is one of the reasons our system works.
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There are a lot of smart people is this country. Somewhere, sometime, somebody will come up with a solution. And until that happens, undoubtedly a lot of people will lose money on false solutions. Without that lost money, the rich reward for the true winner wouldn't be possible. And if the government tries to force through a less than ideal solution, there is the added cost that people will be less willing to take on a project that might truly solve the problem. "
Well said, GV!
Some additional points can be made:
1. Contrary to what Amy said in one of her posts, it _is_ possible for the capital markets to fund something with > 3 year ROI. Cable companies do it every day of the week, by building out cable systems and knowing that the subscriber payback is several years or more. In fact, cable companies often buy "subscribers" from other companies for $2000 per household. Given that a fairly typical household cable bill is $30-50 per month, then exclusive of their costs of delivering the content and maintenance, they are prepared to "wait" 4-5 years before their sunk costs have even been recouped from subscriber payments.
Look at DirecTV and Dish Network. They spent private money, no government money to speak of, to develop and launch their satellites, to develop and sell their receivers, and to then await a payback of several years per subscriber. Sounds fair to me. There was no talk that "only government can do something that expensive."
(If this is seen as an argument that maybe a better solution to the bandwidth problem is satellite, then, yes, I would agree. But that's for another post.)
2. Other examples abound. Companies buy supertankers, knowing the payoff will be years in the future. Weyerhauser plants trees that will take 30 years to reach harvest stage. While it may be true that many high tech ventures expect payback in < 3 years, many examples exist of much longer time horizons. The _real_ chip companies, e.g., AMD and Intel, did not get started with the now-fashionable plan of building up their company very quickly and then selling out.
(It is true that the "opacity" of the investment horizon varies with interest rates and general cloudiness of the outlook. When interest rates are extremely high, then ROI must be measured in months or even less. During the high inflation period of the early 80s, completed skyscrapers need to be nearly fully leased the day of completion, as the carrying costs would otherwise bankrupt the developer. Many buildings in Houston were called "neutron buildings": the buildings were left standing but all of the investors were wiped out. When interest rates are low, horizons can be longer. And orthogonal to interest rate would be predictability of the underlying technology. Planting a forest for lumbering in 15-30 years can make good economic sense, but starting a tester company for a product which may or may not be introduced may be foolish even if the time horizon is 15 months. The two factors combine in the obvious ways.)
3. Before there is any talk of having government subsidize a national fiber system, the issue of "who needs it or wants it?" must be addressed. Fact is, most households simply will NOT pay $100 a month for cable, satellite, or broadband. Let alone paying even more for fiber.
(I don't even know where to start in on this whole can of worms...suffice it to say that there is much evidence that a) households are very price-resistant to cable and satellite bills of $60 a month, b) that most of the "500 channels" that John Malone was talking about will not happen anytime soon, c) that many of us do extremely well with just 48K dial-up lines.)
Aside: I would gladly pay $40 a month for DSL or cablemodem. Neither are options for me, because of my rural location. Meanwhile, no one can accuse me of not posting prolifically on various newsgroups, of not using the Net for many hours a day, of not being able to download hundreds of technical papers, and so on. My 48K dial up line serves me adequately for reading Yahoo, CNET, Silicon Investor, mailing lists, getting software updates, etc. Yeah, it's sometimes a drag having a 22 MB OS X upgrade take more than an hour to download, but I don't have to do this very often. The point of this aside is that if *I* can survive a 48K dial up, I can see why more casual users are not clamoring to pay $150 or more per month so that little Johnny can have a T1-grade line for his online gaming and Flash animations. Yes, I wish I had broadband. But it hasn't substantially crimped my style. I certainly can't read text at anything approaching 48K...and for the hour or so I will have ultimately put into composing this particular message, my dial-up connection has been idle. A cablemodem would not help, nor would fiber. More on this a bit later.
4. Even if such a "National Information Infrastructure Superhighway" is pork barrelled into existence, probably if and when the Dems take back the White House and control both houses of Congress, then the _real_ pork barrelling will begin. Gee, I wonder when they'll subsidize the rolling of fiber optic cables down Brown's Valley Road, my rural road? Answer: Way, way down on the list of priorities. So what will happen is that the corporations will get their subsidies...and these are precisely the folks able to justify laying their own lines...as indeed they have been!
5. Fiber cables are in fact being laid, belying the notion that some kind of national effort is needed. Unlike building highways, where massive condemnations of farms and houses tends to happen, laying fiber is not a big regulatory challenge. The fiber can be laid in trenches, along railways (which is where SPRINT got started...the "SP" is Southern Pacific), even in gas pipes. Those who need it, install it.
6. Having government subsidize or control a fiber buildout is a way to freeze innovation. If a massive effort is launched to lay fiber to everyone's house (Hint: this won't happen, as I noted above...my rural area will not get a fiber line until all of the inner cities have them), this massive expenditure will then not be torn up and replaced when something better comes along. This is one reason so many European and Asian countries have a nominally better cellphone system than we have: they had a crumbling or nonexistent telephone pole system, so they could justify leapfrogging to wireless. Africa, for example, will be all wireless without ever having established a continental phone line system. Nothing surprising in this.
7. The main beneficiaries of the kind of nationalized effort Amy is arguing for will be those who can exploit a heavily-subsidized distribution system. For example, suppliers of video conferencing and "video on demand" systems. They rightly know that John Q. Public will not sign up to pay $200 a month for 60 months in order to pay the $6000 (or whatever the actual figure is) to unroll fiber down to his house. Not just to get video conferencing with his grandmother, or more PPV movies than he can consume.
8. Back to me. I have downloaded and printed about 5 reams' worth of technical papers on my current interest (category theory, topos theory, quantum cosmology). I find most of these papers with Google and at the xxx.lanl.gov arXhive site. I also spend many hours a day surfing the Web for various kinds of sites, including chat sites like this one, technical sites like John Baez's "This Weeks Finds in Mathematical Physics," and so on. The point is, if I can do this, and do it happily, all on a 48K dial up line, then anyone can do it. The claim that the U.S. will somehow lose its competitive advantage if little Lateesha or little Manuel doesn't have fiber into the ghetto is just plain nonsense.
So, don't tell me we need a National Initiative to Subsidize and Pork Barrel a National Fiber Superhighway Onramp for the Downtrodden. We don't.
Broadband will happen when it happens. It's coming in bits and pieces, as it's needed, for people willing to put their money where their mouth is by actually writing a check. Which is as it should be.
And don't use my tax money to pay for someone else's broadband. Let markets allocate costs. That's why they exist.
--Tim May |
