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> The "competitive tide" under unbundling is a fiction. In the early 1990's, you could order DSL from a large number of ISP's . . . all of which used the same copper wire the AT&T monopoly had put in the ground decades before. It was not accompanied by increased investment into the actual wires that ran into peoples' homes. Indeed, it eliminated any incentive to invest in those wires--why pour billions of dollars into infrastructure you'll have to lease out at cost to your competitors?

ATT (SBC at the time) was pouring billions into infrastructure that they were required to lease out at tariffed rates to competitors. They weren't running new copper, but they were actively building out remote terminals, and rerouting the existing copper to shorter paths. Example press release from 1999 http://www.internetnews.com/xSP/article.php/220301

<y understanding is the wholesale price is to be set 'at cost, plus a reasonable profit,' not simply at cost. However, regulatory action was pretty week here: in the 2003-2004 time frame, SBC/ATT was routinely charging more for wholesale access than for retail customers, even though providing wholesale access is less expensive (simplified billing, collection, support, reduced/zero marketing, no IP transit, etc).

Incidentally, in the past month, ATT has started allowing reselling of U-Verse (although it's at Layer 3, instead of Layer 2 with DSL, so IP transport is provided by ATT instead of the reseller); so, they must have found it to be economically viable to wholesale, in the absence of regulatory compulsion. (I don't find a wholesale Layer 3 product to be as compelling as a wholesale Layer 2 product though; ATT is fine for last mile, but I don't want their peering and transit)

No, not "incidentally." They found it economically viable to wholesale on a very small scale at a time when their biggest threat wasn't from competitors but from regulators noting that there was no competition. The value of muddy waters is at a premium right now. Context is important.

> People mention the "unbundling" requirement as if its a panacea, comparing it to what has been done in Europe, but ignore what makes that policy work in places like the U.K.--the company that owns the wires is a sanctioned monopoly, protected from competition, that is guaranteed return on investment through statutory means.

That's called a utility. Why not do it that way? Then you have a market among retailers. Then you don't need regulation because the one's that dick around with your streams can be selected out of the market.

What's the incentive for the utility to keep upgrading the wires?

Maybe that's an argument for fiber. Gigabit that never gets upgraded is still gigabit.

The way it usually works is that the monopoly petitions the regulatory authority to build infrastructure, and then gets some guaranteed rate of return on the money they spend. There's lots of ways to do it.

Domestically, this is called a tariff. The local carriers file them with the local public utility commissions. They are all posted publicly and outline the service, capability, features and customer costs.

Someone here probably knows, but I am sure any service provider (LEC, CLEC, Municipality) has to file tariffs in order to get approval to deliver service.

> the company that owns the wires is a sanctioned monopoly, protected from competition

Not in the UK. Anybody can lay their own last mile. It's simply that it'd be expensive to do so, and the company which owns most of the last mile across the country is forced to share it fairly with all ISPs.

Virgin are one company which lays their own last mile, there's another cable company which operates in Scotland which does as well, and there's a few rural community ISPs which lay their own last mile.

>and the company which owns most of the last mile across the country is forced to share it fairly with all ISPs.

This would make for some interesting market dynamics. Does this mean that dominant last-mile owners try as hard as possible to own as equal a share a possible to minimize triggering a "majority must-share" threshold?

Basically, the company which owns most of the last mile isn't actually an ISP itself - it simply owns the wires, and sells access to them to ISPs. They have to sell at the same cost to all ISPs. The telecoms regulator would block any plans for it to become an ISP itself. There's no weirdness about actually requiring that ISPs have an equal share of the retail market.

They do have a sibling company which is an ISP, but the telecoms regulator ensures that there's no preferential treatment going on.

> It was not accompanied by increased investment into the actual wires that ran into peoples' homes. Indeed, it eliminated any incentive to invest in those wires--why pour billions of dollars into infrastructure you'll have to lease out at cost to your competitors?

The trouble is without competition they have exactly the same lack of incentive. Why invest in those wires when you can charge customers the same amount whether you make the internet faster or not, and the customers don't have any better alternative?

There are two valid ways out of this. The first is to somehow create competition at the wire level, but that seems rather implausible. Running new fiber to every American household is so expensive that nobody wants to do it unless they can have a monopoly. Creating competition would require some plurality of companies to do it even though the competition, if effective, would eat all of their margins. If anyone can describe a way to make that happen it would probably be worthy of a Nobel prize.

Which leaves the second alternative, which is writing the incentives into the regulations. Set it up so that the nationwide average ISP speed is regularly measured and the ISPs with above average network performance are allowed to charge more by an amount that justifies making regular upgrades.

Or just require the last mile provider to install fiber everywhere once and then let the competing ISPs who lease it provide their own terminating equipment, since the terminating equipment is the thing that needs to be upgraded but isn't the thing that constitutes a natural monopoly.

> People mention the "unbundling" requirement as if its a panacea, comparing it to what has been done in Europe, but ignore what makes that policy work in places like the U.K.--the company that owns the wires is a sanctioned monopoly, protected from competition, that is guaranteed return on investment through statutory means.

Your criticism seems to be that we aren't doing exactly the same thing they're doing. Is there a reason we can't just do exactly the same thing they're doing?

> If anyone can describe a way to make that happen it would probably be worthy of a Nobel prize.

Did the guy who figured out how to get running water to every American household, also win a Nobel prize?

There are not competing sets of water pipes to every American household.

> Your criticism seems to be that we aren't doing exactly the same thing they're doing.

My criticism is that it's not sensible to implement one part of a two-part solution.

> Is there a reason we can't just do exactly the same thing they're doing?

In principle, I'm fine with the idea. In practice--basically New York is the only municipality I'd trust with infrastructure like that.

So because we don't have a full answer to your criticism, you'd rather we roast in Comcast Hell?

Seriously?

By the way, I do have a full solution to both parts of the problem, which this margin is too narrow to contain. :)

I'm in earnest here: I can't exactly divulge the trade secrets of my approach but I do think there's a good solution to it.

And I'm really happy to say that Sonic.net is on the right track. If you're in their service area, try them out. You won't look back.

Edit: I'll add Verizon FiOS is fine.

> So because we don't have a full answer to your criticism, you'd rather we roast in Comcast Hell?

Regulatory regimes are systems. Leaving out key provisions can result in a "solution" worse than the problem. It's like leaving a support off a bridge design--you don't get partial credit. If you impose unbundling without creating a compensating incentive structure, you'll just drive investment out of the industry and end up with stagnation.

Also, the choice isn't between Comcast/Verizon and Ofcom. It's between Comcast/Verizon and the City of Baltimore (or San Francisco, or <other city run by crazies here>).

Well if you put down your own wires to a new place you have a monoply. Of course if regulation requres you to share it then you dont. I think the root problem is that there never was a competiitive build up. You could easly imagen many diffrent companys starting out locally, say in big citys, and then to add more and more people, eventuall, you will get competution that way. These companys will soon find it profutable to rent out there wires to higher levels.

But non of this works if you have one company or the state build up a network and only then you start competition. Some people ignore the diffrence between free markets and privatisation/monopoly deregulation. This is the problem we are facing in tons of places. Free market get a bad wrap because privatisation often produces bad results.

Solving this problem now is really hard. One solution is that you just have the government build all the wires and rent them out low level to companys. Another is to deregulate completly and hope after some dark times market pulls threw. Another is to start doing fine grained regulation of every aspect.

I am very sceptical about government regulation that involve things lime you are suggesting, regulatory capture and the revolving door are a real problem if your regulation is to technical.

I dont have the solution, economiclly speaking all of these are very suboptimal.

You seem to be assuming that rural availability at cost above what people are willing to pay is desirable.

The fact is that there are costs and benefits to living in a rural area. Rent is cheaper. Land is abundant. Infrastructure is more expensive. Similarly for city folk, land is expensive, rent is high, but economies of scale make fast internet feasible.

There is no compelling reason that people in cities should be subsidizing rural people, apart from rural congresscritters attempting to buy votes. And if there were such a reason, lets do it honestly: raise taxes in cities and funnel the money directly to rural areas.

Yes. Exactly. This bothers me as well. People live out in nowwere and expect to get internet, water, transportation at the same price as people in citys. I see no reason fir this, specially because living rualy is not even disrable for the envoirment.

If no private company want to lay down high speed internet you have to reavalute if you prefer to live rually or if you want top high speed internet.

> In a free-market, rural availability won't improve.

False. In a free market, non-profits, co-ops and other parties with lesser ROI requirements than publicly listed companies can and may build and/or provide network infrastructure and/or service.

For concrete examples look at local fiber network and WISP build-outs in Europe, particularly in Scandinavia.

> The "competitive tide" under unbundling is a fiction.

False. Service level competition with unbundling is very real and creates a quantifiable consumer surplus even without intermodal competition.

For concrete examples see any European country with unbundling.

> It was not accompanied by increased investment into the actual wires that ran into peoples' homes.

False. A more accurate statement would be that the unbundling requirements were not in force long enough for competing ISPs to start building their own access networks.

Infrastructure build-outs require scale. Unbundling requirements enable competing ISPs to build up scale before starting on the next investment ladder step, i.e. their own infrastructure.

Concrete example: In France, one explicit reason for Free to start on their fiber network buildout in Paris was to stop paying the unbundling fees to the incumbent and instead use the money to fund their network buildout and improve their margins.

> Indeed, it eliminated any incentive to invest in those wires--why pour billions of dollars into infrastructure you'll have to lease out at cost to your competitors?

False. Unbundling and other infrastructure charges are not at cost. Regulatory schemes for tariffs are: costs plus, retail minus or in some egregious cases retail plus. All these schemes include (sometimes a substantial) profit.

So, why pour billions of dollars into infrastructure you'll have to lease out to your competitors? The answer is, as always, money or more exactly profits.

Once a network buildout has been completed it becomes a sunk cost with the additional downside of maintenance cost. The one single metric determining if this sunk cost turns a profit is take rate, i.e. how many subscribers you can get and subsequently how much it will cost to service each subscriber.

Leasing your infrastructure drives up the take rate. It's basically free money, analogous to airlines selling empty seats to third parties.

> People mention the "unbundling" requirement as if its a panacea, comparing it to what has been done in Europe, but ignore what makes that policy work in places like the U.K.--the company that owns the wires is a sanctioned monopoly, protected from competition, that is guaranteed return on investment through statutory means.

False. Wireline infrastructure is not a monopoly in Europe and certainly not in the UK. Anybody can get a license to deploy wireline infrastructure in the UK and it's not like BT has 100% coverage either. For example KCOM has a de facto monopoly in Hull where BT has no infrastructure.

In a free-market, rural availability won't improve.

In a free market, rural availability will be priced appropriately and then everyone can make a decision where they want to live without expecting a subsidy from people who made a different choice.

Cities are greener, and more economically efficient. I see no problem with making living in the city slightly cheaper, and living in the countryside slightly more expensive.

It is a civilizational norm that people settle along commerce routes, rivers, coasts, highways. Now, it's starting to make sense to adjust for the flow of information.

There is a strong argument against this, that has nothing to do with pricing. Telco networks are natural monopolies. The government has an in terst in not duplicating the asset base. They also have an interest in maximizing the value of that asset base. The latter is a function of network effects. The former precludes free-market competition from even being viable.

The networks becomes more valuable in a non-linear manner vis a vis coverage. The network is worth more to the government and to the users when it nears 100pc coverage. This is why rural telco is subsidized.

The cost of <not> having 100 pc coverage would be an externality borne by the state. And so the economic ROI of teh incremenatal coverage has nothing to do with free market economics at that stage. Optimizing the cost benefit is strictly a function of fiat decisionmaking.

The cost of <not> having 100 pc coverage would be an externality borne by the state.

How so? The cost would be primarily borne by people who choose to live in the sparsely populated areas. Often because they want to get away from others so it's not even really a cost.

When it comes to just mere connectivity (for emergency communication and the like), satellite coverage is more than enough and cheaper to provide in unpopulated regions. Plus, Motorola already sunk a ton of money (in Iridium). Now you want to do it again?

Also, a perspective where the government owns the network(?), and maximizes its value is pretty bizarre to begin with. Maybe it would make sense under some sort of hereditary monarchy. Otherwise, all the incentives are completely out of whack. The government will just go with whatever is beneficial to the backers of the coalition currently in power, like the fed and fcc already seem to be doing.

The telco and internet backbone are considered public-emergency infrastructure. The government would need to build a PSA system with 100 percent coverage, if they were unable to camandeer one already built. That opportunity cost is huge, and why as part of the operational licesnses of cable/telcos, there is language to provide for emergency services.

There is a market of sorts. If there is no fast internet in some village, the a private company has to evalute the cost benefits. They can achive a local monopoly but they can not make prices to high. Peole have lived there befor there was high speed internet and if your price is too high, they have not lost anything but yoi lost your investment.

So the telco has to evalute, what the investment cost and how many subscriptions they can sell. If they set it to high, not enought people will buy it. So the market is esentially against how high people value your product.

Also how is the cost cost covered by the state? It is not generally true that the internet is better with more people, specially people who dont value internet highly.

Also your argument can be made for anything, for example, if everybody loved product X then marginal cost of production goes down and that is bettwr for everybody. So would you want the state to enlarge the market for product X, just because it would be better for everybody?

Also its a question of cost, for example, i prefer if there are more people in the internet, however if you ask me how much im willing to pay for otber people getting internet then my answer is pretty much 0.

You are completly ignoring the cost aspect of the cost benefit calculation.

> In a free-market, rural availability won't improve.

That is not a valid statement. If a cable company has to put more money building the network in rural areas than what it can recover from it, it makes a much greater sense for that cable company to partner with someone like Google or Netflix or Facebook, share the cost and then give preferential bandwidth to these providers. That way it is a win win situation.

The best example to illustrate the point is that of India. A desperately poor and rural country. In 2001, Indian government came up with the law that any telecom company that wants to provide telecom service in any city/town must also provide coverage in the rest of the "district". Consequence ? Other than handful large cities telecom companies failed to to expand. They were not interested in bidding for any telecom licenses.

When government abolished that clause, it turned out to be a telecom revolution in India.