Says the National Academy of Engineering:

[In 1988] the first transatlantic fiber-optic cable is installed . . . . The shark-proof TAT-8 is dedicated by science fiction writer Isaac Asimov, who praises “this maiden voyage across the sea on a beam of light.” Linking North America and France, the 3,148-mile cable is capable of handling 40,000 telephone calls simultaneously using 1.3-micrometer wavelength lasers and single-mode fiber. The total cost of $361 million is less than $10,000 per circuit; the first transatlantic copper cable in 1956 costs $1 million per circuit to plan and install.

It was the forerunner of many, and a legacy of the great bacchanalia in telecom in the late ‘90s, followed by the sermons and soda water of the early ‘00s, was a glut of idle fiberoptic cable. For the next few years, major systems were running at a fraction of their capacity, so prices were low and rationing unheard of. Any capacity crunch was for tomorrow.

Now, with the advent of online video streaming as the next big thing, tomorrow is looming up fast. According to Infectious Greed (channeling Michael Cembalest of JPMorgan), as late as 2007 only about 15% of trans-oceanic capacity (US to Atlantic & Pacific) was used, but then the trendline took an upward kink and now it is about 40%. Extending the curves says that by 2013, 90% or more of capacity will be used.

The implication of these numbers is that major investments will be needed soon if capacity is to keep up. Perhaps more trans-oceanic cable needs to be laid; perhaps there are ways to increase the carrying capacity of current fiber. Either way, it means money, and, in capital budgeting terms, 2013 is, like, now, so serious planning should already be underway.

This raises interesting issues. Unless I am in error, telecom investments of the past decade have been focused on the parts of the system close to the customer, where the market is reasonably certain and the companies’ ability to get a return on the money reasonably secure. In this context, the uncertainties in the regulatory environment have been irritating but not fatal.

Undertakings such as new trans-oceanic cables present different issues.

A problem for any industry that gets involved with the government is that once it invests its capital it loses all bargaining leverage to keep the regulators from appropriating the sunk capital to redistribute to favored constituency groups. The major protections against this are confidence in the regulators and constitutional protections against expropriation, and in the current regulatory and political climate, neither of these looks like strong bulwark. The undefined nature of net neutrality, combined with the willingness of special pleaders such as Netflix and Free Press to make the concept infinitely expansible, do not bode will.

So what happens if the additional capacity does not get built because no one can be sure that the investment will not be poured down the maw of FCC redistribution? Well, rather clearly the service providers will have to start rationing capacity, which means that they will need to favor some uses or users over others. So the FCC, in its eagerness to ensure an abstract net neutrality which in fact was not in practical danger, may be bringing about the condition of scarcity, and net non-neutrality, that it abhors.

Though, of course, if rationing becomes necessary, we know who will be doling out the ration books.

Chart from Infectious Greed.

Ration stamps from Dena v.d.wal.