Kovacic’s latest paper discusses the FTC’s role and the development of Internet policy. He portrays the FTC as an organization with a long role and storied role in directing Internet development and believes there are three key areas of focus:

1. Competition policy agency. Kovacic says the agency addresses issues like disruption practices, abuse of dominance, and agreements between rivals. He also says the FTC has a role in broadband policy because of the “Brand X” decision, where the Supreme Court determined that Internet service is an “information service” and not a “telecommunications service” subject to regulation.
2. Consumer protection.
3. Attempting to provide means for privacy and data protection.
   

Kovacic says the FTC uses a wide range of tools in evaluating problems and developing solutions. Those tools include prosecuting cases, preparing materials, educating businesses and consumers about the issue, and cooperating with other public institutions for issue advocacy.

The paper identifies how the FTC conducts “good agency practice” and suggest how it may be able to improve the Internet experience for consumers, with many ideas grounded in oversight and not regulation.

The full article is here here.

In late 2009, Comcast answered the transparency call by launching its Usage Meter service in Portland, Ore.

Cellular customers used to monthly meters that show used minutes during the month will appreciate Comcast’s Internet service interface. Its meter reports all usage from any device connected to a customer’s modem or router, and records all traffic passing through the modem to create a total report of all transferred data. Customers can see up to three months of data in case they want to compare usage rates.

Transparency is a good thing, and the more information customers can receive about monthly usage is beneficial, especially to heavy users that occasionally may near Comcast’s monthly 250-gigabyte cap.

The service has expanded into Colorado, based on a report from Kotaku.

We are curious whether the service has begun to be deployed in any other states. If you are a Comcast user, you can log into your account at http://customer.comcast.com. If you see usage-meter access, please post your state of residence in the comments.

Additionally, NetForecast conducted a seven-month study of the Comcast Usage Meter. You can read about their tests here.

Since [the 1996 Telecommunications Act], consumers have lived in two very different worlds. One is the land of unregulated “information services.” It includes, among other innovations, the World Wide Web, voice-over-Internet protocol telephony, wireless applications, and cloud computing. The other is the regulated world of “telecommunications services.” It consists of traditional wireline telephones, plain and simple.

It seems pretty obvious which of these two worlds consumers prefer. In Federal Communications Commission parlance, information services are governed by Title I, while telecommunications services are regulated under Title II. If U.S. communications law were “The Wizard of Oz,” Title I would be the Technicolor dream that lies over the rainbow. Title II, on the other hand, covers the bleak, black-and-white landscape of rural Kansas.

Dorothy wanted to go home after her fantastical journey through the “Wizard of Oz,” but information-age consumers have no interest in traveling back in time to the realm of telecom stagnation that occurred under Title II. And why would they? As Downes notes:

Internet access has improved in every measure [under Title I]. Data communications speeds have increased exponentially, major new technologies including fiber optics and 3G/4G wireless have emerged, and even traditional voice applications have been adapted to the nonproprietary, packet-switched protocols of TCP/IP. Consumers in all but the most remote parts of the country can choose between a variety of ISPs, including cable, wireline, wireless, and satellite providers, many of which offer bundled packages of phone, television, and Internet services.

America’s telecom landscape is nothing like Kansas anymore, and that’s a good thing.

Every modern Operating System (OS) has built in passive monitoring and logging capability which can measure real-time performance, and it can measure second-by-second performance data and for any specified duration e.g., 1 hour to 1 month.  I’ve provided a detailed sample of what I can graph in Figure 1, and it reveals everything about my the network interface performance in my computer which tells me a lot about my broadband service and the sites I visit.

Figure 1 – Broadband performance monitor in Windows (click to enlarge)

I found that YouTube tends to burst to maximum download speeds to cache ahead which causes enough jitter that my Lingo VoIP telephony service drops inbound audio.  Hulu.com on the other hand does slight buffering but mostly hovers at 0.6 Mbps which is the quality of their 480P video streams.  Now this doesn’t mean my broadband service is capped at 0.6 Mbps; only that Hulu caps the download on the server end to conserve bandwidth.  Google on the other hand prefers to burst YouTube most of the time.

The detail of the graph goes down to second-by-second accuracy, and a few days worth of data can be zipped up in to a few megabytes which can be aggregated and graphed.  This is vastly superior to an occasional 1 minute measurement on SpeedTest.net because this actually shows you the throughput you’re getting on your present websites.

The logging in Windows Vista for example can easily be set up using the Reliability and Performance Monitor.  Simply right click on “Network” as shown in Figure 2 and create a new Data Collector.  You can even download this template (unzip first) to import.  Note that it only outputs a raw CSV text file and the bandwidth needs to be converted from bytes/second to megabits/second.

Figure 2 – Reliability and Performance Monitor

Mac users can use the sar command to do something similar.  Of course this is just a sample of what can be done, and it could be automated to a few clicks for large scale data collection.

Better yet, just about any wired broadband provider can offer second by second (or 5-second resolution) graphs of each subscriber or create a web portal that would automatically show the port usage based on source IP address.

See our article today at RealClearMarkets . . .

Entrepreneurial Innovation and the Internet

by Bret Swanson

As Washington and the states pile up mountainous liabilities – $3 trillion for unfunded state pensions, $10 trillion in new federal deficits through 2019, and $38 trillion (or is it $50 trillion?) in unfunded Medicare promises – the U.S. needs once again to call on its chief strategic asset: radical innovation.

One laboratory of growth will continue to be the Internet. The U.S. began the 2000’s with fewer than five million residential broadband lines and zero mobile broadband. We begin the new decade with 71 million residential lines and 300 million portable and mobile broadband devices. In all, consumer bandwidth grew almost 15,000%.

Even a thriving Internet, however, cannot escape Washington’s eager eye. As the Federal Communications Commission contemplates new “network neutrality” regulation and even a return to “Title II” telephone regulation, we have to wonder where growth will come from in the 2010’s.

In a series of important new studies covering 25 years of data, economist Ed Glaeser of Harvard reconfirmed that “economic growth is highly correlated with an abundance of small, entrepreneurial firms.” But Washington is pursuing a public utility model for most of the economy – health care, banks, insurance, autos, energy, and maybe the Internet. Instead of decentralized, messy experimentation, we’ll get companies expert in wooing Washington. They will be big, regulated, centralized, and stagnant.

This approach could not clash more starkly with the hyper-innovation of today’s Internet. Digital technologies create constant churn. Forget iTunes or satellite radio. We now get personal Internet radio like Pandora on our phones and in our cars. Big bandwidth enabled the iPhone, which launched the App Store, which allowed hundreds of software developers to create many thousands of jobs building serious and silly apps. Apple sees how “owning” music becomes obsolete and buys a tiny music-streaming company called Lala to replace the hugely successful music download business it created just a few short years ago.

A new “How Much Information?” report from UC-San Diego estimates that Americans consumed 3,600 exabytes of information in their homes in 2008, or 34 gigabytes per person per day. Microsoft researchers argue in a new book, “The Fourth Paradigm,” that an “exaflood” of real-world and experimental data is changing the nature of science itself. We need completely new strategies to “capture, curate, and analyze” these unimaginably large info-waves.

Google and Facebook grow so fast, they build their own global networks. The iPhone is so popular (three billion “app” downloads so far) and consumes so much data (10 times the average cell phone) that demand outstrips network capacity in big cities. But innovation is not automatic. Wireless carriers will need a 12-fold upgrade of “backhaul” capacity connecting cell-sites to the Internet in just the next two years, not to mention the government liberation of much more radio spectrum.

The next generation of cloud computing will capitalize on more bandwidth and another key industry advance – graphics processors. We are familiar with Web-based email, search engines, remote data storage, and applications like Salesforce.com. Microsoft, Google, and Equinix data centers deliver these services from vast arrays of computers and disks in “the cloud.”

Instead of warehouses full of microprocessors, however, what about a refrigerator-sized supercomputer built with a thousand graphics processors? The world’s most powerful supercomputer is IBM’s one-petaflops Roadrunner at Los Alamos National Labs. But in 1% of the space and for 3% of the cost, we can build a graphics supercomputer that delivers three times Roadrunner’s performance – three petaflops.

Connect this computer to the Internet, and you can stream any real-time interactive 3D video experience at any resolution to thousands of people using any browser on any device, from a home-theater to an iPhone. This “exacloud” will transform video games, movies, virtual worlds, business software, and most other media. Piracy goes away. So do DVDs, game boxes, and maybe even expensive personal computers. New content and software subscription models open up. Based in the cloud instead of on your device, interactivity thrives.

Graphics chips, however, are also in Washington’s cross-hairs. Intel, the world’s leading microprocessor company, has fallen far behind graphics leaders Nvidia and AMD. Yet the Federal Trade Commission is charging Intel with the “dangerous probability” of monopolizing the graphics arena. Facts and law aside, the FTC’s proposed remedy is outlandish, amounting to a government take-over of Intel.

Short of Bernie Sanders running the silicon industry, the graphics chip revolution will have a deep impact on the network. High-definition video requires big bandwidth, and real-time applications tolerate very little delay. UC-San Diego estimates that 55% of total American information consumption, or 1,991 exabytes per year, is (brace yourself) video games. If just 10% of these games moved online, they would generate twice the worldwide Internet traffic of 2008. Video is not always the most important content on the Web, but it defines the architecture and capacity of (and often pays for) the networks, data centers, and software that make all the Web’s wonders possible.

U.S. info-tech investment is now 47% of all non-structure capital investment. Network companies alone annually invest more than $60 billion in new wired and wireless bandwidth, and they will do so again and again in years to come. But not if intrusive new rules prohibit them from managing their data traffic and pursuing new business models.

Rigid net neutrality rules would have blocked pathbreaking innovations like content delivery networks (the platform for YouTube) and “exclusive” mobile partnerships (which spawned the iPhone and App Store). We’ve long warned that because of the natural convergence of the digital world, neutrality regulation would spread beyond its intended political targets to swallow the entire Internet. Right on queue, academics are now calling for “search neutrality,” with Twitter impartiality and Facebook fairness surely not far behind.

The algorithmic economy necessarily scales across the globe, gobbling up the largest markets and profit margins. The digital world requires high-end skills but is start-up friendly. If the U.S. has any hope of meeting our expanding financial obligations and giving our citizens a creative outlet to compete on the world stage, we might consider exempting the bottom-up Internet from Washington’s top-down ways.

Bret Swanson is president of the technology research and strategy firm Entropy Economics LLC and a visiting fellow at Digital Society.

Test bed:

• Windows Vista x86
• Chrome 4.0.223.16 running HTML5
• Chrome 4.0.223.16 running Flash 10.0.45.2
• Intel Yorkfield 3.2 GHz @ 3.6 GHz
• Process Explorer for measuring CPU cycles

Notes on YouTube HTML5:

• Time slider and pause button very buggy and doesn’t work most of the time
• Video would often pause while audio continues to play
• Forward download progress indicator completely broken (shows all red)
• Doesn’t seem to cache well or at all (perhaps the cause of choppy playback)
• Still very poor image scaling quality

CPU cycles used for the entire video playback:

• 454 billion CPU cycles Chrome 4.0.223.16 (HTML5)
  457 billion CPU cycles Chrome 4.0.223.16 (Flash 10.0.45.2)

This was roughly 15% average CPU utilization across all four 3.6 GHz cores.  YouTube with HTML5 was just as much a CPU hog as with Flash.

Note that I really don’t like flash because of all its security vulnerabilities and because it is extremely slow on slower notebooks and netbooks.  Microsoft Silverlight works well with video even on a low-end netbook.

Image quality test:

HTML5 screenshot crop left, Flash screenshot crop right

You can download the full HTML screen cap here, and the full flash screen cap here.

As you can see, the image is jaggy with HTML5 rendering while the flash sample is smooth.  I even noticed that YouTube Flash at 360P looks better than YouTube HTML5 at 720P.

In a city with approximately 20,000 homes and businesses, 4800 of which are municipal fiber subscribers, Burlington Telecom seems to have racked up a $50,000,000 debt.  That works out to about $10,417 per subscriber which is a huge tax payer subsidy for relatively affluent homes and businesses that can afford the relatively expensive fiber service.  Three out of four Burlington residents don’t subscribe to the municipal fiber service and it is likely that many of them can’t afford the service yet all of them are subsidizing the muni-fiber service with regressive local sales taxes.

Worst still, Burlington Telecom’s deficits and debt are rising which makes the prospect of financial stability more of a dream than reality.  This is likely due to the low 24% adoption rate and a dearth of premium high paying customers which makes it extremely difficult to recover the high costs of building out 100% of the residents and businesses.  There is even a criminal investigation to determine if millions of dollars have been misappropriated and a lawsuit to reclaim $17 million that Burlington Telecom took in 2008 from the treasury without notifying taxpayers.

The experience in Burlington isn’t all that different from “UTOPIA” which is a municipal fiber coalition of eleven counties in Utah.  That fiasco resulted in UTOPIA asking their tax payers for an extension of a $202 million 20-year sales tax subsidy to $504 million over 33 years.  The cause was hardly a surprise because UTOPIA entered the market as a third provider, underestimated their competition, underestimated their own costs, and overestimated their adoption rates.  The nearby city of Provo was similarly disastrous and Provo ended up giving their “iProvo” muni-fiber network to a private operator Broadweave networks with the condition that Broadweave would simply pick up the bond payments.

The problem with all these failed municipal fiber endeavors is that they were all founded on bad assumptions.  They all that tried to enter a saturated telecom/cable market under they assumption that the current providers weren’t serving the market.  The assumed that there would be a market for superfast broadband when there was no such market demand since it is economically infeasible to provide applications that require more than 1 to 3 Mbps.  They assumed that the 1.5 to 50 Mbps hybrid  fiber-copper networks provided by the cable operators and telecoms are insufficient.  The reality is that the national market only demands an average of 4 Mbps and many businesses are happy splitting a 1.554 Mbps T1 line with 50 employees who are supposed to be working rather than surfing YouTube.

By entering a saturated market, municipal fiber operators doomed themselves to failure from the beginning since they now have to share the adoption pie with two other providers.  The typical total adoption rate in the United States is 65% and if that gets split three ways evenly, that’s ~21% adoption rate per provider.  The economics of fiber broadband is extremely unforgiving to low adoption numbers because the operator has to build out nearly 100% of the region to make the service available at a typical cost of $1000 per home passed.  If only 1 in 4 homes adopt the service, the cost per actual subscriber rises to $4000 per home plus the additional $800 it costs to wire up subscribers to the service.

Since Burlington Telecom’s offerings aren’t competitive, it makes it difficult for them to increase their adoption numbers.  Comcast for example offers 15 Mbps down and 3 Mbps up for $43/month which is more attractive to most customers than Burlington’s 5 Mbps symmetric service at $45/month.  The citizens of Burlington essentially paid 50 million dollars in taxes for a redundant network that is slower and more expensive than the commercial offerings that were supposed to be made obsolete by the municipal fiber system.

The lesson in this fiasco is that there is a right way and wrong way to build a successful municipal network and Burlington Telecom is an example of what not to do.  If a community has no high speed Internet services and no commercial operators already providing service or planning to provide service, there is a role for the community and government to step in to fill in the demand.  When that demand is already filled by one or more commercial providers, nothing good can come from using tax payer dollars to destroy the commercial entities.

Broadband Evolution

Broadband technology has evolved rapidly within the last 10 years.  First generation broadband started as a copper based technology either through copper phone wires from the phone company or copper coax from the cable TV company.  Next generation broadband uses three technologies: Fiber to the Home (FTTH), Fiber to the Node (FTTN), and DOCSIS 3.0.  All three technologies use a combination of fiber and copper technology to bring broadband into the home.  FTTH brings fiber all the way to the home but it uses copper coax cables for the final 30 meters within the home.  FTTN is a Digital Subscriber Line (DSL) technology that brings fiber to within 1,000 meters of the home and uses existing copper phone wiring to get to the home.  DOCSIS 3.0 is a cable broadband technology that brings fiber to a node which splits into 50 to 1000 homes and uses existing copper coax cables originally deployed for cable TV service.

Figure 1 – How broadband technologies compare under load

Figure 1 compares the potential bandwidth performance of broadband technologies on the access portion of the network.  It assumes 10 homes sharing an FTTH node and 150 homes sharing a DOCSIS 3.0 node.  Also note that the total capacity numbers are based on “signaling rates” and actual performance will be 10 to 20 percent lower due to overhead.  “Average user activity” indicates the average per subscriber bandwidth consumption and not the percentage of activity on the entire network.  So if 20% of the cable broadband subscribers are using the network and each person has an average activity level of 10%, the average user activity per subscriber is 2%.

The capacity and performance advantages of running fiber to the home are undeniable, but the high deployment costs of FTTH are often difficult to justify so long as the other two technologies which leverage existing plant continue to offer “good enough” performance to meet consumer demand.  Some ardent FTTH proponents have questioned why we are investing more money in copper technologies like FTTN and DOCSIS 3.0 that may or may not be obsolete in 5 or 10 years when FTTH is far more future proof.  The reality is that staying with existing copper phone and coax wiring is like squeezing another few years out of an old car by spending a little money on tune-ups.  Since technology always drops dramatically in price, boosting speed while staying with existing copper allows network operators to hold off on FTTH technology until it is cheaper in the future.

Furthermore, there is no reason to believe that DSL and cable technology based on existing copper wiring have reached a ceiling in performance.  Long term research in Dynamic Spectrum Management (DSM) is promising up to 1,000 megabits of dedicated symmetric capacity using existing copper phone wiring^[ii].  Whether or not DSL technology can improve quickly enough to keep up with market demand or if the telecoms will be forced by market pressure to extend fiber all the way to the home remains to be seen.  DOCSIS 3.0 technology will continue to improve incrementally based on market demand and it could have a practical ceiling of 4,000 Mbps shared between as few as 20 homes^[iii].  Even under extremely heavy average user activity levels of 25 percent per subscriber, each DOCSIS 3.0 subscriber could still receive 800 Mbps.  These upgrades to FTTN and DOCSIS 3.0 don’t come free, but they are smaller incremental which are easier to finance.

Higher Speed Broadband is Coming

The broadband market has grown at a rapid pace over the last 10 years.  At the turn of the decade, only 4.4% of all households subscribed to broadband^[iv].  By the end of 2008, household penetration had reached 59%^[v] and next generation broadband offerings from 20 Mbps to 50 Mbps had grown at a rapid pace.  Verizon passed 11.9 million homes with FTTH service and AT&T passed 17 million homes with FTTN service.  By the end of 2009, Comcast will have passed over 30 million homes with DOCSIS 3.0 service.

We are now in midst of an intense market competition between cable and telephone companies for the lucrative “triple play” market which encompasses TV, phone, and Internet service.  This competition started when the cable companies started having success with their digital voice phone services which is taking away the market share of traditional phone services.  Cable companies with first generation DOCSIS broadband are already effective triple play providers while phone companies with basic DSL service are only capable of providing phone and slower broadband service.  The three major Incumbent Local Exchange Carriers (ILEC) telephone companies are deploying FTTH or FTTN technology to be able to compete in the TV market and offer more competitive broadband services.  This in turn is pressuring cable companies to deploy DOCSIS 3.0 technology to remain competitive.  Because of this intense competition, it is only a matter of time before the 94 million broadband homes covered by ILECs today will have access to either FTTH or FTTN broadband.  The cable broadband footprint in the United States as of September 2008 was 119.8 million homes passed out of 124.6 million homes passed by cable video service^[vi], and most of those broadband enabled homes will eventually be converted to DOCSIS 3.0 to compete with the ILECs.  This does not mean that next generation broadband, or even basic broadband, is everywhere.  In fact, we estimate that about 19,000 communities lack broadband altogether.  But in most communities broadband is available.

Competition as the Answer?

One of the leading rationales used by supporters of municipal broadband networks (either wireless or wired) is that a publicly subsidized (whether publicly or privately owned) additional network will boost competition, driving down prices and making it easier for residents to afford broadband.^[vii]

Yet, surprisingly very few advocates of municipal fiber networks make the argument that cities need to invest to an additional electric wire network to the home, or a second gas pipe network to the home.    Indeed, most homes have just one electricity wire, one water pipe, one gas pipe, and one sewage line because building a duplicative “pipe” for any of these services would cost an enormous amount of money, significantly outweighing any consumer benefits from more competition.

The economics of broadband are no different.  Building a duplicative network costs a large amount of money and often provides no better service, only more choice in the service.  Broadband markets are different than existing single-pipe network infrastructures like electricity in that in most communities there are two existing providers, cable and telephone.    But the implications are still the same: subsidizing a municipal fiber over-builder will lead to a waste of societal resources.

The impacts of this will be felt both within the community and outside.  To understand why, consider that by definition an additional new network will mean fewer subscribers for existing providers^[viii].  Even if some of the lost revenue from the fewer subscribers goes directly to lower profits, it is unlikely that all of the loss will, with the result that the provider will have to raise prices (or at least not reduce them as much as they would otherwise).  This means that municipal fiber overbuilding projects will result in higher prices for broadband consumers outside the community deploying fiber who subscribe to a service from a competitor in the community.  Because the existing companies now are getting less money, but their costs have not come down a commensurate amount, they have to make up that loss somewhere, and it will come from higher rates.  Fiber overbuilding also means that there will be marginally less investment in next generation networks by incumbents outside the community because there will be less overall revenue to support that investment^[ix].  In this sense, there is a negative externality to society as a whole from communities investing in municipal fiber overbuild projects.

But many community leaders might respond that their responsibility is to their residents, not to residents outside their community.  Toward this end they will often argue that they need to invest in municipal networks in order to spur competition and lower prices.  But this notion overlooks the fact that pricing plans for TV and broadband services are regional in nature and not street- or community-based.  In other words, because pricing plans are regional, customers are not given higher monthly bills or inferior support because they don’t have any other broadband provider.  For competition to work there does not need to be a competitor on every street, in every neighborhood, or even in every city.    As long as companies do not engage in price discrimination (which to date they have not), as long as there are two competitors in at least a moderate portion of the region the companies are serving, then the pressure to compete against each other there will discipline prices in all areas a provider serves.

The effect on pricing for the municipal fiber network itself depends on a number of factors, including take up rates and levels of subsidy.  Even under ideal circumstances, three facilities based competitors in the market makes survival very challenging because the overall broadband market as of 2008 is approximately 59% of all households.  Assuming that all the broadband players are equally competitive, that’s roughly 20% market uptake for cable, telecom, and municipal fiber provider each.  Twenty percent market share simply isn’t enough to sustain a healthy and cost effective business model because network operators typically have to build out to roughly 90% of any region to attain those levels of uptake.  This is extremely hard for network operators especially fiber operators because they have to bear the cost of building out new infrastructure to 5 homes just to reach 1 subscriber.  Municipal fiber projects throughout the country have not been very successful for this very reason.  If municipal fiber projects can’t get enough subscribers to cover their costs, prices could still stay low but only if the project is subsidized from other sources, such as general fund revenues.

The Municipal Fiber Experience

While there have been some limited success stories of communities that have tried municipal fiber, there have been many failures, for precisely the reasons related to economics described above.  In Utah, Provo County’s “iProvo” municipal fiber service was such a financial failure that they were forced to give the network to private network operator Broadweave Networks where Broadweave would resume the city’s bond payments.  Eleven other counties in Utah which formed a municipal fiber coalition called “UTOPIA” which was on the verge of financial collapse in 2008 and they were forced to extend their $202 million dollar 20-year sales tax pledge to $504 million over 33 years^[x].  If that wasn’t bad enough, UTOPIA began asking their customers to pay co-op fees of $1,100 to $3,500.  But even with the additional sales tax pledges from the UTOPIA communities, there is no assurance that the project will ultimately survive.

The lessons learned in Utah is that projected uptake models and deployment plans don’t always come to fruition, and when that happens the consequence is failure.  For UTOPIA, the project was projected to reach 35% uptake rates by February 2008 but the reality was less than 17% uptake.  UTOPIA had also hoped for 17% uptake from lucrative business customers but the reality was only 2 to 3 percent.  Provo County’s iProvo was hoping for 10,000 subscribers by July 2006 with the assumption that 75% of those customers would subscribe to lucrative triple play services, but the reality was 10,000 customers in late 2007 with only 17% of those customers subscribing to triple play^[xi].    Many consumers were quite happy to subscribe to existing broadband cable or telecom providers.  The consistent theme in Utah was an overestimation of the uptake rates and the underestimation of competition from incumbent cable operator Comcast and telecom operator Qwest which led to consistent underperformance.

Exacerbating the situation for many municipal fiber projects like UTOPIA and iProvo is the wholesale business model which has proven to be very inefficient.  These networks were originally designed to provide wholesale services to companies that would resell retail services (e.g., data and video) Broadweave Networks has already vowed to switch iProvo to a more efficient retail model where it operates the network and sells broadband service directly to consumers rather than rely on an intermediate service provider.  Burlington Vermont’s former general manager Dr. Timothy Nulty concurs with this conclusion when he stated that wholesale fiber was “a recipe for financial failure”^[xii].

In Burlington Vermont, Burlington Telecom, which is considered the most successful municipal fiber operation in the nation [UPDATE 3/11/2010 - Burlington Telecom is now officially a financial disaster], offers a lower performing product at a higher price than the nation’s largest FTTH provider Verizon.  When comparing standalone pricing, Burlington Telecom’s 8 Mbps symmetrical fiber service costs $72^[xiii] per month compared to Verizon’s 20 Mbps symmetrical service at $70^[xiv] per month.  This price difference can be attributed to scaling efficiencies.  Large network operators like Verizon operate nationwide networks allowing them to peer with other large Internet networks at no additional cost.  Centralized network operations centers and all the experience of installing fiber in previous communities eliminates redundant infrastructure and training which translates to lower costs when deploying fiber to new communities.

Even with generous government incentives, spurring fiber deployment through tax incentives will remain difficult because the cost of deploying fiber to the home per subscriber can easily be more than $4,000^[xv] and that takes a tremendous amount of external incentives to get any company to assume that kind of risk.  Even Verizon with its ability to absorb the near term losses and lower FTTH deployment costs due to a high percentage of aerial fiber deployment faced immense pressure from their shareholders for their decision to deploy FTTH.  Qwest has stated that over 75% of their cabling is underground whereas Verizon is just the opposite^[xvi].  This is a crucial distinction because a study in San Francisco showed that underground fiber costs 6.69 times more than aerial fiber to deploy.^[xvii] That could easily mean that Qwest’s FTTH deployment costs are a few times higher than Verizon.  The end result many of these projects are not viable without government subsidies.

Policies Regarding Muni Fiber

While municipal fiber overbuilding almost always represents a waste of community and broader societal resources, there may be times when municipal fiber provision may be appropriate.  Cities rightly seeking to have faster broadband networks, however, should consider municipal provision as a last resort, rather than a first one.  Assuming that a community has at least one broadband provider, their first step should be to try to incentivize their existing cable or phone operators to reach a certain broadband performance milestone, and not some specific technology such as FTTH.  They should do this by engaging in a public private partnership to fund at least some of the costs of expanding and upgrading the existing networks.  They should also reduce regulatory barriers such as right of way fees.

If municipalities try to work in good faith with incumbent providers to have them upgrade their networks and the operators refuse to move forward with reasonable and timely performance milestones then cities should consider going the municipal fiber route, assuming that they believe the economics of doing so are viable.  However, cities that are seriously considering municipal fiber should also factor in accelerated deployment and aggressive competition from cable and phone companies in any viability analysis.

The situation is different for areas without any broadband providers.  There municipal fiber provision can make more economic sense, not just for them but for society as a whole.  But in these cases a key factor is whether the municipality has the technical wherewithal to build, manage and upgrade networks and do so efficiently.

Over the years, ITIF has been a most vocal proponent of faster broadband and we have just released a new report “The Need for Speed: The Importance of Next-Generation Broadband Networks” stressing the need for next generation broadband^[xviii].  However, we advocate a more pragmatic, technology neutral approach where companies achieve the required level of performance (currently defined by a minimum of 20 Mbps downstream).  While we would ultimately prefer to see more FTTH deployment because it brings us into the gigabit era and beyond, we recognize that consumer demand may not always be high enough to make it economically feasible today.  What’s more important is reaching next generation broadband speeds today with any feasible technology and cross tomorrow’s milestones when we reach that bridge.

David Orenstein, “Pioneer of digital subscriber line wins prestigious fellowship”, (Stanford News Service, September 2006) <http://news-service.stanford.edu/news/2006/september27/cioffi-092706.html> (accessed March 12, 2009).

This is assuming that the entire spectrum in the copper coax cable is allocated to Internet access and that a node sizes are shrunk to 50 homes with 40% uptake.

OECD, “OECD broadband portal”, n.d. <http://www.oecd.org/document/54/0,3343,en_2649_34225_38690102_1_1_1_1,00.html> (accessed March 12, 2009).

IDC, “IDC 2008 U.S. Consumer Panel Broadband Survey”, (IDC, August 2008) <http://www.idc.com/getdoc.jsp?containerId=213724> (accessed March 12, 2009).

NCTA, “industry data”, n.d. <http://www.ncta.com/Statistics.aspx> (accessed March 12, 2009).

For more information on municipal provisions, see Craig Dingwall, Municipal Broadband: Challenges and Perspectives, 59 Fed. Comm. L.J. 67, 67-103 (2006).

Ford models how reduced market size reduces the number of profitable providers.  George S. Ford, Competition After Unbundling: Entry, Industry Structure, and Convergence, 59 Fed. Comm. L.J. 331, 332-67 (2007).

Verizon’s FIOS strategy requires considerable capital.  Comcast’s recently announced DOCSIS 3.0 investment is estimated to cost less, but will still be in the billions of dollars.  Whether such high-speed networks will be rolled out in most places, though, remains to be seen.

Grace Leong and Joe Pyrah, “The Case for UTOPIA and iProvo: Double down or cut bait?” (Daily Herald, April 2008) <http://www.heraldextra.com/content/view/263223/18/> (accessed March 12, 2009).

Grace Leong and Joe Pyrah, “The Case for UTOPIA and iProvo: Double down or cut bait?” (Daily Herald, April 2008) <http://www.heraldextra.com/content/view/263223/18/> (accessed March 12, 2009).

Ed Gubbins, “Bell tolls for wholesale-only muni fiber”, (Telephony Online, May 2008) <http://telephonyonline.com/fttp/news/telecom_bell_tolls_wholesaleonly/index.html> (accessed March 12, 2009).

Burlington Telecom, “Residential Services,” n.d. <http://www.burlingtontelecom.net/residential/internet/> (accessed on March 3,2009).

Verizon, “Plans and Prices,” n.d. <http://www22.verizon.com/content/consumerfios/packages+and+prices/packages+and+prices.htm> (accessed on March 3, 2009).

$4000 per subscriber assumes uptake rates of 25% and ~$800 per home passed plus the additional cost of extending the fiber from the curb to the home and other equipment.

Larry Dignan, “Qwest CTO on FTTP, bandwidth caps and integrated services”, (ZDNet, August 2008) <http://blogs.zdnet.com/BTL/?p=9781> (accessed March 12, 2009).

CTC Communications, “Fiber Optics for Government and Public Broadband: A Feasibility Study”, (San Francisco Government, January 2007) <http://www.sfgov.org/site/uploadedfiles/dtis/tech_connect/SFFiberFeasibility.pdf> (accessed March 12, 2009).

Stephen Ezell, Robert Atkinson, Daniel Castro and George Ou, The Need for Speed: The Importance of Next-Generation Broadband Networks, (Washington, D.C.: Information Technology Innovation Foundation, March 2009) <http://www.itif.org/index.php?id=231> (accessed March 12, 2009).

While SANS is right to point out the sloppiness of the software industry, calling for software liability is irresponsible.  Even the most secure software in the world can be hacked if there was a sufficient reward.

I can understand holding companies liable for human deaths or injury due to bad software in things like automobiles, it’s not realistic to ask for liability for software.  Commercial software companies should be responsible to the extent that they provide fixes and patches for some finite period of time, and this is already the industry norm.

Here are the predictions for this year:

• Online ads: $119.6 billion, 33 percent of the total and up 9.6 percent from last year.
• Print ads: $111.5 billion, 30 percent of the total and down 3 percent.
• Total ads: $367.9 billion, a 1.2 percent jump of $363.5 billion.

The divide last year favored print by 32 percent to 30 percent. With the investment in digital marketing increasing significantly during a recession and overall ad dollars increasing only slightly, it is obvious that online ads are the future.

Traditional media companies arguably are being hurt by the transition, but that’s because they chose not to adapt as the marketplace changed. Smart media firms will learn how to adjust their business models so they can get the increasing share of the online ad pie they need to help fund their journalism. They won’t need handouts from the government.