Last week I talked about the various forms of competition and how that drove significant FTTH deployment. Today, I want to look at Government Intervention. How can the government encourage network spending so that consumers and businesses have higher quality Internet Access?
Well, I have talked repeatedly about the business case aspect here. In most underserved and underserved areas, there is simply not enough Return On Investment (ROI). This is not a lack of capital issue. It is much more about opportunity costs. If I am building/upgrading marginal networks, then I am not working on those projects that have a better ROI. Grants and low cost loans simply don’t change that equation enough to make the build become viable expenditures. Tax incentives might work better, but I think that they as well will not go over well enough to matter.
So if the government can’t incent the carriers to do work, what can they do? They could create Broadband as a Universal Service. This would make the installation of Broadband mandatory. It would not cause one service provider areas to suddenly develop a second. It could however make sure that the provider was up to whatever standard deployment was required at the time. This service was how Plain Old Telephone Service (POTS) was broadly built for the most part. In some areas, the only entity that would build was the local government. These became the core of the smaller Independent Operating Company (IOC) market. It is these small companies that get the vast bulk of the Universal Services Fund disbursements. Something similar could be done with Broadband.
On the price side, the FCC mandates price caps for POTS service and could do something similar for Broadband (x dollars per Megabit per second per month). One caution about this is that the carriers are likely to slow innovation when it comes to these services if caps go in place. Why spend money on next generation services if they will struggle with ROI on that expenditure. This is one of the many reasons that Wireless is replacing Wireline in the voice world. Wireline voice prices are capped. No matter what a carrier does they can not charge any more money. That puts the right Capital Expenditures (CAPEX) for that market at zero. They can’t get there, but they do try to drive as close to 0 as possible.
So, something to think about. Should we make Broadband a Universal Service?
Have a great weekend!
Jim Sackman
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