What happens when all those proverbial “low apples” are picked? Technology markets, and in fact most markets, are made up of prospects that vary considerably in terms of ease of access, return on investment, and other economic factors. The combination of attributes mean some are really attractive and should be targeted quickly, and others much less so, meaning that maybe they’d not be targeted at all. The concept of “universal service” is seen as protecting the higher apples of the telecom world, but perhaps they’re not going to work. In fact, they may not be working even now.
A couple decades ago, I was fiddling with my modeling tools and determined that there were some very simple factors that decided just what broadband prospects might represent low versus high apples. One was “demand density”, a measure of the economic strength of a specific area of geography, and it’s roughly the GDP per unit of area. The second was “access efficiency”, which was a measure of the cost of deployment per unit area. If we were to (OK, I know this is one of those “roughly” things) relate the two, the potential ROI of an area is roughly the demand density divided by the access efficiency.
If we look at large geographies, like countries or the old Bell Operating Company regions, I’ve found that this “roughly” is good enough for all practical purposes, but if you zoom in you find that within a given large geography, there are places where our magic ROI ratio comes out favorable, and others (perhaps even others nearby) where it indicates the apple there is very high indeed. I did some quick assessments of this, and found that in the US it’s easy to find places as big as a hundred square miles that had magic-ratio ROI potential five hundred times as good as other places of similar size less than a hundred miles away.
When broadband is looked at through a wide-angle lens, we can assume that regulatory policies would be effective in leveling the playing field across most of the pieces of a large geography; a form of cross-subsidization. But this is less effective in a “privatized” world where players have some flexibility in where they target. It’s also not always fair to have people who elect to live in an area where magic-ROI ratios are certain to be low be offered superior facilities at the expense of others. One operator told me five years ago that the majority of their high-apple locations were high-end dwellings, and that the public “would be upset” if they knew who subsidies were being directed to.
Universal service was critical in getting basic phone service to everyone, but I think it’s clear to everyone that it’s not going to be as easy to get superior broadband to everyone. There have been suggestions that the solution to this lies with “public broadband” services, offered by cities, counties, or states, but where the governments span a large area we’re back to the question of whether the subsidies are equitable, and where they’re focused on a small area they may exacerbate the problem by picking the middle levels of our apples and putting the high one even more out of reach. Classic broadband, meaning media-based broadband creates this problem.
Ever hear of “pass cost”? It’s the cost a broadband company has to pay just to get broadband close enough to allow customers who order to connect; the cost to “pass” their home. When I first moved into my current home, I had no broadband at all because no provider “passed” me. Today, two media-based broadband providers pass me, but there are parts of my community where only one provider passes homes, and in those areas the broadband speeds available to me are simply not available at all. In a few areas within 20 miles of my home, nothing that approaches competitive broadband is available at all. Rural broadband subsidies have helped, but I think it’s clear that even in my own area, “universal broadband” isn’t the same thing as “equivalent broadband.”
The situation with broadband is not unlike what’s been, and is being, faced by postal services worldwide, at various levels. Changes in consumer behavior and communications, including and especially broadband and the Internet, have had major impacts on postal revenues, and most proposals to transform the agencies would create a risk to those living in rural areas, because the daily delivery costs can’t be covered by the revenue customers there can generate.
But things there are changing quickly, in networking at least. What’s changing them is mobile broadband and FWA. The explosion in the use of smartphones combines with the fact that premium customers often travel, to create demand for cell service in a broad area. Starting with 5G, the same technology can be used for FWA, and the fact that FWA carries the “last mile” without physical media significantly reduces that pass cost problem. Satellite broadband is also growing in popularity, though it rarely provides much more than a shadow of the service bandwidth that’s available to media-based or cellular broadband.
The problem here, in an era of global privatization, is that uneven demand density and access efficiency situation. In even rural areas there are towns, and whether these communities decide to deploy their own broadband media or a specialty operator decides to offer service there, quality broadband may be practical there when it’s not practical over the larger surrounding area. Various universal service subsidy approaches make more sense in these pockets of opportunity, too, so programs may appear to be improving broadband populism when they may be doing little or nothing for those high-apple areas.
I grew up in a rural area, and I know many who still live there. They often complain about broadband quality, but the also complain about a lack of convenient shopping, easy access to airports, quality and accessibility of schools and colleges, and other things that relate to the economic efficiency of providing a given service where there are simply not enough consumers to make the service profitable. Would it be possible to level the broad service playing field across all geographies and demographics? I doubt it. Should we try to accommodate the differences better? Surely.
With respect to broadband, providing better FWA is an obvious strategy, but could local governments not also be encouraged to run broadband media to residential areas, and require ISPs to connect to it? A standard strategy for that media, and even a “kit” to provide local access via the media, could reduce or eliminate the variation in service quality that some say is a problem with municipal broadband. Another useful step might be to require websites to deliver leaner content to sites with low bandwidth, and to stop launching video in windows without the user asking.
Another point here is the link between broadband policy and “copper retirement”. In many countries, including the US, there’s been a duel between the local access providers and regulators over the issue of retiring the copper twisted-pair plant. This plant cannot deliver competitive broadband, and the cost of sustaining it is a burden on telcos, enough that it may hamper deployment of suitable broadband facilities. The argument that retiring copper will put everyone at the mercy of “flaky Internet telephony” flies in the face of the fact that the majority of people already depend on smartphones for calls (if they call at all) and that many don’t even have a copper-based telephone installed in their home. This sure looks like a bad example of regulatory policy, which we’ll get to now.
The problem with broadband quality I’ve been talking about is greatest where overall (meaning national) demand density and access efficiency are low, which tends to be those with a large geography or with economic challenges. The US, Canada, and Australia fit into the first group, and most of the “third world” into the second. For that second group, there may be no good solution in the near term, other than to focus on wireless and the 5G standards. The problem with the first group has arguably been political—doing the right thing isn’t often doing the thing with the best political outcome.
I suspect that, even with wireless and FWA, broadband inequity is going to increase simply because it makes business sense to serve best those that pay most. There are no simple solutions to this, and things like municipal broadband may help some rural users but will exacerbate the problem for others who don’t live in an opportunity pocket. To the extent that the problem can be solved, it’s going to take a more thoughtful (and less political) approach to solve it.
