Regulation, Broadband and the Economic Engine of Communications

Over the past three years, the major U.S. dominant communications carriers have spent more than $75 billion upgrading their local network infrastructure to fiber optics. Industry experts predict it will cost an additional $125 billion to provision a fiber optic cable to every home and business across the fruited plain. This is all in pursuit of delivering more bandwidth – the capacity to move information – just as we do with electricity, water and energy.

America ranks anywhere from 16th in wireline broadband bandwidth deployment to 27th globally, depending upon whose study you are reading. Within this ranking, America is an inferior player in global connectivity. The likes of South Korea and Japan are readily delivering 100 megabits of bandwidth to residences and business for a mere $50 per month. The vast majority of America’s broadband circuits are delivered over legacy copper infrastructure previously controlled by, but now available for pseudocompetitors to rent from Ma Bell (AT&T, Verizon and Qwest) and brand it their own as a courtesy of the 1996 Telecommunications Act and FCC oversight.

On the wireless front, about 25 percent of the world’s wireless cell towers are connected by optical fiber. The lion’s share of these sites are located in Asia, with China leading the world with more than 200,000 optically enabled wireless towers. Meanwhile, in the United States, the vast majority of wireless towers are connected by the same legacy copper as the wireline sector for backhaul.

For readers who may not be fluent in telecom speak, as you should not have to be, all wireless applications get transported across wireline networks. There is no such thing as a pure tower-to-tower cellular phone call, image, video or text message connection.

What one may be asking, just looking back some seven years ago, “I thought there was a fiber glut in America, and we have enough fiber cable in the ground to last us forever?” If that is the case, why is America so far behind the rest of the world in broadband connectivity though our government boasts of a 70 percent broadband penetration rate in America? Why is another $125 billion of investment needed?

As Wall Street green-lighted telecom investment after the 1996 Communications Act, those that chose to build out fiber did so at alarming rates and without regard to future consequence. Long haul fiber between major cities was deployed through various duct systems and aerial builds. At any one time, 20 or more competitors were competing on these routes, all going for the dense prospects the big cities afforded.

One could easily find the incumbent telephone companies, franchised cable companies, some long distance companies and some 15 independent fiber optic network over-builders building on top of each other in these major cities. With a fiber pair capable of transmitting a terabyte of data, it was no small wonder that the long distance carriers collapsed upon themselves. No one was differentiated and merciless price wars for “market share” were endorsed by whom else but Wall Street, resulting in a plethora of bankruptcies. These players were pricing below costs and thinking they would make it up on volume.

While Wall Street was abuzz, who was paying attention to Main Street? An MIT Communications Future Program study funded by the Department of Commerce concluded that local economies are enhanced by broadband connectivity. Over a four-year period, the MIT study indicated job growth rates increase by 1-1.4 percent, property values increased in value by 6 percent, the growth rate of new business establishments increased between 0.5 and 1.2 percent and IT intensive sectors grew 0.3-0.6 percent. If you apply these figures on a national basis against our GDP, the economic benefit is substantial ─ on a global basis, even more prosperous.

As a high-growth, high-margin metropolitan fiber optic network operator, I have had one element of our business strategy circa 1999 validated and a second for you to consider. The first, building a high fixed-cost business on demand-pull, demand-push or supply side expansion creates great risks. And lastly, given a series of successful acquisitions after the bubble burst, the second mouse always gets the cheese.

The 21st Century: It’s all about location, location, connectivity. Our government has chosen in this age of global knowledge connectivity and services to regulate an economic engine of communications with a 20th century understanding as if bandwidth were a 19th century factory or railroad. Now you know the truth. We are behind in globally competitive broadband deployment and it is a national disgrace.

Dave Rusin heads up American Fiber Systems, a leading metro fiber provider in 10 markets around the U.S. Before he started AFS, Dave was president of Frontier Communications, the country's first CLEC. He said that experience taught him that phone companies didn't have what it takes to provide exceptional network services. It also inspired him to start a company that would do things right. In addition to Dave’s blog for xchange, Dave writes a blog called Telecom Straight Shooter.

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