Broadband competition is not only important for prices and innovation, but also for everyone’s fundamental rights. This is the core message of a new stakeholders’ alliance formed by business users, consumers, digital rights advocates and alternative broadband operators.
In the middle of her primary election campaign a few days ago, Hillary Clinton made her position clear, reacting to a problem that is becoming more and more apparent in the US: prices for high-speed broadband are far too high in most major cities in the United States and three-quarters of US households have at most one option for purchasing the Internet service.
Large telecom/cable corporations are concentrating control over markets while end-users are obliged to pay super high fees as access to internet services becomes increasingly pervasive essential to anyone’s day-to-day life.
This is the outcome of a decision not to regulate broadband access taken by the US Government during the Bush administration. US consumers and SMEs are still paying its consequences.
Despite contradictory evidence, in Europe, large telcos managed to create the perception that EU telecom markets need to look more like the US, where the market is being dominated by large operators, leaving limited or no room for smaller players.
Major EU incumbents claim that prices of telecom services in the EU went far too low because of fierce competition and that the moment has come to get rid of “old” access rules that allegedly would be hindering investments in fibre networks.
The good news is that today a very large group of organisations representing competitive broadband providers, users and end-users of broadband services decided to speak up against the lobbying efforts of dominant telcos.
Business users, consumers, digital rights advocates and alternative broadband providers are calling EU policy makers to save #netcompetition by strengthening the EU pro-competitive frameworks of rules to guarantee that EU citizens will be always the main focus of policy makers.
There is no trade-off between pro-competitive rules and investments in broadband networks. Dominant operators and their shareholders in the financial sector keep boosting the message that without regulatory holidays the transition to Next Generation Networks (NGA) will never be achieved.
Facts prove the opposite: both in the US and in the EU, the full transition to NGA has been completed only in highly competitive densely populated areas. As a matter of fact any private company would avoid investments upgrades if they are not obliged by the threat to lose its customer to competition.
Broadband competition is not only important for prices and innovation: #NetCompetition is important for everyone’s fundamental rights. If broadband was to be deregulated in Europe, we would be confronted to a few gatekeepers which would be able to control our freedom of communication, restricting our human right to receive and impart information.
That is the main reason why digital rights advocates are also calling EU policy makers to work towards more competition in broadband. The number of networks should be high enough to prevent a monopoly control from gatekeepers and let operators compete also on data security and guarantees on citizens’ rights and freedoms.
Today, the European society is raising its voice towards policy makers through the #NetCompetition alliance, urging them to protect and foster broadband competition and user protection against astro-turfed and direct calls for de-regulation.
The FCC’s decision to adopt utility-style regulation to the Internet is resulting in less investment and reduced deployment and it will inevitably lead to less robust competition in the broadband market, argues Brendan Carr, legal advisor to FCC Commissioner Ajit Pai.
The Digital Post: You suggested that the FCC decision to reclassify broadband as a utility could undermine the US telecom success story. What are the main negative consequences?
Brendan Carr: The FCC’s decision to apply heavy-handed, utility-style regulation to the Internet is putting the U.S.’s success story at risk. It is already leading broadband providers to cut back on their investments and put off network upgrades that would have brought faster speeds and more reliable broadband to consumers.
And the decision to put the U.S.’s success at risk was an entirely unnecessary one. In the 1990s, American policymakers decided on a bipartisan basis that the Internet should develop unfettered by government regulation.
Regulators applied a light-touch regulatory framework that led to unparalleled levels of investment and, in turn, innovation.The private sector spent $1.3 trillion over the past 15 years to deploy broadband infrastructure in the U.S. That level of investment compares very favorably when you look at the International context.
A study of 2011 and 2012 data shows that wireless providers in the U.S. invested twice as much per person as their counterparts in Europe ($110 per person compared to $55). And the story is the same on the wireline side, with U.S. providers investing more than twice those in Europe ($562 per household versus $244).
Consumers benefited immensely from all of that investment. On the wireless side, 97% of Americans have access to three or more facilities-based providers. More than 98% of Americans now have access to 4G LTE. Network speeds are 30% faster in the U.S. than in Europe.
The story is similar on the wireline side: 82% of Americans and 48% of rural Americans have access to 25 Mbps broadband speeds, but those figures are only 54% and 12% in Europe, according to a 2014 study that looked at 2011 and 2012 data. And in the U.S., broadband providers deploy fiber to the premises about twice as often as they do in Europe (23% versus 12%).
Facilities-based intermodal competition is also thriving with telephone, cable, mobile, satellite, fixed wireless, and other Internet service providers competing vigorously against each other.
But unfortunately, the U.S. is now putting all of this success at risk. At the beginning of 2015, the FCC decided to apply public-utility-style regulation to the Internet over the objections of two FCC Commissioners.
I fear that we are already seeing the results of that decision. Capital expenditures by the largest wireline broadband providers plunged 12% in the first half of 2015, compared to the first half of 2014. The decline among all major broadband providers was 8%. This decrease represents billions of dollars in lost investment and tens of thousands of lost jobs.
And the decline in broadband investment is not limited to the U.S.’s largest providers. Many of the nation’s smallest broadband providers have already cut back on their investments and deployment. Take KWISP Internet, a provider serving 475 customers in rural Illinois.
KWISP told the Commission that, because of the agency’s decision to impose utility-style regulation, it was delaying network improvements that would have upgraded customers from 3 Mbps to 20 Mbps service and capacity upgrades that would have reduced congestion.
These and many more examples all point to the same conclusion. The FCC’s decision to adopt heavy-handed Internet regulation is resulting in less investment and reduced deployment. It will inevitably lead to less robust competition in the broadband market and a worse experience for U.S. broadband users.
But I am optimistic that the U.S. will ultimately return to the successful, light-touch approach to the Internet that spurred massive investments in our broadband infrastructure. Efforts are underway in both the courts and Congress to reverse the FCC’s decision. And following next year’s presidential election, the composition of the FCC could be substantially different than it is today.
The Digital Post: What is your opinion about the Net Neutrality legislation due to be adopted by the EU? What are the main differences with the Open Internet order?
Brendan Carr: I think the FCC’s decision to adopt utility-style regulation should serve as a cautionary tale for regulators that are examining this issue. FCC Commissioner Ajit Pai, who I work for, has described the FCC’s decision as a solution that won’t work to a problem that doesn’t exist.
When the FCC acted, its rulemaking record was replete with evidence that utility-style regulation would slow investment and innovation in the broadband networks. And the evidence on the other side of the ledger? Non-existent.
Net Neutrality activists have trotted out a parade of horribles and hypothesized harms, but there was no evidence whatsoever of systemic market failure. The FCC adopted utility-style regulations even though it presented no evidence that the Internet is broken or in need of increased government regulation.
In the absence of any market failure, consumers are far better served by policies that promote competition. Utility-style regulation heads in the opposition direction—it imposes substantial new costs on broadband providers and makes it harder for competitors, particularly smaller broadband providers, to compete in the marketplace. After all, rules designed to regulate a monopoly will inevitably push the market toward a monopoly
The Digital Post: Next year the European Commission will propose a major revision of the EU current framework on telecoms. From your perspective what should be the priorities?
Brendan Carr: When I met with government officials and industry stakeholders in Brussels, one point kept coming up: the need to increase investment in Europe’s broadband markets. And I agree that embracing policies that will spur greater broadband investment is a key priority. According to a Boston Consulting Group report that just came out, Europe will need an additional €106 billion to meet its Digital Agenda goals.
Historically, the U.S. embraced a number of policies that led to massive investments in broadband networks. For one, U.S. regulators embraced facilities-based competition. We rejected the notion that the broadband market was a natural monopoly.
Therefore, we pursued policies that encouraged broadband providers to build their own networks, rather than using their competitors’ infrastructure. For example, we eliminated mandatory unbundling obligations, which were skewing investment decisions and deterring network construction.
We also made it easier for facilities-based providers from previously distinct sectors to enter the broadband market and compete against each other.
For instance, by making it easier for telephone companies to enter the video market and cable companies to enter the voice market, we strengthened the business case for those carriers to upgrade their networks, since offering a triple-play bundle of video, broadband, and voice was critical to being able to compete successfully. Because of these policies, capital flowed into networks, and consumers benefited from better, faster, and more reliable broadband infrastructure.
We also took steps on the wireless side to promote investment and competition. We embraced a flexible use policy for wireless spectrum. Instead of mandating that a particular spectrum band be used with a specific type of wireless technology, the government left that choice to the private sector, which has a much better sense of consumer demand.
This enabled wireless networks in the U.S. to evolve with technology and to do so much more quickly than if operators had to obtain government sign-off each step of the way. Having license terms and conditions that are relatively consistent across spectrum bands has also made it easier for providers to invest in the mobile broadband marketplace.
The Digital Post: The EU is still grappling with a fragmented and somewhat rigid approach to spectrum, despite the efforts of the European Commission. What can Europe learn from the FCC policy on spectrum?
Brendan Carr: The FCC’s spectrum policies have led to a tremendous amount of innovation and investment in our wireless networks. I would like to highlight a few of those here.
First, the FCC has embraced a flexible use policy for wireless spectrum. Instead of mandating that a particular spectrum band be used with a specific type of wireless technology, the government left that choice to the private sector, which has a much better sense of consumer demand.
This has enabled wireless networks in the U.S. to evolve with technology and to do so much more quickly than if operators had to obtain government sign-off each step of the way. For instance, nearly 50% of all mobile connections in the U.S. are now 4G, whereas that figure is only 10% worldwide.
Second, the FCC makes spectrum bands available on a nationwide basis with relatively uniform license terms and build out obligations. So rather than auctioning licenses that cover only part of the country one year and then auctioning other licenses in another year, all of the licenses for a particular spectrum band are offered in the same auction.
This approach gives broadband operators greater certainty and helps them plan their deployments while minimizing transaction costs. It also makes it easier for operators to obtain handsets and other equipment that will operate on their spectrum bands. All of that ultimately means that consumers get access to the spectrum faster and at lower costs.
Third, the FCC tries to keep its eye on filling the spectrum pipeline. It takes years for new spectrum bands to be brought to market, and so waiting for consumer demand to increase before starting the process of allocating more spectrum for consumer use is not an efficient approach.
The U.S. has engaged in a continuous process of reallocating spectrum for mobile broadband. We auctioned AWS-1 spectrum in 2006, 700 MHz spectrum in 2008, 65 MHz of mid-band spectrum earlier this year, and we’re set to auction our 600 MHz spectrum in 2016. To date, our spectrum auctions have over $91 billion for the U.S. Treasury.
Fourth, the FCC has embraced policies that make it easier for operators to deploy their spectrum. One way we’ve done that is by adopting what the FCC calls “shot clocks.” These require state and local governments to act on an operator’s request to construct a new tower or add an antenna to an existing structure within a set period of time, say within 90 or 180 days.
Another step the FCC has taken is to streamline the process of obtaining the historic preservation and other approvals that are required when an operator deploys broadband infrastructure. Combined, these actions have allowed spectrum to be deployed faster and have meant that consumers get quicker access to new mobile broadband offerings.
photo credit: Eris Stassi
The European Commission has just launched a consultation to look into the needs for Internet speed and quality beyond 2020. We need to make sure that our broadband policies are driven by a vision that takes into account all the different scenarios we may face in the next twenty years, says Anna Krzyżanowska, Head of Unit Broadband at DG CONNECT.
The Digital Post: What is the purpose of the consultation?
Anna Krzyżanowska: Just after the launch of the Digital Single Market strategy and five years before the broadbandtarget date we have realized that the most active families and SMEs using current applications and services may be needing more than 30 megabits per second.
At the same time several organizations, including public institutions such as schools, may need a connection of more than 100 megabytes per second in order to perform their online activities.
Hence, having reviewed the available literature and the projections on the increased use of Internet networks, we want to know what is the opinion of the general public regarding the connectivity needs they might have beyond 2020.
Let me also stress one more important element of reflection: at the moment in Europe there is a large availability of publicly supported funds, with the European structural funds alone providing six billion euros for broadband networks and the opportunity to unlock huge resources under the European Strategic Investment Fund.
We need to make sure that these investments are supported by decisions and by a vision that look beyond 2020 to the trends of the next ten or twenty years.
The Digital Post: In a word, the consultation will help shape the new European Digital Single Market after 2020.
Anna Krzyżanowska: Definitely. This consultation is part of an evidence building exercise which will orientate our decisions as to whether or not a new broadband policy should emerge within the context of the digital single market.
It’s not about what we want to build or what we’re building today, but whether that’s going to be enough to enable the considerable benefits that the digital single market can bring us.
This is the main question we are trying to answer through this consultation by focusing on those sectors that will be the main users and beneficiaries of the digital single market.
The Digital Post: What are the sectors whose demand for connectivity will jump in the following years?
Anna Krzyżanowska: We want to listen from people building applications or those currently developing band-hungry services, mainly game producers or media companies.
We will look at the needs that will be generated by cloud computing as well as by the expanding availability of shared software and shared platforms, which is of particular importance for the definition of the needed upload capacity of networks.
In addition to that, there are certain services that will require higher security or ubiquitous access. It is difficult to imagine for instance a ministry of education introducing electronic school books if it cannot do it across the territory.
A similar consideration applies for instance to health monitoring, which could bring enormous savings to the public sector by keeping people out of institutionalized health, i.e. out of hospitals.
We will also take inspiration from the research programs of the Commission focusing on future services: on health services or in the manufacturing sector. And we obviously will talk to automotive companies which are working on the connected car.
At the moment we’re doing fine but what will be the implications for the quality of networks when all of us in Europe will have a connected car?
The Digital Post: And from the point of view of the households what will be the main factors driving a higher demand?
Anna Krzyżanowska: Looking at the future, it is the cloud computing which will mostly drive the need for more connectivity, especially in terms of upload speed. As for the download, the same can be said for the consumption and exchange of video content.
However, it is also very difficult to define what a household is. In the case of somebody starting his own company and working from home the needs of a household turn into those of a small enterprise, and in that particular case the value of services or software sharing becomes extremely important.
In any case, it’s very unpredictable what our home connection will serve in 10 years time. That is why we need to make sure that our investment decisions may reflect the different scenarios we may face in the future.
The Digital Post: However, setting higher broadband targets might stir discontent among some telecoms stakeholders.
Anna Krzyżanowska: The reaction of different stakeholders may be quite predictable. There’s a general resistance in accepting that the world is going in a certain direction.
Hence, we are not starting with a proposal, but rather with a public consultation so as to allow everybody to voice their views and perhaps their reservations.
Having said that, I believe that we can find plenty of examples in which we have underestimated technological developments and the strain they have put on infrastructures.
This is all the more true for the digital networks: we are not only facing more people using these infrastructures but we also facing different ways of using them. Hence, whereas it may be not in the interest of some people to have that discussion, I believe that it is very important.
Big telecom companies often tell us that the demand would not materialize quickly enough. And I believe that in some cases they’re right: there are some countries or certain population categories that are more conservative than others and it’s very difficult to make a generalized statement.
However, I believe that speed or quality of connection is addictive and it is contagious so the more people have it the more people will ask for it and that will probably drive the dynamics of demand fairly quickly.
The Digital Post: What is the link between this consultation and the concomitant consultation on the review of the telecom framework?
Anna Krzyżanowska: Telecom review is a legal requirement of the legislation. On one hand it is written within the legislation that it needs to be periodically reviewed.
Second, the Commission has made a commitment to better regulation and we in general look whether the regulation proposed has fulfilled its objectives, whether it’s still effective efficient and effective and has the right impact.
From that perspective we would have done a review of the framework irrespectively of whether the market needs for connectivity change or not. But since we have an instinct that they are changing and they will be actually changing throughout the period of the review and beyond, it is obviously important to link the two processes.
Regulation is there for a reason and the reason is to make sure that the consumers get the connectivity that they want. From that perspective there’s no difference between the regulatory objective and the policy objective as it is explained in the digital agenda and as it is intended in the digital single market.
I believe it’s particularly good that policy reflection, regulatory fine-tuning or improvements and the availability of funds are actually happening at the same time.
Anna Krzyżanowska is the Head of Unit « Broadband » at DG CONNECT of the European Commission. In addition to policy activities focusing on achieving Digital Agenda for Europe broadband targets, she is coordinating the efforts related to Connecting Europe Facility and future Cohesion Framework in the areas relevant to DG CONNECT.