National broadband: De-bottlenecking or doubling down?

It’s front-page news every day: the private sector profit motive wrestling with political will and choices. Is the BP tragedy a lesson in greed overwrought or a game-changing opening to reset the global sustainability agenda? Is universal health care a fiscally reckless burden to small and large businesses in the U.S. or a long-overdue commitment to the public good? Is National broadband -- to the tune of 100 Mb/s download speeds for almost everyone -- a natural end point for the country’s future competitive infrastructure (so just be patient) or is it a basic citizen’s right that is being inefficiently withheld due to telco incompetence and greed (so let’s implement Big Bang now)?

This is sort of like Adam Smith in the 1760s versus Lyndon Johnson in the 1960s, the Tea Party versus progressives, Big Iron versus Big Government, even Netco versus Servco (remember that debate?) But in the end, we would all agree that it’s in the public interest to improve national competitiveness, make e-health care and e-education a broader reality, close the digital divides related to poverty as well as differential coverage economics, and thereby release all the flow-through benefits for a true 21st century economy.

Let me disclose my biases straight up. Yes, I make a living consulting to big companies that either make and distribute electronics and high-tech gear or sell communications services to the mass market and enterprises for a profit. These clients are not often celebrated for their excellent customer service and cost orientation. But I am also an educated taxpayer fatigued by public policy “spin” from well-meaning elected officials on this topic. So let me offer some observations based on as objective a footing as possible, however tainted by my own distant self-interest.

National broadband. We have a digital divide in nearly all countries, metro versus countryside and isolated settlements in most, DOCSIS 3.0 versus dial-up. The always-connected world works best and builds GDP most effectively when every consumer and business is leveraging open and secure networks, using the cloud effectively and downloading business and entertainment apps at banshee-like speeds. We get it. This is clearly not just a U.S. phenomenon — it spans different political climates, Asian, European and Commonwealth. South Korea and Japan have been at this for decades. Australia and Canada are deep in the game now, too. So just like universal health care and sustainability, most countries want higher speeds and coverage for their citizens and businesses (they would certainly vote for it if it were on the ballot), but who’s going to pay for it? And what politically defensible, self-guiding principles are needed to implement a National broadband policy that balances free-market ideology with the government’s rights of eminent commercial domain? Can we really have it all?

The answer is that it has gotten pretty freaking murky. Here are five basic logic “disconnects” that bug me about this global debate around government-initiated super-fast broadband so far.

1. Sloppy logic
An objective is a not a strategy. Close the digital divide: good. Do it by crowding out private investment: bad. We have witnessed some countries where government is moving “all in” and actually building out a brand new national broadband network that competes with or absorbs portions of two existing national fixed carriers, one foreign-owned. You don’t have to be Australian to view that as a bit batty. Even if we all fully stipulate that high-speed Internet access is a basic entitlement, why would we use government to build out anything more than the last 10% of access that is not currently well-served — in lower-density or hopelessly low ARPU areas. To use the universal health care analogy, why transform the 90% that is working just because there is 10% that is not? And surely, there must be a more timely and cost-effective way to roll out end-to-end high speed Internet by overbuilding existing infrastructure versus replicating it.

2. False choices
Where is the bottleneck? The basic premise in most rollout plans is that it is access and core backhaul among major business centers or capital cities. If the problem is transport and provisioning (Layer 2), I am not sure why it follows that the public must provide the complete answer, versus speeding up commercial discussions or providing tax subsidies to link up islands of citizens or broadening municipal access or imposing competitive inducements such as structural separation. Pick a specific solution to fit the specific problem.

3. Grand extrapolation
Why does this happen? A grand vision will mobilize energy and voters. And well-meaning public officials are always, earnestly and publicly in pursuit of a larger good, but usually such boldness can lead to duplication or deliver only incremental gains for a narrow constituency — and cost us all a pretty penny. Look at the entire U.S. public debate, across every arena in any era, and be sure to total up the actual dollar cost per citizen.

4. Legislative bluster
Unilateral action is often a great strategy — in poker, in warfare, in crafting legislation and even in some marriages. It’s probably not a great idea if we are committing public dollars to a major fiber overbuild, funded and managed by government. Are we sure Big Brother can police itself and even promise to other carriers that it will never (unilaterally) move upstream one day from Layer 2 to Layer 3 competition? In a world where we wish to deactivate copper networks in favor of fiber or coax one day, can we really manage an orderly migration to a national broadband network? This doesn’t foster the most healthy private investment climate for a telco, cableco or new entrant. Is “trust me” enough of a government guarantee to take to the bank? And what if the political climate soon changes?

5. Commercial naivety
We are on the slippery slope where we start believing public pronouncements in full — i.e., it is so because I said so. The folly here is in the underlying premise that government can run health care better or identify and achieve better telco shareholder returns than the private sector — and that delivering social services will not be politicized. The well-publicized white paper from one country’s recent national broadband implementation plan assumes steady state EBITDA margins of 75% (and 90% take-up rates!) for a steady state wholesale network eight years down the line. That could very well be the ultimate objective and outcome, but crafting a strategy to get there by crowding out (or even bullying) the private sector to allow government to achieve this lofty margin is not the way to do it. Selling the idea on the basis of rosy no-downside scenarios is equally suspect. An objective is not a strategy.

In the end, leveraging a high-profile national broadband agenda to de-bottleneck the global infrastructure for communications is clearly a worthy goal, but doubling down on this public policy objective without a proper “strategy” may lead to unintended uncertainty and fiscal waste. Happily, there are examples of how private-public collaboration in this area can effect real change with less partisan rancor (France comes to mind). The national stakes here are too high not to focus on problem-solving versus pure posturing.

Alex Liu is a senior partner in A.T. Kearney’s communications and high technology practice in North America, and a frequent contributor to Connected Planet.