As someone who prides in America’s technological leadership and generally despises rent-seeking, these three articles make my blood boil:
Part One of I, Cringely’s great writeup, Part Two, and Part Three
I have long wondered why internet (and cellular) networks are slower here than in Japan and Korea. Japan has 100-megabit-per-second (mbps) fiber-optic broadband internet for $14 per month while Americans pay $50 per month for 3-mbps. That’s $0.14 per mbps in Japan, in a country where everything else is more expensive, while we get far worse than $1.00 per mbps! And this is not because those Japanese telcos not operate at a loss. This should not be the case in the country that created Google and Cisco and the internet and cellular communications.
As I now understand it, we lost our telecommunications leadership because:
Reason One: Whereas other countries use telco infrastructure to provide internet, we use both telco infrastructure and cable TV infrastructure. That is much less efficient because that means that support “two completely separate and different technical infrastructures, two billing systems, two service departments, two head offices, two corporate jets.” Here is a case in which government enforcement of single standard adoption would have led to a much better economic outcome. And inefficiencies will continue to persist even as we transition to the faster fiber-optic because those newer networks will be exempt by law from sharing, meaning less competition.
Reason Two: We all got conned out of $200B. Between 1994 and 2004, the major telephone companies profited from higher phone rates, accelerated depreciation of their network assets, and direct tax credits that added up to around $200B. As contracted between local telecom utilities and all 50 states and DC, they were supposed to build out fiber and hybrid fiber-coax networks intended to bring bidirectional digital video service to millions of homes by the year 2000. The Telecommunications Act had set the mandate for this build-out, but the details were left to the states.
Instead of 45-mbps bidirectional service or 20-mbps, we got nothing. I still remember the 1.5-mbps download and 128-kbps upload connection we had in those days. The telecoms played a good game of stiff-arming and bait-and-switching the everyone else, such as when customers were charged $1.00 per month per customer to support Bellcore, a research organization. When Bellcore was sold, the profits went to the telcos instead of returning to customers, and the $1.00 charge remained in place even afterwards despite that it no longer supported anything. (I usually don’t pay attention to all the random charges on my utilities bills, but I’m going to start.)
These should be industries in which competition precludes such expensive rent-seeking from persisting, but lack of standards regulation failed to steer industry trends away from systemic inefficiencies (reason #1) while lack of negotiating, regulatory, and legal capacity failed to hold the telcos accountable for delivering the goods (reason #2).
I am considering switching to Sprint next year when they roll out their WiMAX. They still might not have as good a voice network as Verizon, but I would be willing to reward them for having the guts to move technology forward rather than lay on their rent-sought laurels.
My other big telco question still remains unanswered though: How did we lose our cellular leadership?
Terms:
DOCSIS 3 cable modems
fiber-optic versus hybrid fiber-coax – I’m guessing hybrid is slower than all fiber.