For achieving its aims, competition from Google Fiber does more than regulation.
President Obama recently announced his full-throated support for net neutrality, calling on the Federal Communications Commission to regulate broadband Internet service as a public utility. All Internet traffic would be treated equally, no matter the size or pace of demand. Net neutrality is a relatively young concept based on the much older notion of “common carriage,” which required providers of basic infrastructure to offer common service to all.
America’s telecommunications law, crafted in the age of the rotary telephone, oddly separates unregulated “information services” from “telecommunications services,” which are highly regulated as utilities under Title II of the original 1934 Communications Act. Internet service providers, or ISPs, currently fall under the former designation, but President Obama believes that ensuring net neutrality requires moving them to the latter category.
Net neutrality is not without controversy. The president’s announcement was like a flare over Flanders, illuminating deeply entrenched lines from Silicon Valley to your cable box. Every user of the Internet has something at stake here.
Net neutrality, while important, is distracting us from new competition emerging across the country. Many assume the broadband market of the future to be a far-off goal, and some fear what the current market players will do to customers and competitors in the meantime. Yet the future will be here sooner than we expect, and it could be far better if we focused more on boosting competition rather than on hiking regulation. In particular, removing local regulatory obstacles may hold the greatest potential for spurring investment and innovation.
Kansas City knows all of this firsthand. “Competition’s a beautiful thing,” Ryan Weber, president of KCnext, told the Kansas City Business Journal. His group, which boosts Kansas City startups, had just heard the news that Google’s fiber-optic service was going to be offered to Kansas City businesses for $100 a month. “This price point Google’s chosen is going to bring down the cost of service from other carriers. It just will. To compete, they’ll have to lower their prices.”
Since 2011, Google Fiber has wired up Kansas City to the Internet at speeds of one gigabit a second. That’s about 100 times the average connection speed and, as the New York Times helpfully pointed out, roughly translates to 612 cat-picture downloads a second. Fiber’s blazing speed is one thing, but the effect it has on competition is arguably more important in the short term. (When only a tiny fraction of America has fiber, there is not much of an ecosystem for applications just yet.) As NPR reports, “one way Google Fiber is already making a difference is in the marketplace; other cable operators are offering all sorts of deals for conventional broadband.”
When Google picked Kansas City for Fiber, the city’s mayor says, it happened without fanfare: “At the end, there was nothing left to negotiate. All of Google’s questions were answered and their requests were met. And that was it.” The company found Kansas City a welcoming place to do business, and citywide utility conduits were ready for fiber-optic cables to be threaded through them.
In the early 2000s, Kansas City’s public-utilities board tried building a municipal broadband framework but found it impossible to get sufficient financing. Google does not have a cash problem, and its demand-driven model for rollout meant they were not biting off more than they could chew. When Google finally made Fiber available to Internet users in Kansas City, the neighborhood of Hanover Heights met the company’s minimum-subscription requirement in just under two hours.
Thousands of other cities across America have campaigned for Google Fiber. Austin, Texas, and Provo, Utah, are now on board, and the company plans to roll out its service to 34 more cities in nine metro areas. Despite the not-insignificant cost of building out a new fiber broadband service, Google expects to easily turn a profit. What started as a small experiment in the Midwest is now turning Google into a nationwide broadband provider.
What’s good for Google is, in this case, good for everyone. Municipalities have long had a penchant for wrapping broadband investment in a complicated framework of rules and licenses of varying levels of legitimacy. Google asks applicant cities to be transparent about existing infrastructure (such as telephone poles or underground conduits), to have clear and predictable rules about gaining access to that infrastructure, and to expedite permitting and construction licenses, among other requests. The company states in its “Google Fiber City Checklist” that it is “not asking for any special treatment, tax incentives, or subsidies.” Nevertheless, Portland, Ore., to cite one example, chose to waive its 3 percent “public, educational, and government access” tax and not require Google to service every neighborhood. As long as this tax and regulatory streamlining is extended to other local providers, which Google does not object to and which usually occurs, the result is an easier business environment and a more level playing field.
Roughly three years after Google Fiber’s introduction, broadband access has grown, even in areas where Google does not operate. The company did not need to be forced into providing access to every corner of Kansas City for the market to respond with citywide improvements. As for Google Fiber itself, a May 2014 survey by Sanford Bernstein found that 75 percent of households in Kansas City’s medium- to high-income neighborhoods had signed on as customers, and the company had achieved 30 percent penetration in low-income neighborhoods, which enjoy access to Google’s free (albeit slower) broadband plan.
The introduction of a disruptive new competitor—even when it started on a very small scale—spurred customer demand for better broadband. True to form, Comcast and Time Warner recently announced much faster Internet speeds at no additional cost in Kansas City. Even cities that are not in the running for Google Fiber are seeing broadband investments increase. AT&T recently announced the expansion of its ambitiously named “U-verse with GigaPower” fiber service in 21 major metropolitan areas. Incumbent firms have long been staring down a regulatory buzz saw and are now finding ways around it.
And it is not just established telecom companies that are in the fray. Regional startups such as Sonic.net in California, Falcon Broadband in Colorado Springs, MINET Fiber in Oregon, and many others are using a mix of new fiber and old copper cables to deliver faster broadband. C-Spire is using the Google Fiber playbook to roll out a new fiber network in Mississippi using existing infrastructure. Other new providers are building broadband in the “last mile,” communities that currently have no Internet access. And then there are cities, such as Chattanooga, that have (controversially) created municipal broadband networks in direct competition with private companies.
When we look several years down the road, the view is yet more intriguing. Around 2020, mobile 5G technologies will be rolling out, offering roughly the speeds of average broadband today, and there is an opportunity for unlocking unlicensed wireless spectrum for a new crop of providers. Wireless broadband will always be slower than its wired cousin, but even at today’s speeds it is able to satisfy most basic Internet needs, such as e-mailing cat photos or streaming viral videos. With impending increases in speed and ubiquity for wireless, households are looking not just at parallel options for Internet service but at competing ones too.
Higher up in the sky are the high-altitude platforms of blimps and drones and balloons backed by Silicon Valley heavyweights to bring the Internet to less-developed areas. Meanwhile, Elon Musk recently announced SpaceX’s development of a network of micro-satellites that will provide global Internet access. Assuming that any one of these efforts gets off the ground, we are talking about an Internet landscape that will be remarkably different from the one we have now. While we operate on the assumption of a static broadband marketplace, evidence of change is already clear.
The net-neutrality debate looks very different in a world with lots of broadband competition. If one provider decided to slow Internet traffic, households and businesses would have numerous broadband competitors to switch to. That world is closer than we think. In fact, it already exists in a number of major cities.
While new broadband technologies have been disappointing us since at least the mid 2000s, leaving cable and data-capped wireless as the most ubiquitous connection options, the future is uncertain. There remains every reason to believe that competitive forces will prevail in driving innovation. Moreover, demand for wired broadband is far less stable and more dynamic than with any other form of infrastructure, which in turn pushes providers to be far more agile than your area water utility.
Competition, not more regulation, is the best defender of an open Internet. If we believe there is not enough competition today, we need to ask how to get more of it. The Google Fiber playbook suggests that the first way to jump-start further broadband competition is for a well-funded entity to carry a big stick into a city-by-city fight against local regulations, all while holding out a carrot of fast, affordable Internet access. Successfully countering local regulation can be quite profitable for such an entity, as Uber has shown, and will help drive further investment in the broadband space.
Debating net neutrality today, while important, is like arguing over which flip phone would dominate in 2005, just two years before the iPhone’s release. It is a debate that may soon be meaningless.
— Michael Hendrix is the director of emerging issues and research at the U.S. Chamber of Commerce Foundation. The views expressed here are his own.