Bandwidth Cartel?

by Sachin Balagopalan on July 31, 2008 · 1 comment

I remember last spring when my wife was in Brussels on a work related trip she needed to download a PowerPoint presentation from a FTP server at her workplace. As usual she used her trusty FTP client to log into the server via her hotel room’s “free” broadband connection and download the file. While the file transfer itself wasn’t excruciatingly slow she was little surprised to see a fee (about 10 euro) tagged on to her final bill during checkout when internet at the hotel was supposed to be free. The checkout agent explained that while “basic” internet was free they normally charged for file transfers (obviously the reason is huge file transfers eat into the allocated bandwidth per the provider hence the fee).

Interesting op-ed piece in the New York times yesterday juxtaposing bandwidth consumption with energy consumption. While bandwidth and oil are two different animals and perhaps we’re comparing apples and oranges the author does a good job getting the point across.

Like energy, bandwidth is an essential economic input. You can’t run an engine without gas, or a cellphone without bandwidth. Both are also resources controlled by a tight group of producers, whether oil companies and Middle Eastern nations or communications companies like AT&T, Comcast and Vodafone. That’s why, as with energy, we need to develop alternative sources of bandwidth.

Wired connections to the home — cable and telephone lines — are the major way that Americans move information. In the United States and in most of the world, a monopoly or duopoly controls the pipes that supply homes with information. These companies, primarily phone and cable companies, have a natural interest in controlling supply to maintain price levels and extract maximum profit from their investments — similar to how OPEC sets production quotas to guarantee high prices.

Because bandwidth is not tangible we have a hard time perceiving it although some people do keep track of their cell phone minutes for example. In any case bandwidth is an important resource affecting our daily lives just like oil is. When demand for a resource is high there is always a question as to who the suppliers are and more importantly who controls the pricing and is it fair. Apparently not at the moment and so what do we do to avoid a “Broadband Cartel” ?

But just as with oil, there are alternatives. Amsterdam and some cities in Utah have deployed their own fiber to carry bandwidth as a public utility. A future possibility is to buy your own fiber, the way you might buy a solar panel for your home.

Encouraging competition is another path, though not an easy one: most of the much-hyped competitors from earlier this decade, like businesses that would provide broadband Internet over power lines, are dead or moribund. But alternatives are important. Relying on monopoly producers for the transmission of information is a dangerous path.

After physical wires, the other major way to move information is through the airwaves, a natural resource with enormous potential. But that potential is untapped because of a false scarcity created by bad government policy.

IMO fiber is perhaps the “immediate” way to go albeit “fiberizing” every home and building in the US given it’s size is no doubt a daunting and challenging task. The main advantage of fiber among others is the higher carrying capacity due to it’s composition and it’s cheaper. I have used Japan as an example on more than one occasion - here and here - where extensive government deregulation of the old copper wires resulted in the big communication companies taking on the initiative to fiberize every home. A good example where government interference resulted in a positive outcome i.e faster internet at low prices.

Airwaves on the other hand is the long term solution mainly because a few issues like interference and licensing policies need to be ironed out and that may take time. It is the ultimate solution however especially with the freeing up of the UHF spectrum next year by the television channels and Verizon winning the bid.

Bottom line is we need deregulation in this space to spur up competition and avoid a cartel like situation where the supply of an important resource is controlled by a few.

{ 1 comment… read it below or add one }

make a baby game 03.01.11 at 2:18 pm

Aw thank you , you are interesting writ er my friend. That was a great post. I will have to bookmark this site so I can read more later.

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