INEVITABILITY OF BIG BROADBAND
NEW AMERICA FOUNDATION
DECEMBER 10, 2003
Author’s Acknowledgment: A form of this piece was originally
written by Professor Hundt for a colloquium at Harvard Business School
in April 2003, The Bandwidth Explosion: Living and Working in a Broadband
World, and will appear in a forthcoming book with the same title.
The author would like to thank Professor Stephen Bradley of Harvard
Business School. Still another form will appear in the Yale Journal
of Regulation, December 2003.
All new media, taught Marshall McLuhan, are destined to subsume
and extend all old media, and to use the old media as their content,
much like large fish filling their stomachs with small fish. The
fish metaphor belongs to me, not McLuhan, since he was rarely so
dull in his imagery.
The big fish of today is Big Broadband – access to the Web
at 10 to 100 megabits per second for homes and 1 to 10 gigabits per
second for businesses. The small fish are broadcast, DSL, cable modem,
The questions are not whether Big Broadband will swallow the
fish, and perhaps the whole ocean, but how, when and by whom
swallowing be done? Who will create value and who will capture
it? How much
capital will regulation and market failures cause to be wasted
in the process? Lastly, will we include all Americans in the
so as to create community and greater social value? And if
all Americans, rich and not rich, urban and rural, are eventually
weaved into the
fabric of Big Broadband, will that happen at more or less the
same rate for all, or will Big Broadband be distributed like
of the Big Tax Cuts of 2001 – that is, on a trickle down basis.
The answers to these questions will define not only Information
and Communications Technology (“ICT”) policy, but also a
major part of America’s domestic and economic policy.
Since the beginning of convergence, dated from about 1992
(plus or minus a year), the battle to be the primary medium of at
least the next decade – the
one we are in now – has raged among various antipodal rivals: content
vs. conduit, local vs. long distance, wireless vs. wire, data vs. voice also
sort of known as packet vs. circuit, communications vs. computing, network
vs. edge, and copper vs. hfc (also known as telco vs. cable). Other, possibly
lesser dialectics include satellite vs. terrestrial and broadcast vs. cable.
Convergence describes then a clash of networks, businesses, and even cultures.
As the convergence story evolves, a synthesis emerges. It
is the next generation network that can be discerned in the fog of
the future. Its
are 10 to 100 megabits per second to the home, 1 to 10 gigabits a second
enterprise, IP protocols, packets of course but more edge-centric than
switch-centric in terms of control, wireless home and business LANs fanning
out like peacocks’ tails
from the edge of the wire network, fiber fairly far to the edge, computing
everywhere, software gluing the contraption together, and myriad handheld or
hand-carried devices connecting all the time anywhere to the Net, the Web,
the world’s devices and users.
This is what I’m calling the Big Broadband network. In my shorthand it
is 10/100 at home, 1/10 at work, and wireless all around.
It is not Little Broadband. Little Broadband is the thin
stream of data sold as DSL or cable modem, not amounting to much more
than, if even
1 megabit per second to a home. Big Broadband is to Little Broadband
as a SUV
is to a motorcycle. Big Broadband can carry full motion video, download
pictures of Paris or Hilton Hotels or Paris Hilton (whoever that is),
web page access that feels like flipping pages of a magazine.
Little Broadband can do voice over the Internet, but otherwise
is painfully slow. It is no more a new medium in comparison to narrowband
for instance, the kinescope was as to still photographs.
Given the power of technological change, the Big Broadband
network surely will reach some people fairly soon. Indeed, it already
campuses, some corporate parks, and in parts of Seoul and Tokyo.
But Little Broadband is the concern of FCC policy. I think
Big Broadband is what we want to be focused on. It is the big fish that will
swallow all the little ones.
However, Big Broadband is the common if unstated theme
of two topics that are under discussion in government: namely, the
so-called HDTV transition
VOIP threat to universal service.
All of us can readily agree that in order to distribute
high definition video and high quality voice the optimal physical
medium is Big Broadband.
the FCC is bent on causing both high definition television and voice
to be provided to everyone in America at affordable prices, such
take the services, then plainly the cheapest way to get that result
is to send the
video bits and the voice bits over the same high bandwidth network.
Moreover, the Big Broadband network would have plenty of capacity
left over to
permit end users to obtain very high speed access to the Internet.
So that’s the result the FCC, the firms, the consumers, the
country should want: a Big Broadband network that will carry high
definition broadcast channels for free on the pipe instead of over
the air, that will give every end user limitless voice at very low
cost, and that will provide high speed Internet access at one or
two orders of magnitude faster than commercially available today.
This network would be optimally efficient. It would be a platform
for new innovative services, such as rich interactive gaming. It
would greatly increase e-commerce, producing higher gdp. It would
create new jobs in the United States. It would ensure broadcast
penetration at nearly 100%, local voice penetration at nearly
100%, and push
Internet access at least to 90% if not 100%.
The key task of the FCC should be to unwrite old rules and write
a few new rules so as to create clear incentives for existing network
operators and service providers to build a Big Broadband network.
Regulation negatively influences Big Broadband business plans.
Currently federal and state regulation causes consumers and
taxpayers to pay
staggering sums to sustain old networks when much less money could
pay for the same services plus additional services and also for
the cost of building Big Broadband to every home and business.
of regulation and market failures, the demand that should fund
Big Broadband does not create a supply of Big Broadband.
A particularly discouraging example of the negative effect regulators
are having on Big Broadband was the FCC’s December 1, 2003
forum on Voice over the Internet. The chair, and many others, talked
about trying to balance regulation and deregulation. But the invention
of VOIP – voice over a high speed Internet access connection – actually
means that state and federal regulations that subsidize and guarantee
affordable local telephone service should be junked. Instead, if
state and federal authorities want to assure that everyone can buy
voice service, they should write rules to subsidize Big Broadband
connections, through which voice can be provided at a fraction of
the cost of maintaining today’s legacy networks.
Instead, based on what I heard from the December 1, 2003,
forum, many heads nodded in collective agreement that
VOIP might have to
be burdened with such out-of-date regulations as access charges in
order to generate money that could go to sustaining the soon-to-be-out-of-date
legacy voice network. And I did not hear that anyone said what should
be said: let governments describe how they can help firms move all
voice traffic on to new Big Broadband networks that reach all Americans,
while maintaining or increasing shareholder value and network reliability.
The current VOIP conversation at the FCC and in state commissions
is as if government responded to Henry Ford’s new invention
of the automobile by discouraging the construction of roads, and
instead taxing cars in order to subsidize canals and railroads. As
a former government official I can only say: We can do better.
How should government be working on what should be the
convergence of Big Broadband with existing voice, broadcast,
and Internet access?
Let’s start with the math. It will show that Big Broadband
does not require a new subsidy. The taxpayers and consumers do not
need to pay more than what they now pay for network services. They
will be able to pay much less. Governments and firms just have to
change both regulation and market structures in order to make way
for the new Big Broadband network.
Say every household today pays $40 a month for voice. That’s
conservative. We are all conservatives now. That totals $4 billion
a month, or roughly $250 billion over five years. I am giving five
years for firms — they can be today’s telephone or cable businesses
— to build a Big Broadband network. That $250 billion can help pay
for VOIP over Big Broadband and of course for the underlying physical
Next, thanks to our FCC, the taxpayer has given about $70
billion of free spectrum to broadcasters and the consumer
has been ordered
to pay about $20 billion for over-the-air digital tuners for 200
million televisions over roughly five years. That’s $90 billion
out of pocket for taxpayers and consumers. It is not too late to
redirect that money toward paying for the Big Broadband network.
On that network broadcasters can get free high definition TV carriage.
They have that on analog cable; they are inside satellite packages.
Why not give them free access to the Big Broadband network. That
should make broadcasters and TV households happy. In return we can
get back the high definition spectrum, sell it, and use the proceeds
to help pay for Big Broadband to high cost rural and poor homes.
And we could even repeal what I call the “tuner tax.” We
are all tax-cutters in Washington now.
We have still more money to deploy. On average over the
next five years, about 60 million households will pay
about $25 a month for
Little Broadband – the low speed Internet access that we are
being offered instead of Big Broadband. The retail price may be higher
and the penetration rate may be higher, but we are all conservatives
now. So that totals over five years about $90 billion. All that can
pay for Big Broadband, which subsumes Little Broadband.
That totals $410 billion in money that as of now will be
dedicated to supporting a voice network from the 19th
century, a broadcast
business from the mid 20th century, and broadband access technologies
from at least a decade ago. (That is even after I repealed the “tuner
For probably one-fourth that sum, firms could build fiber
to the fingertips of everyone in America. Governments,
and fir ms, need
only to figure out how to let the demand be aggregated in pursuit
of Big Broadband and how suppliers can cooperate to meet the demand.
Please notice customers would still have to pay for cable
channels, advanced communications services, and internet
the big Broadband network, but that is what we want: value added
services that grow the economy, add jobs and increase productivity.
The high calling and critical task of federal and state
government, then, is how to unwrite rules or write rules – in short how
to create the new system – that would permit end users to pay
for what they should be able to get for their money – a Big
Broadband network that supplies all the voice, video and Net access
anyone could want. At the same time, the new system would free customers
from the necessity and obligation of paying to underwrite the maintenance
of the old networks that could so readily by subsumed by the new
You are all experienced Washington people. You know the
math is close enough for government work and the logic
is sensible enough for policy.
So of course you are saying: this can never happen.
Why not? If Republicans can run huge deficits and Democrats are
budget balancers; if Republicans are internationalist and Democrats
isolationists; if Republicans are spending trillions on new Medicare
benefits and Democrats are voting against the law – then certainly
nothing is impossible in the new Washington.
And I know you are troubled by the notion that our current system
will make customers spend $400 billion on yesterday’s networks
when they could spend much less to bring America into the forefront
of the next generation networking of the world. You are uneasy about
letting the Koreans and Chinese lead the world in the next iteration
of the Internet, not because their people are smarter but because
their governments are. You don’t welcome the vision of America
export jobs to Asia to help them work out the solutions to the problems
of advanced networks.
I’ve proved that more than adequate demand exists to pay for
Big Broadband. Yet many market and regulatory failures stand in the
way of the deployment of Big Broadband. These problems are the reasons
our federal and state governments need to act.
The first problem is that the current two-firm market for Little
Broadband encourages both telephony and cable to build Little Broadband
to every household. But that means the total expense is twice what
it needs to be. That in fact discourages both firms building even
Little Broadband every household.
The second problem stems from game theory. The Big Broadband network
of course can provide voice, video, and data. This is referred to
as the “triple play.” As in baseball the side that pulls
it off makes the other side out. In other words, if any firm produces
such a triple play and is economically viable, then it might be reasonably
supposed that this firm will dominate communications, technology,
and even media markets. The question then is whether a firm that
makes its living in voice and one that makes it living in video inclined
to go for the triple play. Nash equilibriums are what lawyers like
me are taught by economists to describe the offsetting motives that
produce a collective unwillingness to proceed into fight-to-the death
competition. In short, perhaps the two-firm Little Broadband market
lacks incentives for anyone to build the Big Broadband network. In
the two-firm market, then, each firm may well be very cautious in
trying for the triple play, given the fact that the price of defeat
may be elimination.
The third problem is that government is wrongly wedded to providing
broadcast over the air. Big Broadband and wi fi dispense with the
technology of transmitting stations. It’s time for government
to ‘get it’ – in Valley parlance – and to
move video to the pipe. Nick Negroponte called it the ‘great
switch’ more than a decade ago, and it’s time to get
on with it.
A fourth problem is that demand for fixed line local voice often
cannot find many different sellers: the market is not perfectly competitive.
Moreover, until very recently that demand could not obtain voice
over the Internet. Now services like Vonage and Skype are meeting
the demand for voice over the Internet, and most cable companies,
as well as at least some telephone companies, do or soon will over
voice over the Internet. All the new demand for voice over the Internet
should be allowed to help pay for Big Broadband. Instead state and
federal government seems concerned to slow this burgeoning VOIP market.
What should happen is that government should permit VOIP demand to
The fifth problem is that our existing universal service schemes
subsidize local voice for rural and poor populations. Instead they
should subsidize Big Broadband for those and all other populations
that need a little economic help in getting on-line, while getting
their voice on the same line. A policy for bringing all Americans
into the experience of using a computer on the Web can generate economic
and social benefits, as well as provide a significant stimulus to
the economy. We might even see a rise in general happiness, since
surveys show that those on internet are even statistically more likely
to be happy than those off the internet.
If as many were online as those who watch satellite and cable television – now
nearly 90% of homes – many social benefits could be distributed
and many social needs served by on-line communication. Political
associations could be created more readily, thus increasing participation
in democracy. Health care and education could more efficiently be
distributed to target populations that are otherwise costly to reach,
such as shut-in’s, workers, or those geographically distant
from medical centers and schools.
But even if you do not agree that all should be on-line for various
social reasons, surely you agree that state and federal governments
are likely to maintain the policies that make local voice so affordable
everyone buys it. Therefore, why object if governments became wise
enough to merge the so-called universal voice policy with a universal
Big Broadband policy? If we have to spend taxpayer and consumer money
to all sorts of new things – prescription drugs and pipelines,
the Iraqi coast guard and a Hooters in Louisiana – can’t
we at least get a bonus of Big Broadband for the same money we are
certain to spend anyhow? That way we can still get yesterday’s
services but over tomorrow’s network.
Since this is Washington, it would be unusual not to elevate
means over ends, at least at the end of the talk.
At least three possible models for implementing universal Big Broadband
are worth consideration; perhaps others would emerge from the Notice
of Inquiry I’d like the FCC to issue.
First, government could grant to every consumer an assignable
tax credit. As I said, the funds could come from the voice
subsidy programs that already exist; or if those could be eliminated,
the funds could come from the general treasury revenues that are
being tapped for so many other technology projects in the current
budget. Consumers would grant that credit to any firm that provided
the requisite minimum 10 to 100 megabits per second of access.
Cable, telephony, and any other entrant, such as wireless,
for the credit. When a firm obtained enough credits, it could have
adequate revenue guaranteed to cover the cost of a Big Broadband
The broadband provider could charge whatever the market would bear.
However, it would not obtain the credit unless it won the customer.
The credit would equal the difference between willingness to pay
and cost – not an easy calculation but one that can be made
by model and then adjusted by experience.
A second proposal would be to have state utility commissions designate
a preferred big broadband provider. This firm would be obligated
to provide a physical link of at least ten megabits per second
to every household in a designated geographic area. Any technically
qualified solution would be acceptable, so that wireless and
wire-based alternatives could compete for the state designation.
broadband firm would then auction its physical capacity to service
A third proposal is for government to order all existing universal
service programs for voice to be dedicated to providing VOIP as
opposed to existing voice over circuit. As part of that, cable
could, if they chose, merge their local access networks, thus saving
each of them substantial costs. As a condition they would keep
their services separate and competitive, dividing the physical
from the provision of service. This model resembles the exemption
from the antitrust laws passed by Congress to permit local newspapers
to share printing facilities in order to obtain economies of scale
in distribution while continuing to compete in the content business.
A final consideration is that wireless broadband access may
be brought to the market at a price and with functionality
need for a wire-based Big Broadband network. If so, then the current
HDTV plan is monumentally foolish; the circuit voice network is
under heavier siege than we know; and VOIP still should not be
into the current regulatory regime. Instead, government should
make any and all subsidies – I insist either none or hardly any
will be necessary – available both to wireless and wire-based
Big Broadband providers, and let the better network prevail.
A decade ago, John Malone, perhaps the single most important builder
of the American cable networks, predicted that three inventions—the
microprocessor, digitization, and fiber optics—would revolutionize
the media and communications industries, and drive their convergence
into a single market. He foresaw a 500-channel universe. And in late
1993, to capture the value of this triple revolution of technology,
he sought to merge his cable company, TCI, with the phone company,
Bell Atlantic. The two together promised to build an “information
highway” to at least forty percent of all homes in the United
States. This highway would carry all voice and all video channels
to each home. To support this big pipe, the two huge companies would
raise the capital necessary to build fiber networks to homes. The
merger plans collapsed in 1994.
Malone did not close his deal. He did not predict the Internet.
He didn’t predict that the great content cornucopia would comprise
not his ballyhooed five hundred channels so much as the countless
pages on the Web.
Yet Malone was right to identify that the access network is key
to innovation and growth in ICT. With little broadband, the access
bottleneck will be exasperating for years to come. Current microprocessors
are able to display in fractions of seconds movies or videoconferences
that the fiber can carry at the speed of light from anywhere in the
world. And at the screens of these information-hungry computers sit
a hundred million people who wait impatiently for still pictures
and words to resolve themselves slowly into recognizable form. Rather
than waiting hours to download a film, the consumer drives to Blockbuster
for a rental. So we have a problem of complementary products: no
shoestrings, plenty of shoes; no access network, plenty of services
that would like to get across that network. We have skimpy connection
and plenty of computing potential that yearns for the big broadband
Many chapters of regulatory history counsel against government policies
that promote specific technologies. However, a high capacity physical
link is not so much a technology solution as a platform for innovation
and a basis for service level competition. It should be a basis for
a future of technology discovery, and the creation of a new common
medium that can bind us all together.