Entries tagged as Seattle
Kris Price of the New Zealand FTTH Blog asks a question that has been on my mind for the past five years: "Why is it that FTTH has had to face a far more stringent test of its business case than the billions of dollars poured into roads every year in this country?" Lawarence Keyes, writing for Burlington Free Press, made a similar point in an article posted today, titled "My Turn: Too bad broadband isn't a bridge".
At the same time that Seattle residents face multi-billion dollar tax supported transportation projects -- many of which are primarily automobile, not mass transit, projects -- a proposal to spend less than $500 million (which would be paid back through subscriber revenue, not tax revenue) to connect every home and business in the City via fiber optics has to be studied to death before some of our local leadership is willing to support the plan.
We're going to build another floating bridge across Lake Washington to replace the aging Evergreen Point Floating Bridge (SR 520 Bridge). Let me repeat that: we're going to build a bridge out of concrete and steel that will FLOAT on a lake. Sure,...we've done it a couple times before but it's going to cost us $4.35 billion this time. We don't even know where we're going to get $2.36 billion of the money, yet. When Seattle's Mayor and City Council asked the state to modify its plans and convert the carpool lanes to transit lanes, our Governor freaked. So, we're spending $4.35 billion on what amounts to another automobile-only transportation project.
Did I mention that were going to take down an elevated highway and replace it with a giant tunnel underneath the City? That's going to cost us $4.2 billion. It, too, will only serve automobile drivers.
These are just two of the costly, tax-supported projects in our region. Why then does it take so much more work to get a commitment on a project that would serve every resident of the City, not require tax revenue, keep more local money in the local economy, and result in greater economic opportunity for the region? This isn't speculation. Studies on municipal-fiber projects contain case study after case study on the realized benefits for communities who undertake such projects (i.e., cost reductions, economic development, social justice, etc.). Additionally, several other studies report on the benefits of broadband (which, by association, should prove even more true for fiber projects). Here's a short reading list if you think there is any question or that I'm overstating the benefits:
- Public Technology Institute's book, Municipal & Utility Fiber Optics Guidebook
- FTTH Council's paper, Understanding the Benefits of Municipal Broadband
- Paul E. Green Jr.'s book, Fiber to the Home: The New Empowerment
- Jim Baller's report, Bigger Vision, Bolder Action, Brighter Future
- Broadband Properties Magazine's archive of economic impact articles.
- Sacramento Regional Research Institute report, "Economic Effects of Increased Broadband Use in California"
- Dr. Catherine A. Middleton's paper, "Understanding the Benefits of Broadband: Insights for a Broadband Enabled Ontario"
- The Brookings Institution paper, "The Effects of Broadband Deployment on Output and Employment: A Cross-sectional Analysis of U.S. Data"
- MIT and Carnegie Mellon University Final Report Prepared for the U.S. Department of Commerce, "Measuring Broadband's Economic Impact"
The substantially less amount of literature critical of municipal fiber or broadband projects leave a relative cost-benefit analysis out of the equation entirely (i.e., are the benefits of spending $4.35 billion of tax dollars on a floating bridge less than the benefits of spending $500 million of subscriber returned dollars on a fiber to the home utility). Instead, they begin with the premise that municipal "intervention" in communications services is inherently unfair because there is almost always a private entity already providing communications services in the community. This dogmatic perspective both denies a communities' right to self-determination and allows for any number of radical claims about how municipal fiber and broadband networks are, in fact, detrimental to a community. One such report -- Balhoff & Rowe, LLC's "Municipal Broadband: Digging Beneath the Surface" -- makes the following anti-municipal argument (among many):
Municipalities are positioned to distort the competitive marketplace by using their advantages in terms of tax-avoidance, low-cost access to capital where the loans are secured against other municipal assets, anti-competitive awarding of government contracts, and misuse of the government's position as regulator, among others. (Slide 74)
Still, it's worth mentioning that there are arguments being made against municipal fiber networks -- they just aren't convincing in their rhetoric or as they relate to other municipal responsibilities (e.g., roads, utilities, schools, etc.). It's as if they pretend that "distortion" (as they call it) in some marketplaces is valid while in others it is illegitimate prima facie.
On Wednesday, February 27, 2008, Joey Durel -- Republican City-Parish President ("Mayor") of Lafayette, Louisiana -- testified to the House Energy and Commerce Committee's Subcommittee on Telecommunications and the Internet about Wireless Consumer Protection and Community Broadband Empowerment. The eight paragraph of the written testimony articulates an experience that many municipal leaders have encountered as they seek to understand why their communities (and the entire Country) are so far behind on broadband infrastructure:
One of my first acts in office was to authorize a feasibility study on taking the concept [a municipal fiber utility service] to the next level of public discussion. Having come from the private sector, my first thought was why we would want to compete with something the private sector was doing. However, as I educated myself, my thought was "shame on us if we don’t at least look into this." I told my staff that we would move forward until we ran into a hurdle we couldn't jump over. The feasibility study was made public around March of that year, the public discussions began and the hurdles began sprouting up: but none that stopped us. I was visited by our cable and phone companies. I asked, in fact begged them to do it so we wouldn’t have to. But we received the same answer Lafayette received in 1896 when the private utility companies chose not to install that new infrastructure called electricity..."It makes no sense in an area the size of Lafayette." We started informing our community and council. And they started misinforming. Ultimately, the message to our community was that if we didn’t do it, we we're not going to get it, just like in 1896. [link]
Seattle has had direct experience with this same sort of response from incumbent providers. Way back in 2005, when the City's Broadband Initiative Task Force was preparing their report, Qwest wrote a letter with the following statement:
Qwest would prefer that the City of Seattle allow the telecommunications industry the opportunity to respond to the market for broadband services in an open and unfettered environment. As a general rule, Qwest opposes government intervention, by way of infrastructure ownership, because of the adverse economic effects such action has on private industry. [link]
Comcast -- the primary cable company in our incumbent duopoly -- wrote a similar letter:
While we generally understand the Task Force’s overall goal, we would need additional specifics on the applications that you don’t believe we are capable of providing with our network. We believe that the network we have in place is either already providing these services today (as generally described above), or capable of providing these services in the next year. [link]
Seattle has a Utility, just like Lafayette. Our message to the community is exactly the same as Lafayette's was: "If we don't do it, we're not going to get it."
Our local PBS station, KCTS 9, aired a new documentary last night about the underground hydro-electric project at Snoqualmie Falls. The show was peculiarly captivating1. A young, bankrupt businessman and engineer – Charles H. Baker – conceived of the idea in the late 1890s to build a hydro-electric generation plant 250 feet below the Snoqualmie River, just before the falls. At that time in history, electric power was being generated – when it was even available – by small, coal-fired steam plants. The dominant power technology (Edison’s Direct Current) could only transmit power for about a mile, requiring that neighborhood power plants dot the cityscape. Tesla’s competing Alternating Current (AC) electric systems could transmit power much further, which would be the necessary if power generated at Snoqualmie Falls were to reach the Seattle market some 30 miles to the West.
As the documentary progressed, I waited with baited breath to hear what went wrong – what dashed Baker’s dreams of electrifying the region with hydro-electric power from the Snoqualmie Falls. Was it that nothing similar had ever been done before? Was it the smear campaign waged by detractors of the project who claimed that it would never work and circulated misinformation, such as the lie that the Snoqualmie River ran dry during the summer and froze solid during the winter? To my surprise, the documentary continued to tell of how Baker persevered in the face of one challenge after another. Not only did he build the underground generation plant at Snoqualmie Falls, but the generation plant is still there and operational! The same equipment built over a hundred years ago is still producing power for the region! I was dumbfounded. I had never heard about a power generation facility at the Falls.
Watching the documentary further, parallels between Baker’s hydro-power project and Seattle’s Fiber to the Home project struck me as palpable. It’s not that a municipal Fiber to the Home network is entirely unique today2, unlike an underground hydro-electric plant then. Instead, it was incredible to realize that Seattle finds itself, today, at a similar precipice to what we faced more than a hundred years ago.
In the final days of the Nineteenth Century, Seattle was served by a small number of electric producers who generated power using an inferior technology (i.e., Direct Current from coal-fired steam generators). It was costly and severely limited in transmission distance. A technological innovation (i.e., Alternating Current from hydro power) resulted in less costly power with none of the same transmission distance limitations3. Incumbent power producers sought to protect their entrenched businesses through a misinformation campaign and political scheming rather than embrace the fact that a technological innovation changed the industry rules and that they would need to adapt or die. Does this sound familiar? If not, try replacing “Direct Current” with “Copper Pairs and Coax” and “Alternating Current” with “Fiber”.
The documentary finishes with example after example of how the power from Snoqualmie Falls was transformative to the region’s economy and the entire Country. We have that opportunity, again. A municipal Fiber network connecting every home and business in the City of Seattle to each other and the Internet would transform the region in a more dramatic way than any other contemporary proposal. Replacing the 520 bridge and the viaduct are necessary transportation infrastructure projects. Fixing the seawall and our public schools are good forward-thinking policies. But nothing would give more opportunity to more Seattle residents form every socio-economic status than a Seattle Fiber Utility.
1 The full-length video is embedded in this post and available at http://www.vimeo.com/5530039.
2 More than fifty municipal or public utility district Fiber networks currently operate in the United States. A list is available on page five of the FTTH Council's paper, titled "Municipal Fiber to the Home Deployments: Next Generation Broadband as a Municipal Utility".
3 The power produced at Snoqualmie Falls sold for 50% to 66% less than power produced by coal-fired steam generators [film time 00:39:42]. Municipal Fiber networks provide superior Internet, television, and phone services at a lower cost than incumbent providers without the need for tax-based financing.
Frederic Lardinois -- writing for ReadWriteWeb -- calls attention to the decline in U.S. average Internet connection speeds as reported in Akamai's latest State of The Internet report. The U.S. ranks first in the number of unique IP addresses active during the period and fifth in the number of per capita unique IP addresses active during the period, but barely makes the top twenty in a list of average connection speeds by country. In other words, the U.S. leads in demand for Internet services and trails in the supply (i.e., speeds at which those services are delivered). This revelation should not surprise anybody.
Take a moment and think back to whatever introductory Economics course you may have taken at university. Do you recall the Supply and Demand curves? What happens to price when demand is high and supply is low? That's right: the price is high. For suppliers wanting to maximize revenue this is the preferable outcome. This is why an "up to" 15mbps asymmetric Internet connect in Seattle (if you can get it) will cost you ~US$42.95/month when a 100mbps symmetric Internet connection in Hong Kong will cost you ~US$13/month. What would a 100mbps symmetric Internet connection cost you in Seattle? Good luck finding one -- in all practical terms, they don't exist. Supply is constrained on purpose to maximize "rents" to the producer.
"What happened to market equilibrium", you ask, "Aren't market forces suppose to equalize supply and demand, thereby minimizing rents?"
First, we don't actually know what point on a set of Internet bandwidth supply and demand curves represents equilibrium. (For all we know, Hong Kong could be over-supplying bandwidth -- also known as creating a "surplus".) Second, market equilibrium is only possible when competition exists in a market. Broadband Internet service is a natural monopoly. Monopolies always result in higher prices. Third, who says that market equilibrium should be a goal for broadband Internet? Would we apply the same goal to basic education, water, telecommunications, or roads? We haven't in the past, and for good reason.
Again, nobody should be surprised by this Country's taking of 18th place in a ranking of average Internet speeds. Our fetishistic fixation on free market solutions has fostered market failure after market failure in those cases where free market solutions were obviously inappropriate (e.g., natural monopolies). Need I bring up Enron? How about Health Care? Last-mile Internet service is no different. It's time that we accept the fact that the free market won't solve the bandwidth divide.
Since the release of Seattle's Broadband and Telecommunications Task Force's report, many people involved in the effort have sincerely wished for a private enterprise answer. Realizing that no private enterprise was interested in building out a fiber to the home (FTTH) network in Seattle, many of the same people sincerely thought a public-private partnership would be possible. You could almost hear crickets chirp in response. (Nobody was interested unless the public-private partnership meant that the City would be putting up the money.) The fact is that it's in the best interest of Seattle's Citizens to build their own FTTH network. It's really no different from the world-class city-owned electricity, water, and parks that Seattleites enjoy so much.
Seattle has found itself in an odd predicament. Home to the most educated population in the United States and Internet juggernauts, such as Amazon.com, its citizens and small businesses would be hard pressed to differentiate the City from the Country’s most rural communities when it comes to Internet Access. Verizon will roll up to a home in Woodinville – a community with just over 9,000 people twenty miles outside of Seattle – and install their Fiber Optic service (FiOS), but a home in Seattle is considered lucky if it is served by Comcast’s over-subscribed cable service. The situation is far more desperate for the Seattle home located in the part of the City served only by Broadstripe or Qwest. Broadstripe (f/k/a Millenium Digital Cable) has been in bankruptcy since early 2009 and is notorious for its poor quality television and Internet services; Qwest only pretends to provide high-speed Internet and might as well be in bankruptcy. Without a competitive threat, Comcast operates with a minimal investment in their local network so as to extract as much profit as possible from the community.
Seattle is a perfect example of the somewhat rare “market failure”. There exists a more efficient outcome – where participants in the market would expect higher gains – than the existing outcome (to use economics terminology). The higher gains to be expected in an efficient market for Seattle Internet access would be wider availability of higher speeds and lower costs. The sad fact is that – as rare as market failures may be – Seattle is not alone in market failures related to Internet Access. Most communities in the United States are served by incumbent providers who operate as de facto monopolies. Nobody should really be surprised by the slow rate at which those companies deploy new technology.
The answer to Seattle’s Internet access market failure is straightforward. Following years of unsuccessful cajoling of the industry by the City government, Seattle should take the next step and lead the build-out of a municipal Fiber To The Home (FTTH) network. A preliminary feasibility study has already been done – a Seattle Municipal FTTH network would pay for itself. The network would also provide capabilities rarely, if ever, seen on non-municipal networks, such as: equivalent speeds on both the up and down sides of the network (i.e., symmetric bandwidth instead of the asymmetric bandwidth enjoyed on the existing DSL and cable networks); unfettered connectivity between points on the municipal network (i.e., even if your access to Facebook is only a mind numbing 100 Mbps you’ll have the full network capacity – which could be 1 Gbps or more – between your home on Beacon Hill and your office in Pioneer Square); and, not to be underestimated: network neutrality (i.e., the freedom to choose the IPTV provider Hulu instead of the CATV provider Comcast, which may be problematic if you receive your Internet service from Comcast – a company that makes most of its money from video content distribution). Seattle has a good track record in these sorts of endeavors too. They own and operate their own power company (Seattle City Light) and provide power throughout the City at a cost that is only two-thirds the National average per kilowatt hour.
A group of dedicated citizens and City employees have worked tirelessly on the issue of broadband access for Seattle since the early part of this decade. Members of the Seattle Broadband Initiative Task Force, the City's Telecommunications and Technology Advisory Board (CTTAB), and the City's Department of Information Technology (DoIT), have studied the issue, written reports, issued Requests For Information, evaluated responses, and commissioned feasibility studies. It is fair to say that the experience has been a long hard slog. No private business ever stepped forward to build the necessary infrastructure. No public-private partnership ever got off the ground, even though Seattle offered substantial incentives. No political will existed to make it a priority as a community. At least not until Mike McGinn announced his mayoral campaign in early 2009.
There was no reason any of us had to believe that Mike McGinn would win the race for Seattle City Mayor at that time, but we were all excited to see the topic become part of the political discourse for the campaign season. As the race progressed and all but Mike McGinn and Joe Mallahan were eliminated from the ballot through our "top two primary", many of us thought there might be a real possibility that the necessary political will to build a municipal fiber to the home (FTTH) network may reside in the Mayor's office come January 2010 -- that is, of course, if Mike McGinn won. Joe Mallahan famously didn't understand the issue even superficially. In a interview by the Seattle PI, Joe Mallahan responded to a question about community resistance to cell phone towers in Seattle neighborhoods with the following statement:
I can't imagine that being anywhere near the top priorities of my administration. It is interesting, as a technology guy, for me to hear Mike McGinn talking about building a municipal Wi-Fi network (McGinn has said he wants to build a city-wide fiber optic network). That to me is just not pragmatic. People in suits and ties sipping lattes having Wi-Fit [sic] access, I think we've got that covered. We've got to make sure there's Internet access for poor people, in public facilities, in libraries, keeping libraries open...Muni Wi-Fi is not the most important thing for economy, and I don't think Mike gets that.Source: Howie In Seattle Blog
It's frightening to think that somebody who is so full of contempt for people who literally run their business lives from Seattle cafes could win the campaign and end up setting any sort of agenda for our City Government. The political polls were followed with interest and the voting results were watched with baited breath. Then Mike McGinn won. Seattle would get a Mayor who understood the transformative social and economic benefits of a municipal Fiber To The Home network.