Upgrading  America:     Achieving  a  Strategic  Bandwidth  Advantage     And  a  Psychology  of  Bandwidth  Abundance   To     Drive  High-­‐Performance  Knowledge  Exchange     Fujitsu  Conference  on   Paving  the  Road  to  Unlimited  Bandwidth:   Technologies  and  Applications  for  a  Connected  Age   San  Jose,  California   June  13,  2012       The  National  Broadband  Plan  addressed  the  traditional  four  questions  of  telecom   policy:  how  do  we  get  networks  everywhere,  how  do  we  get  everyone  on,  how  do   we  have  a  competition  framework  that  drives  consumer  welfare  and  how  do  we  use   existing  networks  better?     The  Congressional  mandate  to  write  the  plan,  however,  required  us  to  examine  a  5th   question:  what  policies  would  drive  innovation  over  broadband?    This  inquiry  led  to   another—a  question  at  the  heart  of  this  conference,  a  question  that  both  excites  and   troubles  me:     What  happens  if  we  remove  bandwidth  as  a  constraint  to  innovation?     The  question  excites  me  because,  as  I  learned  from  a  brilliant  doctor,  genetic   sequencing—which  uses  so  much  bandwidth  it  is  cheaper  and  faster  to  send  the   results  by  Fed  Ex—can  revolutionize  medicine.    Eliminating  bandwidth  constraints   can  make  this  new  tool  more  effective  for  treating,  among  other  maladies,  cancer.     The  question  excites  me  because,  as  I  learned  from  numerous  educators,  immersive   gaming  technology—which  requires  massive  bandwidth-­‐-­‐  can  improve  the   effectiveness  of  education  and  job  training,  particularly  for  those  for  whom   traditional  methods  fail.     The  question  excites  me  because,  as  I  learned  from  a  broad  spectrum  of  people,   from  those  doing  scientific  research  to  those  providing  business  services,  from  those   focused  on  security  to  those  who  wish  to  invigorate  civic  engagement,  the  coming   age  of  Big  Data  has  the  potential  to  accelerate  advancements  in  addressing  our  most   vexing  problems.    But  to  achieve  its  full  potential  Big  Data  will  need  Big  Bandwidth.      


Upgrading  America         The  question  troubles  me  for  the  same  reasons.         That  doctor  told  me,  with  evident  pain,  he  is  treating  people  today  who  will  soon  die   but  who,  if  he  had  the  tools  of  tomorrow  today,  he  could  save.    So  too,  delays  in   removing  bandwidth  as  a  constraint  mean  that  soon  a  child  will  grow  up  illiterate   who  shouldn’t.    A  man  seeking  to  retrain  for  a  job  of  the  future  will  not  receive  the   help  he  needs.    A  critical  discovery  to  address  climate  change  could  be  delayed   because  we  are  not  collaborating  as  effectively  as  we  could.     There  is  a  cost  to  delay,  even  if  we  can’t  see  it,  even  if  economists  can’t  measure  it.     In  this  light,  we  should  all  want  to  accelerate  that  moment  where  only  untapped   human  ingenuity,  not  bandwidth,  constrains  our  progress.     Since  leaving  the  FCC,  I  have  devoted  most  of  my  time  to  that  mission  by  organizing   Gig.U—three-­‐dozen  university  communities  dedicated  to  accelerating  the   deployment  of  next  generation  networks  and  services.    It  has  already  led  to  projects   in  Maine  and  Florida  and  a  $200  million  private  sector  commitment  for  the  first   multi-­‐community  gigabit  deployment  in  the  United  States.    We  will  soon  make  other   announcements  that  broaden  the  opportunity  to  discover  what  happens  when  we   can  innovate  unconstrained  by  bandwidth.         While  I  have  been  working  on  Gig.U,  policy  makers  have  been  using  the  foundation   of  the  Plan  to  address  the  traditional  four  questions.    That  agenda  remains  vital.   Recent  actions  have  made  progress.    I  hope  it  continues.     What  I  would  like  to  do  today,  however,  is  to  argue  that  over  the  next  few  years,  the   prime  mission  of  communications  policy  ought  to  be  to  eliminate  bandwidth  as  a   constraint  on  innovation  and  productivity.       In  doing  so,  I  will  offer  three  assertions  that  lay  the  foundation  for  a   communications  policy  that  would  accelerate  next  generation  network  deployments   and  services.         They  are  about  communications  policy  in  the  United  States,  though  I  believe  that  the   first  and  third  are  applicable  around  the  world.    They  represent  a  policy  shift,  one   that  can  be  adopted  no  matter  who  wins  the  election;  a  shift  that  would  lead  to  an   acceleration  of  economic  growth  and  an  improvement  in  how  we  deliver  essential   government  services.             2  


Upgrading  America       They  are:     1. As  the  principal  activity  of  our  economy  and  society  is  knowledge  exchange,   and  as  the  Internet  is  its  commons,  the  prime  purpose  of  communications   policy  should  be  to  improve  knowledge  exchange  by  delivering  a  strategic   bandwidth  advantage  and  a  psychology  of  bandwidth  abundance.   2. The  current  market  dynamics  and  regulatory  structure  in  the  United  States   will  not  deliver  the  wireline  upgrade  necessary  to  deliver  a  strategic   bandwidth  advantage  nor  a  psychology  of  bandwidth  abundance.   3. Network  upgrades  are  not  only  the  best  way  to  achieve  a  strategic  bandwidth   advantage  and  psychology  of  abundance;  it  is  also  the  best  way  to  address   the  traditional  four  questions  of  telecom  policy.       So  let’s  go  through  these.     As  the  principal  activity  of  our  economy  and  society  is  knowledge  exchange,  and   as  the  Internet  is  its  commons,  the  prime  purpose  of  communications  policy   should  be  to  improve  knowledge  exchange  by  delivering  a  strategic  bandwidth   advantage  and  a  psychology  of  bandwidth  abundance.     What  do  most  of  us  do?     Knowledge  exchange.     At  the  heart  of  our  daily  efforts,  we  gather  data,  store  it,  analyze  it,  and  through  a   feedback  loop  adjust  behavior  and  start  the  process  all  over  again.    The  better  we  do   it  that,  the  better  the  outcome.     This  is  not  a  novel  thought.    Decades  ago,  the  visionary  Peter  Drucker  suggested   that:  “(t)he  most  important  contribution  management  needs  to  make  in  the  21st   century  is  similarly  to  increase  the  productivity  of  knowledge  work  and  knowledge   workers.  …It  is  on  (the  productivity  of  knowledge  work),  above  all,  the  future   prosperity—and  indeed  the  future  survival  of  developed  economies—will   increasingly  depend.”     Knowledge  work  is  not  just  the  province  of  traditional  white-­‐collar  jobs.    Knowledge   work  is  now  part  of  every  sector.     Whether  in  manufacturing-­‐where  the  Boeing  Dreamliner,  the  largest  manufacturing   effort  ever,  was  done  in  multiple  countries  thanks  to  advanced  tools  of  knowledge   exchange—or  retail-­‐-­‐where  smart  use  of  those  tools  enabled  a  small  company  from   Bentonville,  Arkansas  to  become  the  world’s  largest  retailer-­‐-­‐or  agriculture—where   3  


Upgrading  America       farmers  in  Africa  exchange  texts  to  multiply  their  income,  all  increasingly  depend  on   knowledge  exchange.     And  this  is  before  the  era  of  Big  Data—now  dawning-­‐-­‐multiplies  the  importance  of   knowledge  exchange.     History  teaches  us  many  lessons  about  how  to  benefit  from  technology-­‐driven   change.     One  is  the  importance  of  combinatorial  innovation.     For  thousands  of  years,  population  and  food  production  rose  in  tandem,  which,  as   Malthus  famously  wrote,  doomed  mankind  to  a  state  of  mere  subsistence  and   misery.     But  something  got  us  out  of  that  trap—the  Industrial  Revolution.       What  characterized  the  advance  of  science  and  technology  in  the  Industrial   Revolution,  in  contrast  with  discoveries  made  in  earlier  eras,  was  the  way  advances   combined  with  others;  the  steam  engine  was  not  the  product  of  a  single  innovation   but  literally  of  thousands.     It  was  this  exchange  and  combination  of  ideas,  not  isolated  discoveries,  that  created   the  escape  hatch  from  the  Malthusian  trap.     The  historian  of  innovation,  Steven  Johnson,  credits  the  coffee  houses  of  London,   with  facilitating  the  exchanges  that  led  to  unprecedented  growth.     Perhaps  future  historians  will  credit  free  Wi-­‐Fi  in  coffee  houses  around  the  world   with  magnifying  that  exchange.    But  there  is  no  doubt  that  the  broadband   infrastructure  is  the  primary  location  where  combinatorial  innovation  occurs  today.     A  second  lesson  about  technological  change  is  the  importance  of  leadership  in  the   exchange  of  inputs.     A  precursor  of  great  advances  in  an  economy  is  when  we  exchange  one  set  of  inputs   with  another.     We  saw  it  at  the  beginning  of  the  agricultural  age  when  we  replaced  human  labor   with  animal  power.     We  repeated  it  with  the  industrial  revolution  when  we  replaced  human  and  animal   based  inputs  with  coal,  iron  and  trains.   4  


Upgrading  America         We  repeated  it  over  a  century  ago  by  exchanging  those  inputs  with  steel,  electricity,   cars  and  planes.     Over  the  last  20  years,  we  have  seen  another  historic  change  as  we  exchanged   inputs  based  on  atoms  with  those  based  on  microprocessors,  fiber  optics,  and   digitization.     That  input  exchange,  has,  among  many  things,  transformed  knowledge  exchange.     Countries  that  lead  in  driving,  and  adapting  to,  input  change  receive  a  greater  share   of  the  benefits  from  that  change.     Thus,  every  country  should  want  their  residents  to  replace  their  use  of  atoms  with   the  use  of  bits,  chips  and  bandwidth  wherever  possible,  as  soon  as  possible.     The  broadband  ecosystem  brings  these  two  lessons  together.     This  transformation  from  the  tangible  to  the  intangible,  from  the  material  to  the   immaterial,  from  bricks  to  bits,  has  created  a  world  in  which  the  principal  activity   becomes  knowledge  exchange  and  the  principle  method  is  over  the  Internet.     One  way  in  which  this  transformation  differs  from  previous  ones  is  how  it  scales.   Building  on  the  insight  of  economist  Paul  Romer  as  to  how  bandwidth  is  a  non-­‐ rivalrous  public  good,  former  FCC  Chairman  Reed  Hundt  has  written  in  a  brilliant,   soon  to  be  published  article,  “it  is  technically  and  economically  feasible,  for  example,   to  distribute  robust  public  goods  to  everyone  on  the  Internet  –  about  three  billion   people  and  almost  everyone  in  the  United  States  –  at  a  cost  that  approximates  zero.”       This  opens  up  all  kinds  of  opportunities  as  “the  low  marginal  costs  will  combine   with  human  creativity  to  produce  the  kind  of  abundance  that  replaces  a  short,  cross   country  phone  call  priced  at  dollars  with  a  video  conference  uniting  persons  on  five   continents  priced  at  free.”     This  reflects  a  different  kind  of  wealth  creation  than  we  have  ever  seen.    Building  a   fantastic  Ferrari  benefits  the  seller  and  buyer  but  its  price  reflects  its  scarcity  and  its   impact  is  limited.     Building  a  fantastic  teaching  tool,  such  as  the  Khan  Academy,  can  teach  millions;  the   wealth  it  creates,  benefits  all.     So  what  are  the  building  blocks  to  increasing  the  probability  of  being  both  the   innovators  and  the  first  beneficiaries  of  innovation?   5  


Upgrading  America         First,  a  strategic  bandwidth  advantage.     Think  about  it  this  way.    25  years  ago,  the  farmer  and  doctor  in  rural  Iowa  needed   the  same  thing—dial  tone.    Today,  their  needs  are  different.    The  farmer  needs  great   mobility  service  to  be  able  to  connect  to  critical  data  while  outside  and  moving   while  the  doctor  needs  great  fixed  connectivity  to  review  MRIs  with  experts  in   distant  cities.     We  need  a  strategy  that  gets  them  both  the  kind  of  bandwidth  they  need,  even   though  it  is  now  different.      Throughout  the  economy  we  should  have  the  necessary   bandwidth  going  to  the  right  places  to  drive  economic  growth  and  the  most  effective   delivery  of  essential  public  services.     Spectrum  plays  a  big  role.    Recent  actions,  such  as  Congress  passing  incentive   auction  authority,  Cable  increasing  its  Wi-­‐Fi  network,  and  the  Presidential   Commission  recommendation  on  dynamic  access  represent  progress.    Still,  as  AT&T   CEO  Randall  Stephenson  wrote  the  other  day,  we  still  need  to  make  more  spectrum   available  for  broadband  use.     In  addition  to  getting  the  bandwidth  we  need  today  to  optimize  productivity  for  all,   we  also  need  hubs  of  huge  bandwidth  to  assure  we  build  and  retain  the  talent   experienced  in  designing,  building,  operating,  and  innovating  on  top  of  the  best   networks  in  the  world.    These  networks  are  always  going  to  be  ahead  of  where  the   mass-­‐market  applications  will  be  but  are  critical  to  the  innovation  process.         I  knew  from  the  data  I  looked  at  with  the  Plan  that  our  problem  was  not  that  we   didn’t  have  gigabit  networks  everywhere,  but  that  we  had  them  nowhere.    But  the   problem  was  crystallized  when  a  network  engineer  told  me  in  the  Gig.U  process,   that  he  hoped  his  company  would  build  a  gigabit  test  bed  because  ‘no  engineer  ever   went  to  GM  to  work  on  a  used  Chevy.    But  that  is  what  I  am  doing.’    We  need  to   provide  our  engineers  the  challenge  of  working  toward  the  best,  the  network  to   come.     It  is  on  those  world-­‐leading  networks,  that  we  can  combine  new  functionalities  with   world-­‐class  area  expertise  to  invent  what  will  become  big  bandwidth  based   medicine,  education,  business  services  and  improvements  in  so  many  other  areas.       It  is  on  those  networks  we  can  create,  in  effect,  a  Bell  Labs  3.0,  a  community  of   collaboration  brought  to  us  not  by  the  benevolence  of  a  monopoly  of  the  industrial   age  but,  as  the  recent  book  on  innovation  by  Brynjolfosson  and  McAfee  put  it,  by  the   “parallel  experimentation  by  millions  of  entrepreneurs  (which)  is  the  best  and   fastest  way  (to  drive  innovation).”   6  


Upgrading  America         That  insight,  on  the  need  for  world-­‐leading  networks  to  drive  improvements  for  all,   lead  to  the  Plan’s  recommendation  that  we  need  to  always  have  a  critical  mass  of   communities  with  world  leading  networks;  networks  that  don’t  just  follow  demand   but  networks  that  lead  demand.     In  short,  we  should  have  the  goal  of  having  a  strategic  bandwidth  advantage  that   delivers  to  all  Americans  the  bandwidth  we  need  to  be  our  most  productive  today   and  to  lead  in  the  creation  of  a  better  tomorrow.     The  second  thing  we  need  is  a  psychology  of  bandwidth  abundance.     A  psychology  of  abundance  is  critical  to  the  development  of  the  entrepreneurial   mind.    The  biographies  of  the  founding  entrepreneurs,  from  Gates  and  Allen,  to   Andreessen,  to  Zuckerberg,  all  involve  decisive  moments  in  which  seizing  an   abundance  of  computing  or  network  power  enabled  them  to  see  new  opportunities.       This  psychology  is  not  just  about  entrepreneurs.     Unlimited,  or  big  bundles,  drive  use  that  in  turns  drive  innovation,  investment  and   jobs.    Consumers  considered  wireless  a  luxury  until  AT&T  introduced  the  One  Rate   in  1998;  compelled  to  do  so  by  new  competitors  and  enabled  to  do  so  by  a  policy   that  dropped  the  rate  wireless  providers  paid  wired  phone  companies  to  connect   calls.    Average  minutes  of  use  then  soared  fivefold,  with  subscribership  and   revenues  growing  as  well.     The  same  story  is  true  for  the  Internet.    AOL  initially  resisted  unlimited  packages,   but  when  the  FCC  rejected  the  phone  companies’  efforts  to  apply  per-­‐minute   charges  to  Internet  use,  and  a  new  entrant  started  selling  unlimited  packages,  AOL   did  the  same  and  Internet  usage  in  the  United  States  soared.    Europe  kept  the  per-­‐ minute  model  and  their  use  lagged.     In  both  cases,  we  saw  market  forces  at  work  but  the  dynamic  also  involved  policies   designed  to,  again  citing  to  Chairman  Hundt’s  article,  “assure  low-­‐cost  access  to  key   inputs  that  enable  long-­‐term  investments  in  transformative  infrastructure…(and)   remove  barriers  to  replacing  old  methods  with  the  new.”    In  these  two  cases,  a   combination  of  removal  of  high  terminating  access  charges  and  access  to  bandwidth,   unleashed  market  forces  that  provided  consumers  that  psychology  of  abundance.     The  same  story  reappears  with  the  smart  phone.    The  Chairman  of  AT&T  recently   said  that  unlimited  data  was  a  mistake  for  his  company.    Methinks  he  dost  apologize   too  much.    Our  country  benefitted  enormously.  The  AT&T/Apple  partnership   launched  the  apps  economy,  placing  the  United  States  at  its  epicenter.      It’s  already   7  


Upgrading  America       created  almost  a  half  million  jobs.    By  2015,  it  is  projected  to  generate  nearly  $40   billion  in  sales.         Further,  it  was  not  a  ‘mistake’  so  much  as  a  necessary  response  to  the  competitive   landscape  in  the  mid-­‐2000’s.    AT&T  needed  a  competitive  differentiator  and  the   iPhone,  without  an  unlimited  plan,  would  have  failed.    Further,  AT&T  knew  that   more  spectrum  was  soon  on  its  way,  thanks  to  a  decision  a  decade  before  to  utilize   the  DTV  transition  to  obtain  a  “digital  dividend”  by  moving  spectrum  from   broadcasting  to  mobile.     In  all  three  cases,  the  United  States  economy  benefitted  from  consumers  enjoying  a   psychology  of  abundance.    As  Amar  Bhide  notes  in  the  book  “The  Venturesome   Economy”,  entrepreneurial  activity  is  more  likely  to  succeed  here  than  elsewhere   because  of  consumers  willingness  here  to  try  unproven  products.    In  the  case  of  the   Internet,  mobility  and  3G  apps,  the  willingness  of  the  United  States  consumers  to  try   new  things  make  them  the  best  market  to  build  for,  a  big  plus  for  investment  here.     But  consumers’  willingness  to  try  new  things  depends  the  cost  of  the  trial  being   their  own  time,  not  an  incremental  payment.         In  short,  knowledge  exchange,  our  principal  economic  and  social  activity,  benefits   from  a  strategic  bandwidth  advantage  and  a  psychology  of  bandwidth  abundance.   Therefore  the  prime  policy  mission  should  be  to  produce  that  advantage  and   psychology.     Second,  the  current  market  dynamics  and  regulatory  structure  in  the  United   States  will  not  deliver  the  wireline  upgrade  necessary  to  produce  a  strategic   bandwidth  advantage  or  a  psychology  of  bandwidth  abundance.     As  a  starting  point,  we  should  aspire  to  the  creation  of  bandwidth  proceeding  at  the   pace  of  Moore’s  law,  so  that  we  see  increases  in  abundance  similar  to  those  we  see   in  technology.     As  to  the  bandwidth  of  Internet  transit,  we  do.     Thanks  to  the  progress  of  optical  fiber  communications,  over  a  period  of  25  years,   the  system  capacity  has  increased  by  almost  5  orders  of  magnitude.     As  a  result,  the  price  per  mbps  has  dropped  from  nearly  $1,200  per  to  less  than  a   buck.     We  don’t  see  that  kind  of  advancement  in  the  access  portion  of  the  network,  but   there  are  positive  elements  of  the  United  States  access  network.    We  lead  in  building   8  


Upgrading  America       out  and  using  4G  wireless  networks  and  thanks  to  DOCSIS  3.0,  a  greater  percentage   of  our  population  has  access  to  a  100  Mpbs  networks  than  all  but  a  few  countries.     From  a  perspective  of  use  of  wire  line  bandwidth,  however,  we  are  mid-­‐tier  and   numbers  suggest  a  pattern  of  decline.    And  as  discussed  above,  if  we  want  to  lead,   we  want  to  lead  in  use,  not  theoretical  access.     There  are  other  numbers  that  are  more  positive  for  America  but  none  show   leadership  in  use,  none  show  positive  trends  and,  none  show  that  any  individual   American  cities  are  hubs  of  abundant  bandwidth  leadership  where  new  big   bandwidth  sectors  will  likely  be  birthed.     But  let’s  turn  our  attention  to,  as  Wayne  Gretzky  said,  not  where  the  puck  is  but   where  it  is  going.     Here’s  a  big  fact.     For  the  first  time  since  the  beginning  of  the  commercial  internet,  the  United  States   does  not  have  a  national  wire  line  provider  with  plans  to  build  a  better  network   than  the  currently  best  available  network.     That  means  that  for  most  Americans,  five  years  from  now,  the  best  network  they   have  is  the  network  they  have  today.     That  is  not  going  to  be  true  in  a  lot  of  other  countries.    Our  wireless  leadership  is   great  for  the  mobile  transformation  occurring  now,  but  looking  down  the  road  only   wireline  can  provide  the  excessive  bandwidth  that  provides  the  platform  for  the   creating  the  next  generation  of  big  bandwidth  services.     We  enjoyed  five  wire  line  upgrade  cycles,  with  cable  and  the  Telcos  seeing  and   raising  the  network  functionality  of  the  other.     But  that  poker  game  is  over.    Verizon  is  finished  with  its  fiber  rollout.    Both  it  and   AT&T  are  focusing  their  capital  expenditure  on  building  out  wireless  networks.    One   could  point  to  Verizon’s  recent  300  Mbps  announcement—which  discussed  bigger   bandwidth  as  the  foundation  for  new  services,  sounding  like  a  Gig.U  press  release— or  AT&T’s  recent  statement  that  maybe  they  will  upgrade  rural  lines,  as   counterpoints.      Still,  I  can’t  find  anyone  on  Wall  St.  who  is  betting  that  any  Telco  will   try  to  invest  new  capital  expenditures  to  build  a  better  network  than  Cable.     Cable  could  upgrade,  without  much  difficulty.    Ironically,  that  is  part  of  the  problem.     Wall  Street  knows  that  an  upgrade  for  the  telcos  is  probably  a  losing,  and  certainly  a   risky,  proposition.    Telcos  would  have  to  spend  orders  of  magnitude  more  than   9  


Upgrading  America       cable  to  produce  a  world-­‐leading  network,  and  would  be  unlikely  to  ever  make  the   money  back,  as  cable  could  under  price  them  for  the  same  functionality.     But  if  the  telcos  don’t  press  cable,  cable  cannot  justify  any  incremental  spending  to   upgrade  its  network.    No  company  has  overbuilt  its  own  network  without  external   pressure.     As  noted  Wall  Street  analyst  Craig  Moffit  recently  reported,  “the  numbers  suggest   that  (cable)  broadband  is  an  almost  comically  profitable  service,  with  direct  gross   margins  of  about  97%.”     No  doubt  Wall  Street  has  a  different  view  of  comedy  than  Hollywood  but  to  be  clear,   I  am  not  criticizing  Cable  for  achieving  that  margin.    They  invested  at  great  risk.    Not   long  ago,  AOL  and  the  telcos  tried  to  get  regulators  to  kill  cable’s  ability  to  invest  in   broadband  and  they  almost  succeeded.    Fortunately,  they  didn’t  and  cable  has   delivered  a  platform  that  for  today’s  purposes  is  great.     We  shouldn’t  blame  cable  for  succeeding  or  the  Telcos  for  a  rational  capital   allocation  strategy,  but  we  should  also  not  confuse  ourselves  about  the  future.     When  it  comes  to  the  wireline  access  network,  instead  of  talking  about  upgrades,  we   are  talking  about  caps  and  tiers.    Instead  of  talking  about  investment  for  growth,  we   are  talking  about  harvesting  for  dividends.     The  Government  should  not  manage  the  capital  allocation  decision  of  private  parties   but  it  should  recognize  that  our  progress  demands  an  investment  environment  that   creates  the  conditions  that  allows  us  to  invent  the  future,  not  just  harvest  from  the   past.     The  Government  should  not  attempt  to  micromanage  the  packaging  or  pricing  of  a   service.    But  those  in  policy  positions  should  understand  this:  a  country  that  is   talking  about  an  upgrade,  and  not  caps,  will  be  better  off  in  a  few  years;  a  country   that  is  talking  about  caps  and  not  upgrades,  will  not  be  better  off  in  a  few  years,  and   likely  will  be  worse  off.     It  is  both  wrong  and  counter-­‐productive  to  blame  any  private  sector  entity  for  the   situation.    Rather,  we  should  try  to  understand  we  don’t  see  that  abundance  seen  in   the  transport  portion  of  the  network  reflected  in  wireline  access  upgrade  plans  in   the  United  States.     In  this  regard,  two  equations  provide  insight.     First,  what  are  the  total  benefits  of  a  new  or  upgraded  network?   10  


Upgrading  America         Figure  1:  The  basic  equations  for  addressing  the  barrier    

They  are  the  sum  of  the  benefits  to  the  private  investor,  the  third  party  content  and   apps  creators,  the  local  community,  the  region  and  the  country.     But  the  only  benefits  that  matter  to  the  investment  decision  are  those  that  matter  to   the  investor.     And  as  to  those,  it  is  a  simple  case  of  costs  v.  benefits.     Figure  2:  The  returns  do  not  justify  the  investment    


  Or,  broken  down,  the  relationship  between  the  new  or  incremental  capital   expenditures  and  operating  expenditures  v.  the  risk  adjusted  revenues,  plus  the   system  benefits,  plus  the  threat  of  competitive  losses.     Today,  the  cost  side  is  greater,  and  therefore  no  upgrade  or  new  network  is  in  the   offing.  




Upgrading  America         It  is  actually  worse  in  the  United  States  because,  as  we  spread  the  cost  of  network   across  two  platforms,  the  risk-­‐adjusted  revenue  is  cut  in  half.    That  would  be   balanced  if  today  there  was  a  threat  of  a  competitive  loss  without  an  upgrade,  but   that  is  not  the  case  today.     How  do  we  address  that  problematic  math?     Changing  the  math  is  conceptually  not  that  difficult.     To  reverse  the  relationship  between  costs  and  benefits,  we  need  to  have  an   environment  that  lowers  capex,  opex  and  risk,  and  increases  revenues,  system   benefits  and  competitive  threat.     Figure  3:  Changing  the  math  

    Easier  said  than  done  but  we  have  done  it  before.     And  that  leads  to  my  third  point.     Third,  the  next  upgrade  is  not  only  the  best  way  to  achieve  a  strategic   bandwidth  advantage  and  psychology  of  abundance;  it  is  also  the  best  way  to   address  the  traditional  four  questions  of  telecom  policy.     Here  is  a  chart,  listing  all  the  major  new  networks  or  upgrades  in  the  United  States.        




Upgrading  America       Figure  4:  Network  build-­‐outs,  upgrades  and  ecosystem  changes    

    While  these  networks  primarily  were  built  with  private  money,  every  upgrade  or   new  network  was  preceded  by  a  change  in  public  policy  that  changed  the  math  in   one  or  more  of  the  six  ways  discussed  above.     Further,  when  Gig.U  engaged  broadband  vendors  and  service  providers  in  an  RFI   process,  the  answers  reflected  numerous  ways  other  beneficiaries,  particularly  local   communities,  could  act  to  make  investments  in  next  generation  networks  possible   now.     These  are  like  the  actions  the  state  and  local  government  took  in  Kansas  City,   creating  the  environment  in  which  Google  could  provide  the  community  a  world-­‐ leading  network.    It  is  what  state  and  local  officials  did  with  Gig.U  projects  in  Maine   and  Florida,  and  is  also  what  is  at  the  core  of  proposed  $200  million  commitment  by   a  private  company,  Gigabit  Squared,  to  build  six  gigabit  test  beds  in  university   communities.    This  announcement  creates  a  private  version  of  a  race  to  the  top  for   communities  seeking  to  bring  world-­‐leading  networks  to  their  people.   13  


Upgrading  America         Two  lessons  from  that  RFI  process  stand  out  as  relevant.     First,  any  community  that  wants  its  residents  to  have  access  to  a  Gig  can  do  so.    The   barrier  is  not  technology  or  economics.    The  barrier  is  organization;  specifically,   organizing  demand  and  the  better  use  of  underutilized  assets.       Second,  university  communities  have  the  greatest  motive  and  easiest  organizing   task.    Big  data  communities  have  the  greatest  existing  demand  and  as  high   bandwidth-­‐based  enterprises  are  born,  they  will  want  to  locate  there.  University   communities  have  the  assets  and  organization  tools  best  suited  to  the  task,  which  is   why  our  effort  to  accelerate  next  generation  networks  begins  in  those  communities.     There  are  other  projects—such  as  Google  Fiber  and  U.S.  Ignite—and  a  myriad  of   policies  at  the  federal,  state  and  local  level  that  could  also  assist  in  the  mission.     But  the  purpose  of  my  talk  is  not  to  catalog  the  policies;  rather  it  is  to  sell  the   primacy  of  the  mission.         Part  of  the  reason  I  don’t  think  now  is  the  time  for  a  laundry  list  of  policies  is  that   the  Gig.U  is  in  the  midst  of  discovering  the  most  effective  levers.    I  can  say  with  some   confidence,  we  can  accomplish  this  mission  without  big,  new  spending  or  a  new   regulatory  regime.    After  all,  in  less  than  a  year,  a  small  budget  and  no  regulatory   power,  we  have  already  stimulated  gigabit  developments  for  8  communities.    We   should  continue  to  let  the  data  guide  us  toward  what  works;  though  Chairman   Hundt’s  admonition  to  policy  makers  to  “assure  low-­‐cost  access  to  key  inputs  that   enable  long-­‐term  investments  in  transformative  infrastructure…(and)  remove   barriers  to  replacing  old  methods  with  the  new”  appears  to  be  the  right  recipe.         Moreover,  while  one  can’t  predict  how  policy  options  arise,  if  in  the  next  few  years,   policymakers  ask  themselves  as  they  review  their  choices,  which  option  will  drive  a   strategic  bandwidth  advantage  and  which  option  will  drive  a  psychology  of   bandwidth  advantage,  then  we  will  accelerate  the  day  when  we  reach  our  goal.     If  we  ask  the  right  question  we  have  a  good  chance  to  get  it  right;  if  we  ask  the   wrong  question,  our  chances  of  getting  it  right  are  slim.    Without  a  Northstar,  we  are   like  the  sailors  in  the  race  of  whom  it  is  said,  they  were  lost  but  they  made  great   time.     There  is  another  reason  for  this  focus  on  upgrades—one  generally  misunderstood  in   policy  discussions.    Simply  put,  if  we  are  smart  about  that  mission,  then  that  new   bandwidth  and  that  abundance  will  get  networks  everywhere,  get  everyone  on,   14  


Upgrading  America       generate  a  competitive  dynamic  and  drive  better  uses,  far  more  effectively  than  any   other  means.     If  you  think  about  the  history  represented  by  that  chart,  where  we  most  succeeded   in  making  progress  on  addressing  the  four  questions  was  when  we  created  an   environment  in  which  private  sector  actors  either  saw  the  opportunity,  or  as  with   AT&T  and  the  iPhone,  saw  the  danger  in  not  acting,  to  provide  Americans  with  an   upgraded  level  of  functionality  and  a  new  psychology  of  abundance.     So  today,  we  can  spend  billions  of  dollars  connecting  rural  America  to  baseline   broadband  by  building  on  top  of  old  technology,  or  we  can  figure  out  an  upgrade   strategy  using  new  technology  to  bring  far  bigger  broadband  at  far  lower  prices.     We  can  spend  billions  trying  to  get  everyone  one  a  network,  or  we  can  create   upgrade  options  for  low-­‐income  individuals  through  the  utilization  of  untapped   resources  in  the  existing  network  can  bring  a  compelling  value  such  that  market   forces  do  most  of  the  trick.     We  can,  like  Korea,  mandate  spending  billions  to  upgrade  everywhere  to  drive  more   effective  use  of  the  network,  or  we  can  upgrade  in  those  places  we  know  have,  and   are  likely  to  do  so  in  the  future,  create  the  kinds  of  improvements  that  scale   everywhere  and  create  new  market  forces  that  incent  the  private  sector  to  invest  in   a  broader  upgrade.     Competition  is  trickier.    Many  upgrades  created  a  new  asymmetry  in  the  market  that   triggers  a  competitive  dynamic  but  not  all  do.    Still  we  should  understand  that  it  is   And  we  should  understand  that  after  that  that  the  answer  to  creating  a  competitive   dynamic  that  increases  consumer  welfare  lies  not  in  a  rule  that  slows  everyone   down  but  in  an  environment  that  speeds  somebody  up.     That  is  why,  I  hope  next  year,  the  President  of  the  United  States  tells  the  Chair  of  the   FCC  that  his  or  her  mission  is  to  deliver  a  strategic  bandwidth  advantage  for  the   country  and  a  psychology  of  bandwidth  abundance  for  consumers,  and  that  the   nation  will  holds  the  Chair  accountable.     On  a  personal  note,  I  hope  it  is  the  same  President  and  the  same  FCC  Chair.    But   whoever  it  is,  this  mission  is,  and  should  always  be,  bipartisan.     Let  me  close  with  my  favorite  answer  to  the  question  of  what  happens  if  we   eliminate  bandwidth  as  a  constraint  on  innovation.      



Upgrading  America       It  would  be  enough  for  Big  Bandwidth  to  improve  knowledge  exchange  to  accelerate   curing  that  doctor’s  patient  of  cancer,  helping  the  illiterate  child  to  read,  retraining   the  unemployed,  or  providing  the  partner  in  collaboration  Big  Data  will  need.     But  my  favorite  answer  came  at  the  event  announcing  a  gigabit  project  in  Maine.     Many  testified  eloquently  of  project’s  importance  but  none  more  than  Nate  Wildes,  a   student,  who  said  that  while  having  the  world’s  fastest  network  in  Maine  would   enable  the  business  he  started  to  work  better  and  bring  “immediate  benefits”  to  the   state,  the  most  exciting  thing  about  unlimited  bandwidth  “is  what  we  don’t  know   yet.”     In  this  regard  Mr.  Wildes  is  following  in  the  great  American  tradition  of  those  who   travel  with  hope,  energy,  and  urgency  but  no  map.    In  that  tradition,  whether  it  be   Columbus,  Lewis  and  Clark,  the  astronauts  or  the  fathers  of  broadband,  we  don’t   follow  a  map;  we  make  the  map.     I  hope  today,  and  in  conferences  like  this  to  come,  we  make  the  map  to  discover  the   undiscovered  country.                 -­‐  Blair  Levin,  Executive  Director   Gig.U   June  13,  2012    



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