Technology Futures

Eldo Telecom reports that incumbent providers have filed thousands of challenges to broadband stimulus proposals. It is hard to tell from the USDA/NTIA rules just how the challenges will be handled. The ones I have looked at all pretty much take the line that the area covered in a proposal already has complete or nearly complete coverage. The problem is that the "coverage" being cited as already available is almost entirely copper-based,and many if not most of the proposals involve building much higher performance fiber networks. So the incumbents are saying, "Don't give this project money, we already have "little broadband." And the communities are saying, "We don't want little broadband, we want big broadband." It will be interesting to see how this gets resolved.

USDA/NTIA have a difficult task. Reviewing all these challenges is going to further delay getting the broadband stimulus money out into the economy to create jobs, and if too many funding requests are denied on the basis of "little broadband" incumbent challenges, that also means no job creation and no help for the economy.

I think we can all relate to this....

An interesting fight is brewing between the movie studios and the movie rental outfits. And as usual, it is upstarts like Netflix and other Internet movies on demand outfits that are causing the problem.

For the movie studios, selling DVDs is extremely profitable. Renting, not so much, because they sell a few copies to a Blockbuster or a Netflix, and the rental company gets all the rental revenue. Until Netflix got a toehold, the studios were not too worried about the rental business because video stores also sold a lot of DVDs. Who has bought a DVD from Netflix? Answer: nobody. And the whole movies on demand via the Internet is making things worse.

Why spend $20 to buy a DVD you might only watch two or three times over the next year? If you can pay Netflix one monthly flat fee and watch the movie on demand as many times as you want at no extra charge, why buy? And that's the rub. The Internet is killing the DVD business. Movies are not much like music. The iTunes store sells millions of songs every day, because a) you can listen to music while doing something else, and b) most of us will listen to a song many times. Movies require a dedicated block of time, and there are few movies anybody wants to watch more than once.

The traditional movie and TV business is collapsing under the weight of an obsolete business model. The studios and content owners, instead of adjusting their business models to fit the new dynamic, are engaged in an ultimately futile attempt to hold back the tide. Their answer to sagging DVD sales? "We won't let you rent movies--we're going to force you to buy them." The plan is to not allow movie rentals for at least a month or two after the DVD is released for sale, on the theory that people just can't wait, and will buy it. There may be a few movie fans that will go for that, but the rest of us will just wait.

The Bill and Melinda Gates Foundation has proposed to the FCC that $5 to $10 billion be spent getting fiber to anchor institutions like schools, libraries, and health care facilities in communities. It's a worthy idea, but as policy, the unintended negative impact will be to make it more difficult to get fiber to homes and businesses in those communities.

The Gates plan is dis-aggregation of demand, and what we want is aggregation of demand. The Gates Foundation will take the biggest spenders for broadband in a community and remove them from the buying pool. When this happens, costs for everyone else go up, or don't go down.

What very few people and policymakers understand is that true community broadband networks are very different from the command and control institutional networks that have been the mainstay of telecom for the past forty years. Policymakers in Washington and groups like the Gates Foundation are talking to senior telecom folks with no experience designing and managing community broadband networks that have a goal of getting everyone connected. When you talk to someone who has been building centralized, top down, single provider networks for thirty years, guess what you get? You get another centralized, top down, single provider network.

It really isn't a technology issue, it is a business model issue. Command and control, centralized networks (think the phone company, the cable company, any wide area institutional network) have a business model that does not work--if those models worked, we'd all have fast fiber connections today. So the Gates Foundation, with the best of intentions, certainly, is proposing something that will be an economic catastrophe for communities, businesses, and economic development.