******************************** The COOK Report on Internet September 2001 (Vol. 10, No. 6) (c) COOK Network Consultants ******************************** CONTENTS Full text of executive summary is also available at http://cookreport.com/10.06.shtml The Internet's Dilemma: What Good Is the Stupid Network If the Other Guys Own It? Future to Offer Access to a Public Highway Grid or Exile to Corporate Controlled Walled Gardens and OS'? An Analysis by Gordon Cook pp. 1-7 Broadband in Canada Enabling Local Control of Local Infrastructure A Pragmatic Regulatory Approach to Enabling Community Fiber Networks and Commercial Interconnection by Francois Menard pp. 8 - 12 Executive Summary: The Internet's Dilemma: What Good Is the Stupid Network If the Other Guys Own It? Future to Offer Access to a Public Highway Grid or Exile to Corporate Controlled Walled Gardens and OS'? We take a detailed look at how most all of telecom companies except for the ILECs fell off the precipice. We conclude that without intelligent public policy designed to act as a counterweight to the ongoing consolidation of the "free-market" the AOL/Time Warner "Walled Garden" business model of the Internet may well become dominant. We need to make understanding and emulating the Canadian approach to enabling the building of community owned fiber networks a high priority. We find and conclude that: 1. Classic industrial age business cycle has overtaken information age infrastructure build and brought with it oversupply and slump. 2. Matched against big business practice and philosophy, edge control is no control. Edge control has no defensive capability and thus is ripe for takeover and top down control. 3. Vertical top down control, ownership and integration of networks squeezes liquidity up and out of the entire system. 4. We need to understand fully the implications different economic models for the Internet. Is the Internet to be understood as composed of thousands and hundreds of thousands of local private enterprises and municipalities at every layer of the global network who operate under local democratic regulation, or is it to be seen as a cartel of 12 or so intertwined global media and distribution corporations who control and staff their own nominal regulators at ICANN and WTO. 5. While in an abstract sense the distinction is still quite clear, the failure of 96 Telecom Reform Act blurred the Nethead vs. Bellhead split. It can be said that we now have mainly companies with varied degrees of bell headedness. 6. The technologies which once defined the ideologies are themselves converging both in applicability and in price. This convergence is another driver of the above "blurring". Everyone is using a varied mix of technologies that were formally understood as particularly Netheaded or Bellheaded. 7. The Nethead ideologues were like settlers of the early American frontier west. And when the railroads pushed through and established towns and sufficient presence and support infrastructure and enforcement personnel, the frontier was brought to heel. 8. The regulatory playing field of ILEC versus CLEC that was created by the 1996 telecom act was in fact tilted on behalf of the ILECs and the inability of the FCC to enforce opening of local markets to competition. 9. Netheaded, green field, would be first movers borrowed vast sums for their fiber build outs driven by flawed estimates of bandwidth growth which, if accurate, would have given a successful first mover great payoffs. The result looks like a glut and the inability of the would be first mover to get enough cash flow to pay their debts. 10.The ILECs out lobbied, outspent and outsmarted the builders of the Greenfield fiber plays and the Internet 11. There will be a fiber fire sale. The questions are who will be allowed to buy? Will there be *any* public interest test, any monopoly or anti-trust test or regulation, any access or control or preference given to the localities in whose earth the fiber runs, and whose residents and business and institutions are the logical first choice to benefit from this fire sale? 12. The traditional American model has been that of local and individual ownership and local and individual responsibility for the physical necessities of life. Our telecommunication policy has abandoned these ideals. 13. Yet we define telecommunication as a necessity and then through the Schools and Libraries corporation part or the universal service fund extract money from the community for use by distant corporations 14. We need a national debate on problems of media concentration and distribution channel monopoly versus the feasibility of community owned and operated alternative infrastructure. 15. The struggle is aimed at control a technology that is most fertile if uncontrolled. The way things are headed the struggle for control may kill the "golden goose." 16. Are we to have networks with end to end connectivity that we can use in ways that we see fit rather than have our usage subject to the rules of a central authority? Can a "private vehicle/highway" model survive alongside the "railroad model?' Broadband in Canada Enabling Local Control of Local Infrastructure A Pragmatic Regulatory Approach to Enabling Community Fiber Networks and Commercial Interconnection pp. 8-12 We publish an essay by Francois Menard. What Menard convincingly shows is that, given intelligent use of regulatory power, discriminatory interconnections and unfairly priced rights of way do not have to remain undue barriers to broadband. Menard demonstrates how communities could force the aggregation of demand onto the same infrastructure. He illustrates why doing so will be a necessary precondition for any sound business case for fiber to the business or fiber to the home. While local loop monopoly regulations have forced aggregation of demand in a way that sustains the PSTN. He shows how demand aggregation can be achieved on a fiber optic infrastructure without requiring that a utility be given a monopoly on services. He argues that the necessary preconditions for broadband can only be truly realized when end-users can directly influence what equipment is attached to the infrastructure, which requires that dedicated infrastructure, such as customers owning rights to specific fiber optic strands within the same cable. He doesn't discount the use of wave division multiplexing, frequency division multiplexing, time or code division multiple access or even optical packet switching equipment, but warns that any use of such technology constitutes what he calls "service-defining bottleneck facilities". He argues that owners of networks must mandate that physical open access be provided at the location of every such service-defining bottleneck facility. This is necessary, he suggests so as to enable other carriers to bypass such bottleneck facility, in order not to have imposed on them a certain type of service or business model. Regulators of the facilities based competition model are missing this point and are relying on what in fact constitutes discriminatory interconnections. Just as it is seen as a proper and accepted role of government at local, regional and national level to set the rules for building and use of physical highways and the clover leafs by which they interconnect, so should government, from the community upward, determine the rules for building and interconnection of fiber based packet data networks. While the current system protects the interests of ILEC stockholders, it may only bring broadband "walled gardens" to most customers several decades from now. Menard contends that regulators are too busy with working the bugs out of regulations that are supposed to enable local competition in telephony. Consequently, they are unaware that they have the ability to ensure that we do not miss out on the opportunity, feasible today, of bringing broadband to everyone. What Menard describes is the technology and regulatory approach that will enable communities to extend fiber to government, schools and business, and then to homes immediately. The architecture that Menard advocates would bring the fiber strand from the individual business or residence to the nearest carrier neutral co-location site where the owner of the strand could choose what services he or she wished to be connected to. The use of new technology such as high density ribbon cables and patch panels, micro-tubing and the ability to blow fiber through conduits would enable cost effective build outs. Investigation is underway to determine what the exact costs and best architectures are likely to be. The point is that in Canada there is now a regulatory impasse where CLECs have been given mandated access to unbundled network elements at discounted prices while they build out their networks. The discounts were to end within five years. However seeing that the objectives are not being achieved, the regulators have extended the discounts indefinitely - an act that deprives the CLECs of the very incentive necessary to build competitive infrastructure. In this essay Menard argues that it is time to throw out the current approach, adopt well defined standards of interconnection and encourage communities to act as referees of equal access to their rights of way. [Note: The preceding text also appears as part of this article's introduction.] Two quotes from the essay: "What now appears to be needed from telecommunications policy are regulations which will favor the aggregation of end user demand onto a single fibre optic community network. But regulations must also explicitly mandate the disaggregation of services by enabling customer-owned physical-layer equal access onto carrier-neutral facilities. In other words every carrier can offer its own set of services while being unable to prevent a competitor from offering a completely different set. Furthermore, this regulation should call for municipalities to provide for the support structures necessary for customer-owned fibre optic strands under cost recovery principles similar to those of other municipal infrastructures. It is to be expected that some municipal administrations will be less interested than others in venturing into providing telecommunications support structures. Therefore it will be necessary for regulators to get an explicit mandate from the government to be able to regulate how cities are to be compensated when carriers are required to acquire rights of ways and build their networks should the municipality not be willing to do it." Finally, we have written a more generalized set of findings based on his essay. 1. Broadband is an essential public utility. Access is only half the broadband issue. The other half is end user (consumer choice) of service model at the point of access. 2. The regulatory model for existing cable and copper last mile loops was conceptually flawed and has failed enable any over build of new technologies. 3. While regulated carrier competition has failed, however, private local networks are being built by municipalities and local schools. These local public infrastructure networks could become well placed to provide service as a competitive market alternative to the current monopoly telco and monopoly cable incumbents, particularly in areas that the monopoly incumbents refuse to serve with high speed access, or with choice. 4. When the broadband market fails because of monopoly, the local communities have a duty to provide market alternatives to their residents and businesses. 5. Canadian regulators are grappling with deployment and development issues at least two generations ahead of the current American telecommunications landscape. 6. To date Canadian school districts and municipalities have been building their own fiber networks. To make the economic case for fiber to the home Canadian municipalities will have to take adopt a new model where the municipality no longer operates the network but instead uses its ownership of rights of way to become an impartial referee on behalf of equal access. 7. The ideal business, technical, and regulatory model places the municipality in charge only of guaranteeing what it has always guaranteed--public rights of way access and non-interference, and regulating which services shall have access to the public Rights of Way and under what terms, conditions and fees for use, including how they must mutually assist and coordinate with each other. The technology enables the city's responsibility for maintaining physical equipment to be extremely limited, as would their billing for service model. 8. As in all natural monopoly/limited distributor situations, the end user cannot freely choose nor freely change distributor because the distribution channels are either prohibitively capital intensive or prohibitively spacially intensive. Therefore, the physical interface to the consumer for these natural monopolies are best regulated and coordinated by the local municipalities, as several hundred years of time and experience in thousands of essential public utility contexts have shown. 9. The ancient public-private contract of monopoly and public grant of special easements and tax relief and tax funded public investment given to private telco corporations for 100 year old technology does not imply an eternal commitment by the public to support these same corporations as exclusive beneficiaries of public tax funded relief and assistance, when new technologies and new businesses develop which can serve the public in better ways and at lower cost. 10. The 1996 regulatory model for encouraging market opening and active infrastructure competition has failed. In Canada it has done better, but not a lot better. And in hindsight we see that there is no business case to be made for any permissive regulatory framework that will effectively draw the ILECs into investing in full scale residential broadband, much less broadband choice. It is too much in the financial interest of the telcos and the cables to drag their feet forever. 11. In Canada careful review of rights of way agreements will uncover impacts on school and municipal networks that may be undesirable, as well as finding that current RoW agreements favor incumbent telcos and cables. RoW reviews should be comprehensively undertaken to favor broadband competition, consumer access, and consumer choice and municipal alternatives. --
