Would Utility Regulation Really Lead to Lower Prices?

One frequently hears that home broadband or internet access is a utility similar to  electricity, gas, water, sewers, phone lines, roads, seaports or airports. It is not always clear what proponents of viewing home broadband “as a utility” have in mind when they say such things.

Some might mean home broadband should be, or is, a public utility in the sense of “common carrier” with obligations to serve the general public. Others might mean essential or regulated in terms of price or conditions of service. Others might fix on the used everyday sense of the term.

Classically, the term referred to industries that operated as monopolies, often because they are capital intensive and difficult to replicate. 

   

source: Market Business News 

As it pertains to “home broadband,” generally the term refers to fixed network supply of home broadband, not mobile network supply. 

The common unstated reason for calling for utility treatment seems to be the expectation that this means lower prices. Actually, it is not clear how prices might be affected. True, some elements of consumer service were price controlled. But other elements were horrendously expensive.

Most of us are too young ever to have experienced “connectivity services” as a public utility. But prices were not uniformly low. 

In 1984, before the breakup of the U.S. AT&T monopoly, calling between states cost about 90 cents a minute. In 1955, a phone call between Los Angeles and San Francisco (not even interstate) cost about 70 cents a minute, not adjusted for inflation.

In 2022 currency that would be about $7.75 per minute. So, no, prices were not uniformly lower under monopoly or public utility regulation. 

Of course, that was by policy design. High long distance charges and high business services were intended to subsidize consumer local calling. 

Were home broadband to become a regulated service, something similar would happen. While prices for some features and plans might be price controlled, other elements of value would increase sharply in price. 

And price is only one element of value. Service innovation was sharply limited in the monopoly era. In the U.S. market, consumers could not own their own phones, or attach third party devices to the network. All consumer premises gear had to be purchased from the phone company, for example. 

To be sure, AT&T Bell Labs produced many innovations. But they were not directly applied to the “telephone service” experience. Those included Unix, satellite communications, the laser, the solar cell, the transistor, the cellular phone network, television and television with sound. 

Though ultimately quite important, none of those innovations arguably applied directly to the consumer experience of the “phone network” or its services. 

The point is that monopoly regulation tends to produce varied prices for different products (some subsidized products, some high-cost products), but also low rates of innovation in the core services. 

Utility regulation? It would not wind up being as beneficial as some seem to believe.

Supply and Demand are Dynamic, So Sometimes You Get the Opposite Result from What You Expected

If you have you ever noticed that adding more lanes to an expressway often does not seem to less auto congestion, you are seeing a dynamic supply-demand response in action. 

So one wonders: if video chat for customer service really becomes popular because it works so well, demand might well grow so much that response times are slowed. thus creating an outcome the opposite of what was intended. 

Economist John List talks about this inThe Voltage Effect. Uber wanted to reward its drivers so it raised wages. The higher wages attracted more drivers. So average wages declined, instead of increasing. 

Uber issued discounts to stimulate demand, which apparently worked for a short time. But that demand also lengthened wait times, which depressed demand. 

Supply and demand are dynamic. What you get sometimes is the opposite of what you intended. 

No Productivity Boom from New IT or Remote Work?

It seems incontestable that knowledge and office workers prefer remote working. Whether such work results in higher, lower or no change in productivity is among the issues, though. 

Some economists say there was no post-Covid productivity increase, despite the information technology investment boom that happened during the pandemic lockdown. That is not surprising. 

There long has been a lag--sometimes lasting a decade--before big IT investments show up as correlated with higher productivity. It can be argued that the places new IT was deployed are not likely to grow productivity. 

Supply chain investments might or might not contribute to productivity, even if they improve resilience. Investments in security, remote work, personal computers and so forth likewise might or might not contribute to any measurable lift in productivity, even over a five-year time frame. In fact, to the extent such investment were necessary simply to allow work to continue, and might actually be duplicate investment of sorts (people already had computers and broadband at work), they might reduce output, compared to input. 

Work-life balance arguably is better. But is that necessarily good for productivity? It is terribly hard to say. 

Outcomes also often are based on team output, not individual output. In such cases it is team productivity that matters. And such output often is intangible. How do you properly measure an intangible?  

To be sure, such measurements always are difficult, whether we are looking specifically at post-Covid or “during Covid” time periods or non-Covid times. 

Where it comes to knowledge or office workers, some might say the task is nearly impossible. Indeed, observers often note the difficulty before proceeding to argue such measurements can be made. 

Whether measurements actually can be made remains debatable. The point is that all our discussions about the productivity of remote work are opinions, not facts. We mostly cannot measure knowledge worker or office worker productivity, especially non-tangible outputs, whether remote or local.

Anna Karenina and Successful Startups

If you have ever worked at a startup that failed, the “Anna Karenina principle” will make sense to you. If success requires solving a number of key problems, then failure to solve just a single one of those problems produces failure. My personal experience is that failure happens as much as 70 percent of the time and perhaps closer to 100 percent over a decade’s time, if one considers acquisition to be an outcome or failure to scale outcomes that represent failure. 

To put it another way, failure goes through a wide gate; success through a very-narrow gate. 

source: slideshare 

The way I have come to understand that principle is an analogy to high walls, locked doors or hurdles. Success requires scaling a series of high walls; opening a series of locked doors or jumping over a series of hurdles. And each obstacle must be successfully navigated. Failure at any single obstacle kills the venture. 

source: Inc. 

Those obstacles can include failure to get the next round of funding; making a bad key hire; betting on the wrong product; launching too early or too late. Trying to solve the wrong problem; burning out the founding team; failure to manage remote teams; making the wrong pivot; lack of domain knowledge; team discord or lack of focus also are gates, hurdles or locked doors. 

Not “listening to customers” is a gate. But sometimes one has to ignore feedback as well. Poor marketing; lack of a viable revenue model; user interface problems; the wrong pricing model; a “too high” cost model; more-nimble competitors; having the wrong team; running out of cash before you are ready to go to market or misjudging the existence of a market also can be key hurdles, walls or gates. 

The point is that success requires success at every single obstacle. Failure requires only one obstacle not surmounted.

How Big is the "Value" Segment of U.S. Home Broadband Market?

Home broadband for $25 a month is the value proposition Verizon fixed wireless now offers for top-end customers of its mobility service. For T-Mobile fixed wireless customers on premium multi-user plans,  the recurring cost is $30 a month. 

Say what you will about the expected speeds of such services, or the cost of higher-speed services from either cable or fiber-to-home service providers. 

For a possibly-substantial portion of the market, such price points are going to be attractive, even if the trade off is lower top-end speeds. 

It might be the case that “good enough” service is worth a “reasonable price” for that service. 

That is important for home broadband market competitors. Even if such offers do not appeal to the entire market, the “good enough service for a reasonable price” segment of the market could be substantial, especially for Verizon and T-Mobile mobility service customers. 

That is similar to the “same service, lower price” positioning often used by attackers in established markets. If the top possible speed for fixed wireless sold by Verizon is about 300 Mbps (millimeter wave assets help), then Verizon theoretically could reach between a third and 45 percent of U.S.home broadband buyers, based on data from Openvault. 

T-Mobile speeds for home broadband are said to range up to about 182 Mbps, suggesting a third or so of U.S. home broadband accounts could be addressable. 

  

It is too early to say whether fixed wireless platforms will be long-lasting drivers of market share in internet access markets, or only relatively temporary. Some believe speed limitations will ultimately reduce fixed wireless attractiveness. Others think fixed wireless capacity can keep growing. 

But at least for the moment, it is hard to ignore U.S. cable operator lost market share and the availability of fixed wireless from Verizon and T-Mobile. In the near term, fixed wireless market share gains seem a certainty. 

Comcast continues to claim that fixed wireless is not damaging its home broadband business, and that might well be correct. For any ISP, a customer move is an opportunity to gain or add an account, so lower rates of dwelling change should logically reduce the chances of adding new accounts. 

In the second quarter of 2022, Comcast reported a net loss of customer relationships and “flat” home broadband accounts. 

That might suggest to some observers that stepped-up telco fiber-to-home and fixed wireless account gains might be starting to change market share dynamics. Those trends possibly were not obvious in the first quarter of 2022. 

All that said, there are possible signs of change. Fixed wireless already is driving net home broadband additions for T-Mobile. On its second quarter earnings report, T-Mobile added more than half a million net new home broadband accounts, which might put it on track to be the biggest net gainer for the third quarter in a row. 

In the fourth quarter of 2021, fixed wireless represented 74 percent of Verizon net home broadband additions.  

Comcast did not gain net accounts for the first time, ever, according to market watchers. Verizon added significant numbers of new home broadband accounts in the same quarter.  

The longer term  issue is demand as typical data consumption keeps growing, and “typical speeds” likewise keep climbing. 

Perhaps use of millimeter wave assets and better radio technologies will solve much of that problem for fixed wireless operators. Perhaps new wholesale arrangements will develop. 

What might also be happening is that consumer appetite for “more affordable” internet access is substantial. Many households might be willing to trade “speed” for “lower price.” In other words, as with any product, value is a combination of features and price. Fixed wireless might show the existence of a market segment that cares about “reasonable speed for a reasonable price” more than “fast” levels of service. 

That is not the whole market, but it is potentially a big enough segment to shift billions of dollars of home broadband revenue and significant market share. 

Users Will Not Care about Web3 or Web 3.0

Is semantic web, or web 3.0, not the same thing as web3? Apparently not, some argue. But others will argue the terms will ultimately be interchangeable, even if purists will continue to argue the two concepts are quite different.  

Web 3.0 might be defined as a standards effort related to making the reading of machine data universal. That is akin to saying that the “internet” is different from TCP/IP or Ethernet. 

Web3, on the other hand, refers to a decentralized internet based on blockchain. 

Others will argue the semantic web (web 3.0) focuses on efficiency and intelligence by reusing and linking data across websites, while web3 focuses on decentralization, security and end user ownership of data.

As a practical matter, users will not care very much, any more than they care about how data is transported, where it is stored, how their phones or cars work. 

The nomenclature will eventually settle down. “Semantic” is not likely to gain widespread universal usage. For that matter, “web 2.0” never really became popular currency, either. And so it is possible that neither web3 nor web 3.0  ever really become mainstream user terms. 

source: mdpi.com, cointelegraph 

Far more likely is the common understanding that people use “phones” or “computers” or “cars.” So people will simply say they “use the internet.” But as has been the case in the past, applications, features and capabilities will continue to develop, for devices, apps and platforms. 

Most people will still not care how far towards a “next generation internet” we have gotten. They will simply be able to do and experience new things, in new ways, as we have found in the past. 

We have moved from a character-based internet to a visual internet; from “read only” to “read-write;” from content to commerce. Metaverse use cases will eventually develop. But it is possible that much of the shift to blockchain-based security will happen in the background. 

Regular people will not care much about decentralization or machine-readable data, if they care at all. People do not know how electricity works, how cars are made or what software powers their devices, to use them every day. 

Telco Choice of TCP/IP for Next Generation Networks was Fateful

Technology decisions, it goes without saying, can dramatically change access provider, data center and application business models. Cloud computing creates the business opportunity for data centers and “software as a service.”

Fatefully, connectivity provider adoption of TCP/IP upended the “closed” business model and substituted an “open” model that also relegates access providers to “connectivity” roles. If telcos did not want to become “dumb pipes,” they should not have adopted TCP/IP as their “next generation network” platform. 

TCP/IP was the computing network model, where value was created on top of layered and disaggregated transport and access. Modern computing necessarily operates on an “over the top” basis, with hardware and operating systems disaggregated from apps that use that hardware and operating systems. 

To be sure, there were strong arguments in favor of TCP/IP and Ethernet: connectors were low cost, compared to proprietary telco connectors. Data networks using TCP/IP and Ethernet were relatively simple. The ecosystem was well developed and disaggregated, presumably leading to faster and easier innovation. 

As all communications networks began to operate as “data” networks, that made sense. 

None of that necessarily requires retail pricing of data connections on a flat fee, unlimited usage model. 

As access service providers complain about capacity costs and seek new revenues from hyperscale app providers, other common solutions exist, even if hard to implement under highly-competitive conditions. 

Obviously, selling more customers unlimited usage plans, even at higher recurring prices, does not encourage customers to be careful about their consumption. 

By choosing TCP/IP as its next-generation network, the global “telecom” industry chose to operate data networks based on the use of loosely-coupled layers. But it is not a given that flat fees and virtually unlimited usage is a mandatory pricing model. 

Arguably much of the ISP concern about business models grows directly from decisions made to operate retail access networks with a flat fee/virtually unlimited usage model.