> In short, if your city plays nice and gives AT&T what they want legislatively (namely gut consumer protections requiring they keep serving DSL users they don't want so they can focus on more profitable wireless)
I think the author is being hypocritical in holding this against AT&T while ignoring the fact that Google is only rolling out fiber in cities that agree to basically leave them alone from regulatory standpoint. And while the author complains about AT&T not upgrading legacy DSL users, you don't exactly see Google or anyone else going after that "lucrative" market.[1] You don't see Google, or anyone else, jockeying to offer service in cities with insane build-out requirements.
The author, Karl Bode, clearly understands why nobody wants to roll out these services: http://www.dslreports.com/shownews/Baltimore-Still-Begging-V... ("Baltimore is one of many cities who simply want somebody to come in and provide better broadband service, but don't offer an attractive enough return on the investment for any large, investor-forcused private company to bother.") That's true for Google as much as it's true for AT&T. Google's ability to cross-subsidize with its advertising business changes the numbers a bit, but at scale, that's the bottom line.
That said, I think Google Fiber adds a lot of value. I don't think they're going to shame AT&T/Verizon into doing deployments that don't yield an attractive return on capital. It may have the more important effect of putting municipalities on notice that if they want fiber, from anyone, they need to cut the strings attached.
The telcos have already promised to lay fiber, received concessions for it, and delivered little to nothing. Google may start ripping off taxpayers like that, but I'll give them the benefit of the doubt until I see it.
I'm sometimes amazed how otherwise competent adults take seriously anything that ATT or VZN say. It takes a tabula that is particularly rasa to just ignore the last three or four decades of behavior from these rascals. It's actually much more likely that they'll orchestrate another "rip-off", except for more money, than that Google will ever do anything even approaching that.
I'm sometimes amazed how otherwise competent adults believe that one investor focused for profit corporation isn't capable of behaving just like another investor focused for profit corporation.
When I look at Google services, I see a lot of monopolies forming. For example, Hangouts now takes over SMS messages, and is automatically installed on all Android devices as a system app that cannot be removed. Or, in order to interact with Youtube, one requires a wholly unrelated public Google+ profile.
For someone to say that Google is incapable of abusing monopolies for strategic reasons including profit, while they are already abusing monopolies for strategic reasons including profit, is amazing to me.
You would benefit from a sense of proportion. Come back with this noise when there's a Google line running through my front yard that I'm not allowed to dig up. If you don't like the Android that Google built for you, then don't use it. Google haven't been purchasing laws and agencies since 1937. Ma Bell has.
...Verizon, SBC, CenturyLink, Qwest, FairPoint, Frontier, etc.? Eh, seems unlikely. Or perhaps the extent of your telecom purchasing is cell service from an MVNO? Guess where the majority of your payments are going... Apparently it is difficult for some people outside telecom to separate what's going on from the marketing of what's going on. Don't feel bad: back in the late 1990s I believed the hype too.
The $200 billion figure doesn't represent real money that changed hands. It's an estimate based on taking the actual profit margin of the telecom companies since deregulation in 1996, and calling everything over 9-10% to be "excess profits." The premise is that telcos "promised" to lay fiber in return for being deregulated, and that if their profit margins had been limited to rates typical of a regulated utility, they would've made a lot less money.
Of course, it's easy to play this game with any company. Google's profit margin is over 20%. According to this reasoning, every year Google is "ripping off" the public to the tune of $6 billion. Obviously it's ridiculous to just pick a number as the "right" profit margin for an industry and call everything above that number "excess profits." But that's precisely the premise underlying the $200 billion "rip off."
There was no "rip off." The premise of the 1996 reform was that deregulation of the industry would create an incentive for companies to invest private capital. And that has proven true. Over the last two decades, telecom and cable companies have been among those with the highest capital expenditures. What happened is that nobody predicted wireless would become such a big deal. So instead of going into fiber, all that money was invested in wireless instead. That's the major reason why fiber deployment never really materialized--spending that money on wireless made a lot more sense.
And from a consumer standpoint, it still mostly does. I don't even have internet service at my house--but I've got two different LTE subscriptions.
The RBOCs didn't "promise". They actually promised to lay fiber to a particular percentage of homes, then they actually received the benefits of deregulation and rate hikes premised on that promise, and then they actually did not lay that fiber. Prior to the deal, RBOCs were regulated like the utilities they were, so profit margins were absolutely appropriate for regulators to target. After the deal, they reconglomerated into the two-headed unregulatable vertically-integrated Ma Bell redux we suffer today, spinning off huge fees for execs and M&A specialists while UNE-Ping actually-innovative CLECs and ISPs to death. If you don't like the (really conservative) $206B figure, then propose another, but don't pretend it's zero.
Spending money on wireless rather than fiber made more sense because that segment has even less competition and consumer power than broadband. They're making money hand over fist there; spare us the crocodile tears over the capital investments.
Your premise is that telecom companies are utilities and should be regulated as such. I think that premise is deeply flawed. Utility models are appropriate for things where demand and technology changes slowly, like power and water. But telecoms is totally different in that regard. Public utilities are almost universally underfunded. Unless public money is invested, utilities have very little incentive to do more than keep the existing infrastructure from decaying too badly. See: your water and power.
Also, on what planet is wireless less competitive than broadband? Most subscribers have 3-4 credible wireless choices. The reason companies are spending money on wireless is that: 1) its less of a regulatory morass than wireline; and 2) there is insanely high consumer demand.
Haha, I guess I can see why you'd think that's "my premise". Actually I feel we'd be better off if the FCC and all its regulations were eliminated tomorrow. (We'd learn the real meaning of "wireless innovation", at least.) A regulated provider that gets the chance to rewrite all its regulations "mid-stream" benefits from an enormous windfall, and the public is not well-served when its representatives give away such a windfall for free. (Well of course there was expensive lobbying and other corruption, but the public didn't benefit much from that either.) This unearned windfall is the "ripoff" that we're complaining about.
The point is not that every home in the nation should be connected by fiber: that would be unnecessary if the FCC ever got off its ass on unlicensed wireless but more to the point was never feasible even while the RBOC lobbyists were promising it. Promising what they could not deliver is really not different than failing to deliver what they promised.
It's funny, but a fiber in the ground is actually an example of a network component that wouldn't require much effort from a regulated provider to remain useful. If a regulator prevented vertical integration, other operators could compete to "light" the fiber, and that would be enough to accommodate innovation. In fact that's what happens in other nations.
There are two actually-independent wireless network operators in the USA. Sprint and T-Mobile both have to rely too much on the big two for backhaul to really threaten them commercially. While it is true that much spending is in response to demand, that demand would be quite different in a market where the FCC allowed actually-innovative services. Also the RBOCs and their two mutant descendants don't get to complain about the regulations they themselves wrote.
> According to this reasoning, every year Google is "ripping off" the public to the tune of $6 billion.
This comparison is invalid because Google's business is fundamentally different than a telecom in every relevant dimension. Telecoms sell a commodity product with technology they source entirely from third parties, the only form of product differentiation they have is geographical monopoly, and it is a zero-sum game: basically none of AT&T's budget goes to R&D [1], and all of it goes to operating AT&T's existing business exactly as it is now [2]. Meanwhile Google's core business is basically the opposite in every dimension.
A much better comparison would be to a water company or power company that has "too high" of a profit margin. And of course people do complain about that.
This data point shows that AT&T spent about $1 billion on R&D in 2010: http://www.bizjournals.com/dallas/print-edition/2010/11/19/f.... Yes, it's a "drop in the bucket" compared to their $20 billion in capital expenditures, as noted in your article ([1]), but it's hardly "basically none." Also, a lot of sophisticated engineering goes into building out infrastructure, even if it's accounted to capital expenditures and not R&D.
Water companies and power companies are generally, true monopolies, in that they're protected from competition and guaranteed a rate of return on their investment. AT&T and the other telecoms are very different. They might have certain geographic advantages, but AT&T is rarely the only wireless or telecom provider in any given market, and its capital expenditures come out of it's own pocket. It can't turn to a rate setting board like a power company or water company to guarantee cash flow to cover investment.
You can't have your cake and eat it too. If you want to develop telecom as a regulated monopoly, which worked just fine in the U.S. for the better part of a century, then you need to give companies monopoly protections. If you want to have a market, then you can't regulate rates of return. When you pretend to have a market, then encumber it with excessive regulation, you can't complain when companies don't invest private money into expanding infrastructure.
Your source states that AT&T spent "0.8 cents" "of each dollar of revenue" on R&D. Secondly, if you dig into the source [1] of your source, you find that R&D spending for North American telecom companies in 2013 are dead last against every other industry as a percentage of revenue. I renew my claim that "basically none" R&D spending is a fair and accurate description.
> AT&T is rarely the only wireless or telecom provider in any given market
That is technically true, but I would paint the same facts as "approximately 96% of the population has at most two wireline providers". [2] This is an optimistic estimate: "the data used here do not provide adequate information on price and performance to determine if multiple providers in a given area compete head-to-head".
> If you want to have a market, then you can't regulate rates of return.
I don't disagree with you there. I think where we disagree is that you think a competitive market for wireline broadband in the US in 2014 is a possible scenario. In my mind, the regulated monopoly (or public utility) is the only viable model.
> You can't have your cake and eat it too. If you want to develop telecom as a regulated monopoly, which worked just fine in the U.S. for the better part of a century, then you need to give companies monopoly protections.
This effectively became impossible when the internet turned out to work fine over both telephone and cable TV wires and then subsumed the respective franchises as over the top services. If AT&T had monopoly protections again then Comcast couldn't operate in the same geographic area anymore. I have to imagine the cable TV industry would object to its forced dissolution strenuously enough to scuttle any plans to do such a thing.
But why do you believe that monopoly protections are necessary for utility regulations? Suppose we regulate AT&T as a utility and then let Comcast carry on unregulated in competition with them. Individual customers can choose whether they want the regulated entity or the unregulated one. In the worst case one of them goes bankrupt so the reason why monopoly protections are impractical is eliminated, and the other one becomes a regulated monopoly.
Lot's of non-R&D enterprises scrape up some dollar figure they can semi-plausibly call R&D in order to get tax incentives. Often that does not resemble what people here would call R&D any more than getting paid not to plant resembles farming.
I wonder what would happen for such businesses if the quarterly earning game was ended, with CEOs paid on a salary basis. I think Ivan Seidenberg was fired because of short term returns on FiOS being low.
How are your bills when you try to use those LTE services to stream TV or to do anything serious whatsoever with cloud data, though?
The net effect I see here is that the telcos keep selling us less and less data, at a progressively lower speed, for more and more money.
I had better and faster DSL service 20 full years ago, in Iowa City, than AT&T offers me now in the middle of Silicon Valley. And that AT&T service costs more, too. That is a major red flag and indicates that something is seriously wrong.
Google charges a $300 one-time install fee for the free 5 Mbps internet and $70 a month for the 1 Gbit internet (install fee waived). Many people have calculated that they are making up the costs in just a couple of years.
I haven't seen it but I'd be willing to bet that the Google TV experience is far superior to what Time Warner and AT&T offer, which is horrible. They've been selling TV service for a long time and still have laggy and unintuitive on-screen menus and guides.
I think the author is being hypocritical in holding this against AT&T while ignoring the fact that Google is only rolling out fiber in cities that agree to basically leave them alone from regulatory standpoint. And while the author complains about AT&T not upgrading legacy DSL users, you don't exactly see Google or anyone else going after that "lucrative" market.[1] You don't see Google, or anyone else, jockeying to offer service in cities with insane build-out requirements.
The author, Karl Bode, clearly understands why nobody wants to roll out these services: http://www.dslreports.com/shownews/Baltimore-Still-Begging-V... ("Baltimore is one of many cities who simply want somebody to come in and provide better broadband service, but don't offer an attractive enough return on the investment for any large, investor-forcused private company to bother.") That's true for Google as much as it's true for AT&T. Google's ability to cross-subsidize with its advertising business changes the numbers a bit, but at scale, that's the bottom line.
That said, I think Google Fiber adds a lot of value. I don't think they're going to shame AT&T/Verizon into doing deployments that don't yield an attractive return on capital. It may have the more important effect of putting municipalities on notice that if they want fiber, from anyone, they need to cut the strings attached.