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HS 159 – The Monopoly Telecom Industry with Susan Crawford

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Susan Crawford

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Susan Crawford is the Professor at the Cardozo School of Law, former Special Assistant for Science, Technology, and Innovation Policy to President Obama, columnist for Bloomberg View, former Board Member of ICANN, and founder of OneWebDay. She is also the author of, “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.”

Crawford believes the telecom industry now has a monopoly. American are paying much more for Internet access yet getting much less. Other countries are beating America in this space.

Crawford helps answer whether the FCC will ever enforce free WiFi for anyone in the US.

In 2009, Crawford served as special assistant to President Obama for science, technology, and innovation policy. She is a former law partner at Wilmer, Cutler & Pickering (now WilmerHale). She is the founder of OneWeb Day, a global Earth Day for the Internet held each Sept. 22. In January 2013, Yale University Press published her book, “Captive Audience: The Telecom Industry and Monopoly Ppower in the New Gilded Age.” She earned a bachelor’s degree, summa cum laude, and a law degree from Yale University.

Speaking of the FCC, its Chairman position is open, and there is a chance that Crawford ends up on the hot seat.

Narrator: Welcome to the Holistic Survival Show with Jason Hartman. The economic storm brewing around the world is set to spill into all aspects of our lives. Are you prepared? Where are you going to turn for the critical life skills necessary for you to survive and prosper? The Holistic Survival Show is your family’s insurance for a better life. Jason will teach you to think independently, to understand threats and how to create the ultimate action plan. Sudden change or worst case scenario, you’ll be ready. Welcome to Holistic Survival, your key resource for protecting the people, places and profits you care about in uncertain times. Ladies and gentlemen, your host Jason Hartman.

Jason Hartman: Welcome to the Holistic Survival Show. This is your host Jason Hartman, where we talk about protecting the people places and profits you care about in these uncertain times. We have a great interview for you today. And we will be back with that in less than 60 seconds on the Holistic Survival Show. And by the way, be sure to visit our website at HolisticSurvival.com. You can subscribe to our blog, which is totally free, has loads of great information, and there’s just a lot of good content for you on the site, so make sure you take advantage of that at HolisticSurvival.com. We’ll be right back.

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Start of Interview with Susan Crawford

Jason Hartman: It’s my pleasure to welcome Susan Crawford to the show. She is the author of Captive Audience: The Telecom Industry, and Monopoly Power in the New Gilded Age. She’s a professor at Cardozo School of Law, and former special assistant for science technology and innovation policy to president Obama. She’s also a columnist for Bloomberg, and I think you’ll find this interview to be very interesting. Susan welcome, how are you?

Susan Crawford: I’m great. Thanks so much for having me on.

Jason Hartman: Well, it’s a pleasure to have you. Are you coming to us from New York today?

Susan Crawford: That’s right. I’m right here at the corner of 12th street and 5th avenue, near Washington Square.

Jason Hartman: Fantastic. Well, a lot of people have been to that spot, including myself. So tell us a little bit about the book, and I guess that your premise is somewhat surprising to people how concentrated and how monopolistic the telecom industry is, right?
Susan Crawford: Yeah, I think that most people don’t understand that when it comes to wired internet access, high speed internet access, the cable industry has won. And it’s taken us about ten years to figure this out, but in the last 3 quarters of 2012, just 0 .2% of new high speed internet access subscriptions went to telephone companies like AT&T or Verizon. Everybody else is buying service from their local cable monopoly. And these guys long ago divided up the country between themselves and clustered their systems.

Completely rational thing to do economically, by the way, and are also unsupervised in that they can charge whatever they want and provide whatever flavor of services they want. So it’s quite a situation for the country, meanwhile other nations take internet access very seriously as a matter of industrial policy, and make sure that their citizens have cheap, reliable cyber access. So we’re really in a hole.

Jason Hartman: Well, a lot of people tend to think that since the breakup of AT&T, the market place is competitive, but I guess when you’re looking at heavy duty infrastructure like this, especially along what people in the telecom industry describe as the last mile; someone owns those fibers, they own those cables, they own that copper or whatever it’s running over. There aren’t multiple choices there, right?

Susan Crawford: That’s for sure. What happened was that we believed that competition between the phone companies and between the cable companies when it came to internet access would protect Americans. What we didn’t know, was that the cable guys would find it cheaper to upgrade their plant to provide high speed internet access than the telephone companies, which had to dig up their copper wires and replace them with fiber. So what happened is that Verizon, that started off building fiber in America, decided in March 2010, and made this public, that they weren’t going to expand their fiber operations. So cable really stands alone, only 15% of Comcast footprint also has competition from Verizon. Only 11% of Time Warner Cable’s footprint does. So cable has won.

Jason Hartman: Cable has one. Now, what’s going on with this? I recently learned about Kansas City, and really a larger area there than just Kansas City, but in the Midwest, this huge fiber network which is just ultra-mega high-speed internet; is that a Verizon project?

Susan Crawford: No, that project is a very disruptive story being told by Google. So Google actually held a contest for American cities saying we’ll bring gigabit fiber connectivity, so that’s 100 times faster than a standard American connection. We’ll bring that fiber connection to a town that’s willing to work with us, and Kansas City said they would. And they had electric utility that would go along, and Google was able to string it’s fiber along polls, much cheaper than digging up the streets. The net of all this, is that for people in Kansas City, they’re going to be getting these very fast speeds at about 70 dollars a month, and speeds that no one else in America has access to at such a reasonable cost. This is really a disruptive regulatory move by Google, who wants to demonstrate to the rest of the country just how bad our connectivity is. Because unless we see something, we don’t change.

Jason Hartman: So why is it so bad? I remember in the earlier days of the internet, I was taking some E-Commerce classes at UCI in Southern California. And the instructor was talking about how in Singapore, they had incredibly fast internet and websites there were just heavy laden with graphics because people had such fast access. Is our problem that our system here, like our cellphones as I understand it, it’s an older system? We got it first and so now we’re kind of suffering with the fact that we don’t have the most up to date technology as a lot of provincial Americans might think we would have.

Susan Crawford: Yeah, we always assume we’re number one when it comes to technology. But other countries have absolutely leapfrogged us. And you’re absolutely right, we did get there first. But then, where to consolidation is possible, competition is impossible. And we’ve had multiple failures of policy and just guts to just insure that the country stayed in the lead. So these giant companies have done their best to carve up the country and are reaping rewards from their monopoly positions. But they have no incentive to upgrade to fiber. So I spent the first week on January in Seoul, in Korea, just for vacation just to see what it’s like there.

And there you can get a fiber to the home connection, a 100 mg per second speed when you move into an apartment, and it’s just 30 bucks a month and there are 3 competitors, and they’re competing so fiercely that they get to your house within a day to install this system.

Jason Hartman: Right. Rather than a month like sometimes it takes. It’s amazing. Where was that, by the way? What location?

Susan Crawford: That’s in Seoul, South Korea. Now that’s a very dense urban area, but even in Australia, and Australians are just like us; they drink beer, they tell jokes, they’re going to have 93% of their citizens with fiber to the home in the next few years. They took this as an election issue to make sure that everybody got fiber to the home. So we’re really falling behind.

Jason Hartman: But how in Seoul, for example, do you really have… you said there were 3 competitors, and this competition has driven prices down, but are there 3 different sets of fiber coming to every residence? How do you do that kind of last mile concept? It doesn’t make sense to bring in 3 sets of fiber or cable to each house, does it?

Susan Crawford: Well, we did this for our own telephone system here in the United States. What you do, is you make sure there is a wholesale facility that’s unlit fiber, or just a very basic ring running around the city, so in Seoul it’s in the subways. And then any retail provider can take advantage of that existing infrastructure to reach an apartment. So that’s the case in Paris, that’s the case in Seoul, in Stockholm, and a bunch of cities. You share this very expensive upfront cost of getting a wholesale facility in place, and then that provides a lot of retail competition.

Jason Hartman: Right, but you said that there’s a ring going around the city, but to get from that ring to that apartment in the city center, that costs a fortune. Coming from that ring, are there 3 sets of cable or fiber?

Susan Crawford: No, there’s a wholesale facility also running into major buildings that’s shared by the retail providers. The retail guys usually are running inside the building, not between buildings and the ring and not between apartments. The retail actors are serving the individual apartments inside buildings. The duct has to be open to them inside the building, and has to be easily available for them to attach to a wholesale ring.

Jason Hartman: And so when you say the wholesale ring or the wholesalers, so this is another company, another free enterprise company, or is the government running it?

Susan Crawford: It could be either. It doesn’t matter whether the private company has built the facility or the government built the facility. What matters is that it’s overseen; it’s regulated, so it’s available to the retail guys at a set price and maintained to a level of standard required by the government actor. That’s the way we built our telephone system in the United States. We had a lot of retail competition for local phone providers, even though you’re right. It’s a natural monopoly service in its essence. You’d only need on wire running into the home. But any actor could provide services over that wire. And that’s what we did for phone, and that’s what we should be doing where it’s possible, where cities are dense enough, for high-speed internet access as well.

Jason Hartman: So, you’re saying the phone side of the business is a success then in the US, or not?

Susan Crawford: It has been in the past, but we deregulated… well, two things have happened. Everybody has gotten very interested in high-speed internet access which now is the substitute for a basic phone line. The regulatory model though remains absolutely salient, which is that you insure where possible as much competition on top of a basic facility as you can, and you set the price for or set conditions for the wholesale facility. But the really big point here is that it’s policy that makes the difference. These networks don’t emerge by magic, and they certainly don’t emerge to cover all Americans at a reasonable price without extensive government intervention. We rely on private industry to build them, but always subject to public demands. This isn’t a right/left issue. This is about making the entire country competitive as a national matter.

Jason Hartman: So again, I just want to make sure I understand. How do we do that? We do it by having wholesalers and then retailers, the model you were mentioning about Seoul, South Korea and other countries?

Susan Crawford: Well, there seems to be a particular interest. So there are a bunch of different ways to do this. In very dense urban areas, you would want to have a price regulated wholesale provider with a bunch of retail providers serving individual apartments or individual buildings. In areas that are less dense, retail operators may not show up, because it isn’t economically rational for them to do it, you might allow a single monopoly provider, but you’d regulate them. You’d make sure that reasonable priced service was available and that every person within the rural area, wherever you’re operating, is reached by it. So we did that with telephones. There’s a universal service obligation. And in really remote areas, where nobody has any incentive to go and serve them as a private company, we routinely subsidize phone service and we are now shifting to subsidizing high speed internet access service. This is just the way these infrastructure projects work. That’s how electricity happened in America, and water and gas. We really need government intervention in order for everybody to be served at a regular price.

Jason Hartman: Whenever anybody recommends more government intervention I get worried, but it seems like with infrastructure related issues, it’s hard to argue with that philosophy. Now, I don’t know how, without having monopolies, free enterprise really does it. Maybe the answer is, and you can address that in a moment, but this might tie in. Maybe the real answer is just to have Wi-Fi, Wi-Fi max everywhere. Maybe you want to blend that into your thoughts on this.

Susan Crawford: Okay, so two responses to that. One is that you can think of while an airplane flying around gives you mobility, allows you to travel all kinds of different places, but airplanes need runways in order to land. You can’t have a Wi-Fi or wireless system without fiber, without wires to which those transmissions can attach. So the whole country needs this fiber upgrade in order to keep up with the rest of the world. Second answer in response to your concerns about free enterprise, I share those worries. I am a big believer in capitalism and the free market.

If you don’t have underlying infrastructure like national highway system, like communications networks that connect the country, you can’t have a large functioning competitive market place. These are the basic inputs that you need. So that’s why Eisenhower, republican president, made sure that we weren’t relying on private enterprise to build roads between cities, but that we had a federal highway system to knit the country together and make commerce possible. So this is just the basic stuff that makes the free market operate.

Jason Hartman: So, how would it work? Of course, Wi-Fi cellphone towers ultimately need to connect to some hard wire somewhere, so I completely understand that. That would just be beautiful. I think the one great thing, although I disagree with them on many things, the UN could do, is just make global Wi-Fi. That could be a UN project and it seems like it would be just an incredible knowledge booster for the entire planet and resource booster. But just let’s talk about it just in the US for a quick moment. Is that possible? Can we have that here?

Susan Crawford: Well I’m not sure where you got the UN idea from…

Jason Hartman: It’s just my idea. It may be crazy.

Susan Crawford: It is I think.

Jason Hartman: Okay, why’s it crazy? Tell me.

Susan Crawford: It’s crazy because the UN’s role is to work on standards for telephone numbers, they’re very good at that, but they don’t have any role with national connectivity issues. That’s always been a national issue.

Jason Hartman: Sure, but the UN could get behind that and become the promoter of it, and work on standards for countries to figure that out. I don’t know how they would do it, I’m just saying that would be an awesome thing for the planet.

Susan Crawford: Well the UN does set standards for the use of spectrum with the airwaves, the frequencies, and allocates them in ways that all governments cooperate with. But let’s put it this way, we don’t need the UN to do this. Because the US is supposed to be in the lead. That’s our role when it comes to technology. And here, in the United States, with ample fiber connectivity across the country, there could be wireless everywhere. And because you could think of a wireless connection of just the last 50 feet of a wire. So it’s not magical. It doesn’t stand by itself. You get the wires out as deeply as possible into neighborhoods and cities and then you open up hotspots that allow people to send the first 5o feet of their transmissions over the air into a wire, which then connects them to the rest of the country and the rest of the world ultimately.

So the technology itself is not the hard part. The hard problem is policy. Because right now, we have enormous companies dividing markets. So Verizon and AT&T take wireless and cannot compete because of the laws of physics because of what the cable guys are doing on the wires side. And they’re now collaborating. So Verizon and Comcast have a joint marketing agreement which allows them to sell each other’s services. All of this is great for them, but not good for either an upgrade to the existing communications facilities we have, or making sure that we get reasonable prices that might be given to us by competitive market places.

Jason Hartman: One of your suggested talking points is will the FCC ever enforce free Wi-Fi for everybody in the US? Where did that come from? Was that something that we were supposed to have?

Susan Crawford: Nobody has suggested that your connection to the internet should be absolutely free. We didn’t do that with telephones. And there’s no need to do that here. What I’m suggesting is that everybody in the country should have a reasonably priced connection to the internet. Now, the FCC has been suggesting that we make more Wi-Fi available. All Wi-Fi is, is sharing a wire. So businesses like Starbucks and McDonald’s allow people to share wires inside, and that brings come connectivity to people who don’t have wires at home. It’s a poor second best, it’s a complement. Let’s put it that way. It’s a complement with an E. it allows us to have mobility and to work on devices inside our homes and businesses, but the first step and the most important step, is getting inexpensive, very highly maintained world class wires all around the country.

Jason Hartman: Alright, well just wrapping it up, first of all tell people where they can get the book if you would, and then just any closing thoughts that you have.

Susan Crawford: Sure. Well, if you want to learn more about all of this and the steps that have led American into the hole it’s in today, and what you can do about it, read Captive Audience, which is available on Amazon. And I look forward to hearing from people who are interested particularly joining in the quest for better internet access at the municipal level which is where a lot of the action is today.

Jason Hartman: Fantastic. Well, Susan Crawford, thank you so much for joining us.

Susan Crawford: Thank you for having me. I really appreciate it.

Narrator: Thank you for joining us today for the Holistic Survival Show. Protecting the people, places and profits you care about in uncertain times. Be sure to listen to our Creating Wealth Show, which focuses on exploiting the financial and wealth creation opportunities in today’s economy. Learn more at www.JasonHartman.com or search “Jason Hartman” on iTunes. This show is produced by the Hartman Media Company, offering very general guidelines and information. Opinions of guests are their own, and none of the content should be considered individual advice. If you require personalized advice, please consult an appropriate professional. Information deemed reliable, but not guaranteed.

Transcribed by Ralph

The Holistic Survival Team
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Episode: 159

Guest: Susan Crawford

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