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CHAPTER III - Future Broadband Markets: Wireless Access and Abbreviated Bottlenecks

Economies of scale are a hallmark of network industries and the broadband market is no exception. The high fixed cost of building broadband networks to all (or most) households in a geographic area makes investment decisions challenging for the private sector. In the current environment, the debate over investment in infrastructure for very high speed home connectivity (typically a gigabit or more) vividly conveys the worry about the consequences of investment decisions. Although consumers in many places may have the choice of more than one ISP, the concern is that not enough will have a choice of more than one “gigabit plus” provider. (See the discussion below on the likely size of the share of households with just one gigabit provider.) The upshot would be large parts of the country where the gigabit provider has a monopoly for the provision of Internet service at next generation speeds. This, in turn, raises the potential for deleterious marketplace impacts that can accompany monopoly provision of a good or service.

Avoiding this result means marshaling the forces of technology. If the economics of broadband seem destined to have a connectivity market where a single provider holds the bottleneck, one possible solution is to engineer around the connectivity market. That is one possible future, offered Kevin Werbach, Associate Professor of Legal Studies and Business Ethics at the University of Pennsylvania’s Wharton School, if wireless mesh networks have the capacity to provide access to the Internet for consumers. The notion of businesses or consumers subscribing to a service that gives them access to content or people using electronic devices may become obsolete. The pace of software- driven innovation is so rapid that the means to access communications infrastructure may migrate away from a carrier providing connectivity services. Rather, pervasive high-speed wireless networks, driven by software that allows access devices to find connectivity on demand, may become the norm for how people get online.

A future marketplace might then look as follows:

  • Cognitive mesh wireless wins in the connectivity market.
  • Almost everyone will have access to last mile networks at multi- gigabit speeds.
  • Almost all traffic is video, virtual reality, games or driven by sensors.
  • The average American has more devices that connect to the Internet than choice of providers.

If the future plays out in this way, sector-specific telecommunications regulation could become a thing of the past.

Although such an idealized vision may sound far-fetched, experience in the wireless market shows how quickly things can change. Former FCC Chairman and current CEO of the Coalition for Green Capital Reed Hundt noted how each generation in the wireless access market has had different dominant players. Blackberry dominated the beginning of the 3G era, with Nokia also having significant market share. The 4G era has seen Samsung and Apple battle for market share, with the Chinese company Xiaomi also in a strong position.

Whether the transition to 5G will similarly disrupt the market and whether 5G will result in radical decentralization that eviscerates the market for connectivity remains to be seen. Hundt suggested that a 5G world would result in a new architecture for the network whereby cloud storage and smart devices result in fewer bottlenecks. Such a world will not put an end to the pursuit of bottlenecks, as the point of competition in network industries is to be in a position to control the bottleneck through which dollars flow. The goal of policy is not to prevent companies from pursuing and winning such market power, but instead to ensure that winning companies cannot determine how the market evolves in the future. The power of 5G technology promises to prevent winners in leveraging bottleneck power to shape the succeeding generation of technology and marketplace competition.

The market structure of the future, then, is likely to have wireless play a prominent role in how people access the Internet and other digital applications. As Eli Noam of the Columbia University Business School said, consumers are likely to have the choice of two wireline providers—telecom and cable—and at least two 5G providers beyond the one offered by the incumbent wireline provider. Yet for wireless to be a viable substitute for wireline access in the broadband subscription market, sufficient spectrum capacity is vital. For the most part, conference participants did not see wireless in today’s 4G environment as a substitute for wireline broadband access. Chris Libertelli, Vice President, Global Public Policy at Netflix said that a small fraction of Netflix users access content using a wireless device on a data plan; the presence of data caps limits behavior. However, Catherine Bohigian, Executive Vice President, Government Affairs at Charter Communications, noted that her company’s investment decisions today treat wireless as a competitive threat to wireline broadband.

Although wireless animates the vision of a future with no market- place bottlenecks, wireline infrastructure is indispensable to realizing it. Better wireless requires capacious backhaul for data traffic, and that means extensive deployment of fiber optic networks. Since fiber networks are a necessary condition for robust wireless access, much of the policy discussion to follow centers on ways to encourage the construction of fiber optic networks. That said, today’s efforts to increase the supply of spectrum, whether through incentive auctions for broad- cast spectrum or better spectrum sharing by the federal government, remain important priorities.

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