The former special assistant to the president on science and technology i no longer the forefront of the internet revolution. Internet capabilities of other countries are faster and cheaper than the west which could threaten americas Economic Future. This program is about an hour. Host susan thank you for being with us. Guest ive been looking forward to talking with you. Host lets start with the basics. What is the status of broadband in America Today . Guest the picture at americas quite different from the other developed nations. We have god for very high. And download. In america cable monopolies and local monopolies in each region of the country dominate that market. And for 85 of americans the only choice with a live will be their local cable monopolies. We dont have any of the fastest 25 cities in the world when it comes to Internet Access in america so we are not in the worlds leaders. We are somewhere in the middle of the pack and we also have a deep Digital Divide so having an Internet Access at home is very tightly correlated to your socioeconomic status or maybe about half of the people with incomes between 30 and 50,000 a year have it at home and the number is lower for people with incomes under 30,000 a year. Rich people tend to have Internet Access at home and also 9 of americans cant buy Internet Access wherever they live because its just unavailable and hasnt been built out of their area so thats a picture. Host how did we get here . It seems the u. S. Was the inventor of the internet and it dominates google or facebook or apple dominate the internet. What is the divide . Guest there is quite a history here so the great thing about the internet is that you can reach anybody. There is a universal addressability system and the whole idea was that the content provider like a google would not be subject to the whims of the telecom provider. But we have this huge split between the ideals and the openness of the internet which depend on openness and connectivity and the wires and money of Building Infrastructure in america so we started off in america with a phone system that was the leader of the world, the envy of the world and then in about the 70s and just giving some history here, the cable industry was launched in america. Cable initially was just for oneway entertainment. But as telephone and cable started competing particularly in the late 70s, and cable have a tremendous advantage which was local exclusive franchises and then a law in 1984 that completely deregulated cable. So fastforward, since 1984 and now cable with its model of not being particularly open you know, not being available for addressability everywhere has taken the lead as a financial matter. Its much cheaper to upgrade a cable system than it is to dig up the phone phone wires and replace them with fiber. So we have gotten to this place of local monopolies as a result of just policy vacuums in United States. We got rid of a very long history of common carriage under which the telephone operators had operated. They had to take everything and make sure that it got to the place it wanted to to go and warrant allowed to pick and choose among content. This was a tradeoff for the enormous expense it took to build those telephone systems. So here is the deep problem. Its the infrastructure elements that are very expensive to build and operate on huge economies of scale and cable has taken the lead, dominates the market and the Telephone Companies are backing off. As a result of all of this we have no plan to upgrade to those very high speeds around the world that people are getting into Cable Operators have no particular obligation to serve all of america to close this internal divide. So that is how we got here. Its failures in policy which i would like to spell out a more detailed plus the frank economics of how expensive it is to build. Its very difficult to see in a competitive cable showing up right now. Host seems that we are in a moment where Cable Companies would have had to act like telecoms where they like telecoms were they would have to recognize the fcc or whoever whoevers regulating them would have to recognize that cable had to be the same philosophy that apply to telecom for 100 years and that is not the case i would assume. Guest that is not the case and hasnt been the case for 30 years. Started in 84 we try to clawback a little bit of that in 1982 but there is nothing in the 96 at that would make the mac differently so for the last 30 years cable has been building under the assumption that they wouldnt be essentially regulated very much. Host wasnt as simple as that . Guest basically they see themselves, its deep in their dna. They see themselves like any private store in the corner. No difference. They have never viewed themselves as a utility subject to these obligations to serve everybody, to serve them at a reasonable cost and to connect with other networks. None of that is part of their ethos is an industry. That was part of the telephone industry but they have lost this battle to americans. They have almost completely backed off and gone into their corner which is wireless. Verizon and at t are mostly Wireless Companies today. Providing wired infrastructure to americans so high prices huge Digital Divide internally in the country as a whole is sagging in the national compe about common carriage and common carriage does seem to be a way of thinking about satisfying some of our needs for broadband. What are the origins of common carriage and how is it executed by the Telecom Companies . Guest this is an ancient regime and goes back to keep operating in the era in europe. The ideas when you hold yourself out to the public and providing an essential transporter communications facility, you are subject to public obligations even though you are a private company. So the whole idea of common carriage which actually came not only from their pet travel through railroads and the telephone industry in 1910 is that in exchange for essentially a private monopoly to provide people with services you take on public to charge a reasonable rate to serve everyone and to not discriminate when it comes to content. So yes this regime which still exists in law but has not been applied to the Cable Companies would if applied to our highspeed Internet Access picture in america fix our problems. Host now what are the threats . The threats are just the Digital Divide and we will get to that but i want to focus to begin with, notion of free and open internet and democracy not just the divide but the possibilities that the isps and the are filtering or snooping. Do you put that ahead of the divide . Guest these two things fit together. One is a symptom of the other. With no competition essentialessentially for highspeed Internet Access in america the provider has every incentive and no legal limitations to price discriminate to make sure that its reaching rich markets and charging as much as they can possibly pay not serving the poor systematically which helps the Digital Divide issues and ensuring that they can provide specialized services, their own videoondemand whatever it is over their pipe that they charge a lot for her. So the risks really cant be overstated. You can think of the cable pipe is just one big flow of water and pipe is controlled absolutely by the gatekeeper of the Cable Company. Just about four channels are were in our play to Internet Access of that giant pipe. They are moving to technology that would make the pipe essentially undifferentiated. Its all the same stuff but the gatekeeper, the Cable Company can pick and choose among communications and look at whatever it wants to send some communications to peco when you thought you were going to chicago all kinds of opportunities for twisting dials that would remove the threat to them of competition and services that they would like to sell to americans. So think of anything, Home Security video whatever it is, cable guys can choose what will be more life to the consumer and can pick and choose among what goes on line and just deliver that to households. Its like living in a gated community. Taking the idea of the internet which is all about not having to ask for permission and being able to reach anybody in the world and sticking that on top of an infrastructure which absolutely controls a set of four or five gatekeepers. There is a deep conflict there and the threats are very real. Host now you have been restrained so far. Your book is very much about the story of comcast. You mentioned for a five Cable Companies. You havent mentioned comcast specifically. Is the threat you are talking about present or future . Are there signs of that sort of threat now or is it more of a concern for the future . Guest they are careful to restrain themselves so met let me explain. The cable guys fight each other for franchises in the 70s and 80s we call this franchise wars. Since then there has been tremendous consolidation in the industry so spot comcast by far the giant. They have 50 million american households in their footprint in 39 states and about 45 of the American Population is the within the comcast footprint. They never compete with a big company. They are never in each others markets. They long ago divided the country among themselves the time warmer has separate markets and is also very big. Its been second with not a distant second but not quite up with comcast and there are a couple of others Charter Cablevision and cox and in their regions when it comes to highspeed Internet Access they dominate with the exception of port cablevision which has to fight off a little bit of fiber competition but each one stands alone. So the threat is real today to a company like saying netflix. Netflix is responsible for about half of internet traffic traffic. Its really eating up a lot of traffic but their future is entirely dependent on what the Cable Companies decide to do with them. Whether they make it less convenient for netflix to bring extremes close to people so that they can be seen easily and quickly, whether the Cable Companies start charging based on usage so that people will start assuming that accessing that will drive their Internet Access bill, theyre bundled bill up even higher so they will drop netflix so their Economic Future completely dependent and thats just one story of hundreds of thousands that had to do with the power of a single gatekeeper over all information reaching American Homes. Host in my own exploration of the center, the backbone and nationwide International Grid networks its a bit of wild west and theres a lot of Competition Companies are not particularly profitable but prices are constantly dropping. But then again its this big stack of fishing nets when at the moment where those Backbone Networks have to connect to comcast that becomes very contested. Yes go right, and this is in small the entire picture. Bandwidth should be cheap and it is getting very cheap to carry it long distances and yet because of this bottleneck controlled by a few actors over eyeballs, access to the home they can charge whatever they want. And so where you might see a very contested market between cities, i am not sure that is the case because they will start dealing with each other these guys over time but anyway putting that aside even though bandwidth is getting cheaper and storage is getting cheaper and computation is getting cheaper the whole price of the system is going down except for businesses and consumers who have to buy these connections because they are there is absolutely no control over price. And so price, quality and reliability all of that is up for grabs and the cable industry by the way has the lowest rating of Consumer Satisfaction of any industry in america. Host do you think americans will stand for it for very long separate from inventory of policy possibilities . I envision a sort of almost like a organic Internet Access but a future in which we sort of if there are possibilities for different options where we can choose you know a service that if its not public then perhaps its transparent or at least its fast, something that has some spirit of not separate from these giant monopolies. Do you think people would choose that if the opportunity were there . Guest the assumption behind the question you would have the ability to choose. Im not sure that makes sense to tell you the truth. We dont for the moment but thats because these services as an economic matter are really a natural monopoly. Its so expensive to build them out initially and then you need a lot of revenue flowing in to pay yourself back for that. And it doesnt make sense to have more than one wire to a home really. So, its very difficult for competitors to enter this field. Its just like water or electricity. You wouldnt want to have those connections to your home in which to choose. Host what is the way out . Guest the way out is what other countries are doing which is to ensure that there is a fiber to home connection everywhere, that every single citizen has a. Just like clean Running Water and electricity. Host fiber to home connection meaning essentially a strand of glass that allows potentially infinite amounts of information. Guest infinitely upgradable. What is odd about where we are stuck as a country with the series of monopoly companies is that cable physical connection itself is second best to fiber. Cable is a hybrid Fiber Coaxial and it was built this network for passive consumption of information for being entertained. It can be upgraded to very high download speeds but doesnt upload matter is very crammed in architecture. We think of ourselves as publishing and going to the doctor and all those things we should be doing that is going to require a fiber to the home connection and as you said a single thin strand of glass with lasers and light can carry 90,000 tv channels and can be upgraded infinitely evidently as far as we can tell. Host you can create more capacity. Guest the capacity is infinite. The United States has a deep tradition of private operators Building Communications networks subject to public obligations. That is where the phone company came from and it works very well and that is where this fiberoptic National Network eventually is going to come from. I see a progression. Mayors all over the United States are really irritated about the high prices and low Capacity Networks we are stuck with so they are agitating for fiber to be built to their first businesses and then to their consumers homes. That progression is a patchwork across the country that will eventually reach a Tipping Point of jealousy and awareness in america which will change federal policy and drive towards having an integrated National Network but not nationalized, not owned by the government. That is not our tradition and not how we do things but giving private actors are very usable rate of return in exchange for what is essentially a monopoly on services wherever they operate. This works pretty well. We can also, something that happens in many developed countries is say the operator has to be wholesale level only and its going on in singapore and many European Countries and australia. The operator then is obliged to allow lots of retail competitors to reach homes. People call this homes with so imagine you move into a new house in a development somewhere and america decided for utilities. You get water electricity and they hook up to the sewage system and and a choice of Internet Service providers. They will be traveling to you over a standardized wholesale fiber tail that has been built into your house. This happens in seoul today. If you move into an apartment in seoul you have a choice of three or four fiber to the home providers Internet Service providers selling you services for 30 or 40 bucks a month for 100 megabits per second which means equal upload and download than they are about to upgrade to faster in seoul so lots of choice, very low prices and a standard wholesale infrastructure across the entire country. It really makes sense. Host this is happening in some places in the u. S. Chattanooga is it rate example. Can you describe the model and whats happening there . Guest in chattanooga that electrical utility there decided to upgrade to use their connection to every home the electrical utility to provide a string of fiber into their home and they are doing that. They are selling services to residents. They dont have this retail competition that ive just explained that the utility is in the business of making reasonably priced fiber available to everybody so as result businesses are moving from knoxville to chattanooga and they are very excited. Every part of chattanoogas excited because they are getting reasonably priced Internet Access. Host how to the Cable Companies feel about that . Guest they have fought tooth and nail. Actual