Re: OPEC 2.0 -- Barrels vs Bandwidth

[David Farber <dave () farber net>]

________________________________________
From: Kenneth R. Carter [ken () kennethrcarter com]
Sent: Thursday, July 31, 2008 9:20 AM
To: David Farber
Cc: ip
Subject: RE: [IP] Re: OPEC 2.0 -- Barrels vs Bandwidth

While I too largely agree with Prof. Wu's conclusion, I have to take exception to some of the points he (and Bob) makes 
regarding the cost of bandwidth.

To begin with, the price of oil is based, to some large measure, on the cost of its production and not necessarily the 
cost of its consumption.  The cost of production includes the cost to pump the oil out of the ground, refine it, and 
distribute it.  The cost of consumption would include the societal cost of pollution such as global warming caused by 
greenhouse gasses.  Here in Europe where a gallon of gasoline exceeds $9, most of which is tax, the retail price may 
better reflect the cost to society not only production but consumption as well.  The cost of the production of 
bandwidth would include both network CapEx and OpEx.  The cost of its consumption includes the negative effects of 
congestion felt by competing would-be users at times of peak use.  It is effectively zero, when use is non-rivalrous.  
The price of bandwidth, as well as other resources subject to high negative externalities, should reflect the cost its 
production and consumption.  This maximizes the benefits which society obtains from the resource.

This is precisely why, contrary to Prof. Wu's assertions, the FCC is working on such ideas.  FCC: OSP #41, #42, and 
#43, <http://www.fcc.gov/osp/workingp.html> http://www.fcc.gov/osp/workingp.html, on which I am a proud 
coauthor/collaborator, look at precisely these issues.  We designed and tested a system which instead of assigning 
spectrum in static blocks, would co-ordinate use of the spectrum to an efficient optimum.  Beyond the overly simplistic 
bandwidth dipstick, the FCC work also modeled other dimensions of performance, such as latency, and could be extended 
to include jitter, reliability, robustness, etc.  We sought to lay the groundwork for a better system which 
incorporates the best of the licensed and unlicensed approaches to spectrum access.  This system would be, to use Eli 
Noam's words, would be "open, but not necessarily free." As such, it would maintain sufficiently low barriers to entry, 
which would make it sufficiently difficult to obtain monopoly rents.

Regards,
Ken





-----Original Message-----
From: David Farber [mailto:dave () farber net<http://email.secureserver.net/pcompose.php#Compose>]
Sent: Wednesday, July 30, 2008 11:21
To: ip
Subject: [IP] OPEC 2.0





________________________________________

From: Ted Dolotta [Ted () Dolotta ORG<http://email.secureserver.net/pcompose.php#Compose>]

Sent: Wednesday, July 30, 2008 10:57 AM

To: David Farber

Subject: OPEC 2.0



Dave,



Interesting analogy.



For IP?



Ted Dolotta

=============================================================

By TIM WU



Published: July 30, 2008



AMERICANS today spend almost as much on bandwidth - the capacity

to move information - as we do on energy. A family of four

likely spends several hundred dollars a month on cellphones,

cable television and Internet connections, which is about what

we spend on gas and heating oil.



Just as the industrial revolution depended on oil and other

energy sources, the information revolution is fueled by

bandwidth. If we aren't careful, we're going to repeat the

history of the oil industry by creating a bandwidth cartel.



Like energy, bandwidth is an essential economic input. You can't

run an engine without gas, or a cellphone without bandwidth.

Both are also resources controlled by a tight group of

producers, whether oil companies and Middle Eastern nations or

communications companies like AT&T, Comcast and Vodafone. That's

why, as with energy, we need to develop alternative sources of

bandwidth.



Wired connections to the home - cable and telephone lines - are

the major way that Americans move information. In the United

States and in most of the world, a monopoly or duopoly controls

the pipes that supply homes with information. These companies,

primarily phone and cable companies, have a natural interest in

controlling supply to maintain price levels and extract maximum

profit from their investments - similar to how OPEC sets

production quotas to guarantee high prices.



But just as with oil, there are alternatives. Amsterdam and some

cities in Utah have deployed their own fiber to carry bandwidth

as a public utility. A future possibility is to buy your own

fiber, the way you might buy a solar panel for your home.



Encouraging competition is another path, though not an easy one:

most of the much-hyped competitors from earlier this decade,

like businesses that would provide broadband Internet over power

lines, are dead or moribund. But alternatives are important.

Relying on monopoly producers for the transmission of

information is a dangerous path.



After physical wires, the other major way to move information is

through the airwaves, a natural resource with enormous

potential. But that potential is untapped because of a false

scarcity created by bad government policy.



Our current approach is a command and control system dating from

the 1920s. The federal government dictates exactly what

licensees of the airwaves may do with their part of the

spectrum. These Soviet-style rules create waste that is worthy

of Brezhnev.



Many "owners" of spectrum either hardly use the stuff or use it

in highly inefficient ways. At any given moment, more than 90

percent of the nation's airwaves are empty.



The solution is to relax the overregulation of the airwaves and

allow use of the wasted spaces. Anyone, so long as he or she

complies with a few basic rules to avoid interference, could try

to build a better Wi-Fi and become a broadband billionaire.

These wireless entrepreneurs could one day liberate us from

wires, cables and rising prices.



Such technologies would not work perfectly right away, but over

time clever entrepreneurs would find a way, if we gave them the

chance. The Federal Communications Commission promised this kind

of reform nearly a decade ago, but it continues to drag its

heels.



In an information economy, the supply and price of bandwidth

matters, in the way that oil prices matter: not just for gas

stations, but for the whole economy.



And that's why there is a pressing need to explore all

alternative supplies of bandwidth before it is too late.

Americans are as addicted to bandwidth as they are to oil. The

first step is facing the problem.



Tim Wu is a professor at Columbia Law School and the co-author

of "Who Controls the Internet?"



Copyright 2008 The New York Times Company









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