Just to review FFTH, is where the homeowner buys his own Internet connection.  Under the simple scenario, Joe the Fiber Layer comes to Joe the Homeowner and offers to build him his own fiber optic Internet connection.  The cost of this construction is highly sensitive to the number of homes which take the offer in a given area.  Using Slater and Wu’s numbers regarding the Verzion FiOS roll out, the capital cost for a fiber to the home connection is about $7,000 if 20% of homes passed take the service and on the order of $3,000 to $4,000 at a 40% take-up rate.

Insight:  There is a marketing strategy which plays perfectly to this problem.  Suppose Joe the Fiber Layer comes to Joe the homeowner and makes the following offer, “I will build you your own fiber Internet connection for $5,500.  However, if 5 other homes on your line buy FFTH, I will send you a check for $500; if 10 more take it, I will send you a check for $800; 20, $1,500; etc.” I can imagine that in everywhere in America there would be neighbors leaning across the hedges saying, “Dude, we just got our FFTH connection.  It is AAAAAWSOME! You totally have to get one of these!”  Word-of-mouth is the best marketing, but peer pressure is better.

When I gave my answer, I was thinking about the Netherlands. One of the major investors in fiber to the home projects in the Netherlands is a real estate developer. The reasoning is simple. Houses with access to broadband Internet services sell for a premium over comparable house without. (Lehr, Osorio, Gillett and Sirbu did an excellent TPRC paper measuring the magnitude of that premium, which I cannot find). In addition to making money as a fiber access provider, the real estate developer could capture the benefit of increased property values created by the availability of broadband Internet access.

I mentioned my FFTH idea to David Isenberg at the recent CITI 25th Anniversary Gala, and to his credit, David mentioned me in his blog posting (thanks, David). In addition, Sascha Meinrath and Michael Calabrese at the New America Foundation have organized an event for this Friday to examine the idea of FFTH. Calling it “Home with Tails”, Tim Wu and Derek Slater examine in a forthcoming paper whether this is a “customer centric” means for driving broadband adoption. Further, FFTH might possess other benefits. Eli Noam has suggested that private ownership of the access potion of the broadband network would help to solve the network neutrality problem.

Insight: When I suggested FFTH, I was not thinking about Network Neutrality and other consumer issues. I was merely thinking about distributing the risk of potentially stranded investment. However, since the idea of FFTH seems to have some merit I wanted to put a finer point on it, examine some of the potential downsides, and the policies which might be necessary to make FFTH possible.

Think about this. Instead of getting a cable modem or FiOS from Comcast or Verizon, Joe the Fiber Layer knocks on your door and offers to build you a fiber loop to the nearest Internet access node. And for less than it would cost to have Joe the Plumber remodel a bathroom (somewhere between $2,000 and $7,000), you would have your own fiber connection which greatly increase the value of the whole house at resale time.

The first thing necessary for the policies which to enable a FFTH business model is full and open interconnection to the nearest feasible Internet access point. This might be a remote terminal, street cabinet, or cable node. Creating effective access at this level is not necessarily an easy task. This may be small engineering spaces with powering and other serious engineering concerns. Thus, it might be able to accommodate every Joe or Jane the Fiber Layer who wants to put their customers’ equipment in those access points. Further, it would be simply impossible for each homeowner to have someone dig up the streets or hang fiber everywhere.

Here in Germany, we have some experience with policies for privately owned access networks. Back about 20 years ago, or so, a political decision was made to separate cable delivery from in-building plant. An artificial classification of access Level 3 and Level 4 was created. Level 4 network providers owned the cable wires inside individual buildings and there are some 700 of these companies still in existence. Level 3 providers were restricted for offering in-building wiring. This arrangement has lead to certain economic inefficiencies and may have some effect in hampering cable deployment in Germany. Thus, any policy designed to enable FFTH should not create artificial classifications and unreasonably prohibit network from providing services further up or down in the network. And who knows, you might someday find a major incumbent seeking unbundled access to your private fiber loop.

What makes the Transition so interesting to me is not the flying car concept. This idea has been around for decades. What is so interesting is its regulatory origins. According to Popular Science, the Transition’s inventor, Carl Dietrich, got the idea from a 2004 Federal Aviation Administration rule change. The FAA created a new class of planes, called light-sport aircraft. To fly one, pilots would need only 20 hours of training, half that required for the most common license (haven’t gotten mine, yet).

I have made the point in a previous Cool Stuff, that there is some optimal level of regulation, which while guarding against the “morals of the marketplace”, would still enable new firms to enter. These new firms bring with them, new forms of welfare-enhancing competition and new business models not contemplated by the regulator at the time when it promulgates its rule changes.

Insight: I simply must have one. I think I will clean out my garage so I have space for it to park next to my sQuba.

It is not often that my work squarely lines up with Presidential politics; however, it seems that work I am currently doing relates to statements made by Sen. John McCain on the campaign trail. I am en route to the 19th European Regional International Telecommunications Society Conference in Rome. Of the two papers I am scheduled to present, one is a paper chronicling the history of the US FCC’s Part 15 rules. These are the set of rules which enable devices such as Wi-Fi in the United States. Based on my research for this paper, Sen. McCain’s recent statements from the campaign trail are demonstrably false.

In a written response to Science Debates 2008’s questionnaire for the two major party’s Presidential candidates, the McCain campaign stated:

I am the former chairman of the Senate Committee on Commerce, Science and Transportation. The Committee plays a major role in the development of technology policy, specifically any legislation affecting communications services, the Internet, cable television and other technologies. Under my guiding hand, Congress developed a wireless spectrum policy that spurred the rapid rise of mobile phones and Wi-Fi technology that enables Americans to surf the web while sitting at a coffee shop, airport lounge, or public park.

While the first two sentences are factually correct, the assertion that Sen. McCain’s “guiding hand” led to these policies is false. The policies which led to the creation of Wi-Fi (the IEEE’s 802.11 suite of standards) were a set of rules originally crafted in a 1985 FCC Report and Order. This rulemaking permitted low power, unlicensed use of spread spectrum radios in the 2.4 GHz band in which the standards 802.11 b & g currently operate.  (The 5.8 GHz band, which 802.11a uses, was opened by the Commission in a 1996 proceeding).  The first commercial spread spectrum product was a radio LAN which was introduced by Telesystems in 1988. The IEEE did not ratify the first 802.11 standard until 1999.

While it is true that the FCC is an independent regulator with delegated rulemaking authority from Congress, it is completely specious for Sen. McCain to claim credit for these rulemakings.  At the time of the 1985 rulemaking Sen. McCain was not Chairman of the Senate Committee on Commerce, Science and Transportation. Indeed, in 1985, Sen. McCain was serving in the House of Representatives.  Further, the 1985 Order was based on a 1979 consultant’s report commissioned by the FCC.  MITRE, the firm which drafted the report, recommended permitting the technologies which Wi-Fi uses in certain spectrum bands (the ISM band).  This was certainly not Sen. McCain’s idea, but Wallace C. Scales, the report’s author.

Similarly, Sen. McCain’s the claim that he guided the Congressional policy making which lead to the widespread adoption of cell phones is equally bogus.  The original cellular telephony spectrum licenses were allocated and assigned by the FCC in the early 1980s.  However, the true stimulus which, “spurred the rapid rise of mobile phones,” was the 1993 Omnibus Spending Act.  This law granted to the FCC the power to assign spectrum licenses by “comparative bidding” - auctions.  Through these first auctions the FCC allocated and assigned Personal Communications Services (PCS).  These licenses were designed to compete with the pre-existing cellular licenses and let to the fantastic success of mobile communications.  While this law was in fact drafted by Congress, it was done so by a Democratically controlled one.  Thus, in 1993 (and 1985) Sen. McCain was not the head of any Senate Committee.  (Just as a historical footnote, Sen. McCain was the only Republican in both the Senate and the House to vote against the 1996 Telecommunications Act).

Insight: Most candidates stretch the truth, embellishing their records or being one of the many fathers to success.  However, the absence of penalties for a candidate’s false statements distorts the electoral process - even those little tiny deceptions which go unnoticed by except by the wonkiest of policy wonks, like me.  The highest office comes with it the fiduciary duty.  Thus, we must hold candidates, “not to mere honesty alone, but a punctilio the honor most sensitive,” as Justice Cardozo admonishes us.   Allowing our candidates even the most minor of misstatements and misrepresentations creates a giant incentive for politicians to try to con us.  This leads to the “adverse election” of unqualified candidates who, once in office, establish bad policies.  We deserve better from our political process and should hold our candidates for elected office to the highest standards of “truthiness”.

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.

While Prof. Wu’s might be right in his conclusions, I have to take exception to some of the points he makes along the way, particularly regarding 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 includes 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 Working Papers #41, #42, and #43, 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.  Nonetheless, the economic congestion protocols we developed would allocate bandwidth in real-time based on willingness to pay when there is congestion and it would be free otherwise.

To be fair, a business model which relies solely on congestion-based prices for its economic logic would not be sustainable.  Imagine an airline which would allow its passengers to fly for free, unless more passengers show up than there are seats, in which case it will charge all the passengers based on their willingness to pay.  One would expect such an airline to have very small planes, or, more likely, very large seats in its planes.  Without a way to ensure rivalry among its passengers for its capacity (i.e., seats), such an airline would surely go out of business.  Thus, a sustainable price for bandwidth must reflect the cost of both production and consumption of the resource.

Insight: I continue to tout these papers in my blog because they are important, cutting-edge work.  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.  It would be nice if Prof. Wu would put forward some of the available solutions to “alternative supplies of bandwidth” in addition to pointing out the problems.

The National Association of Broadcasters is now opposing tests the FCC is currently conducting which will measure the impact of unlicensed use of the White Spaces on digital TV reception. In order to protect digital TV receivers, potential White Space users must be excluded, and the NAB is throwing its weight around to ensure that outcome.  According to a quote from NAB spokesman Dennis Wharton, “We’re not going to be engaging in threats or anything, but about 70 members of Congress have already sent letters in expressing concern.” Well, as I wrote in a previous entry on Cool Stuff, at least one of those 70 letters is total bunk. Nonetheless, the cost to all of society of affording interference protection to this minority must also be considered.

Insight: If the NAB’s argument is accepted without scrutiny, the 14% of TV households will prevent the other 86% of US TV households (plus the TV-less households) from using those radio frequencies for broadband Internet, baby monitors, new forms of low-power broadcast, and other RCS (really cool stuff).  This lost benefit will not be compensated.  The exclusion of certain competing uses is necessary but not sufficient to ensure that society reaps the maximum benefit from the radio spectrum.  A means through which spectrum users can bear the costs they impose on others by excluding them is also necessary.

The conference looked at the origin and evolution of the FCC’s Part 15 rules.  There were several interesting takeaways.  Most of these are lessons which we already know, but all too often take for granted.  Keynote speaker Michael Marcus reminded the audience that people frequently act in their short term interest, in a way in which they foreclose long-term opportunities for themselves.  Dr. Marcus described the regulatory battles of the 1980s during the FCC’s rulemakings where cordless manufacturers fought fiercely, opposing certain rule changes.  These rules now enable most of the cordless phones these manufacturers now sell.  The closing keynote, Dewayne Hendrix pointed out how spectrum policy the cognitive dissidence spectrum policy faces in affording interference rights.  We allow licensees to “whine” about interference when they use decades old technologies which do not have the ability to reject unwanted signals which more modern gear does.

Insight: In the US, there is no such thing as unlicensed spectrum.  Rather, and this is an important distinction, the FCC allows low power operation on a sufferance basis, proved the devices cause no harmful interference and accept all received by them.  Operators have a right, but not a vested right to continued operation.  The FCC has historically viewed the radio energy emission from these devices as not rising to a level sufficient to call “spectrum”.  This has left me wondering if there is no such thing as spectrum at all.  Spectrum is a legal and engineering construct to control for an immutable fundamental physical property.  When multiple electromagnetic waves, used as carrier waves to transmit information are incident in time, harmonic in frequency, and alight on the same reception antenna, they degrade one another’s ability to transmit information.  Next generation radio policy will focus more on solving the coordination/congestion problem, and not on “spectrum” per se.  (I also gave a really cool PowerPoint.  (Click to start, click to advance each slide after the animation stops).

Yesterday, the European Parliament’s Industry Committee adopted a report urging that the EU should ensure a set of harmonized, EU-wide rules on how to allocate radio frequencies that will be freed up when analog terrestrial television broadcasting ends in 2012. The report was an own-initiative report authored by Italian liberal MEP, Patrizia Toia and was adopted in Committee with 41 votes in favor, 1 against, and 1 abstention. A plenary vote is scheduled for September. Further, the amendments to the report argue that approximately 100 MHz of the Digital Dividend could be reallocated to mobile broadband and other services such as public safety services, radio frequency identification (RFID), and road safety applications, without preventing broadcasting services from flourishing.

Insight:  While the transition from analog to digital terrestrial television should be complete in Europe by the end of 2012 (nearly 4 years after the U.S. is scheduled to complete its transition), decisions on how to reallocate the approximately 75% of the highest quality spectrum which will be released cannot come fast enough. Mission critical broadband communications networks require long lead-times to plan and deploy, and the services they enable are nothing short of lifesaving.  Public safety and security users urgently need an additional allocation of a approximately 30 MHz for these purposes.  The Industry Committee correctly urges Member States to release their Digital Dividend spectrum as quickly as possible, follow a common methodology, and develop national Digital Dividend strategies by the end of 2009.

Insight: The rich and lively discussion in the Open Flow Track seemed to focus more on engineering and business practice questions in terms of getting APIs to work together and making sure that privacy, security, and trust are respected according to applicable law and good business practices. I still found myself searching for more a fundamental concept. A more fundamental question which was present but perhaps not fully articulated was how to describe this continuum of “openness” vs. “closedness” (not a real word). So, here I get to like to wax poetic for a second. Eric Raymond, a pioneer of Linux and the open source movement, gives us a particularly literary book title and syllogism, “The Cathedral and the Bazaar”. Raymond sees the cathedral as representing a system of architecture which is, “carefully crafted by individual wizards or small bands of mages working in splendid isolation - no beta version.” It is a centralized, coordinated approach. Open source architecture he likens to “a babbling bazaar of different agendas and approaches.” It is decentralized with varying standards and rules, but is not anarchy. Both approaches seem to work in creating stable systems, though they may be suit to different types of applications.

It was widely agreed that there should be a general preference for openness. I agree, but to my mind that there is a choice between openness and closedness. This choice implies a tradeoff. And, if there is a tradeoff, there is by necessity some optimization. What the optimum is will depend largely on your point of view and social optimum does not necessarily equate one-to-one with a private optimum. At the very least we can have a rational discussion as to what the relative merits of the tradeoff are and where the different optima may lie. In sum, do we want a world that looks more like the Cathedra or the Bazaar, or is there an entirely new form of architecture that we should consider?

For the C Block, comprising 22 MHz in the upper 700 MHz band, the FCC created special open access provisions. The FCC will require licensees to provide a platform that is open to third party devices and applications. Specifically, licensees must allow customers, device manufacturers, third-party application developers, and others to use any device or application of their choice on their networks in this band, subject to certain limited conditions. Licensees may not “lock” handsets to prevent their transfer from one system to another, or to other services that compete with wireless service providers’ own offerings. The FCC concluded that these rules were justified because it did not find “that competition in the [mobile] marketplace is ensuring that consumers drive handset and application choices, especially in the emerging wireless broadband market…. it is easy for consumers to differentiate among providers by price, most consumers are unaware when carriers block or degrade applications and of the implications of such actions, thus making it difficult for providers to differentiate themselves on this score.”

Insight: Beware the law of unintended consequences. Here it is not the proverbial monkey wrench, but a pair of bolts, literally, which could bring the FCC’s policy to a grinding halt. Implicit in the service rules is the assumption that the band will evolve to resemble the next generation of the current mobile market in the US. But assumptions like this never last. I wonder if it is possible for clever operator could escape the open handset requirement by providing fixed services. The 700 MHz spectrum is particularly well suited to a variety of applications, one of which might be fixed broadband. In rural and suburban areas fixed wireless broadband could be an effective competitor to wireline. Presumably these areas would be sufficiently competitive that the FCC’s finding would not hold (remember it is limited to handsets, and not even service plans). Thus, if the licensee is bolting “pizza boxes” to the side of homes, would this type of network not be subject to the open access provisions? It’s unclear, but something to think about.