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This month, Cardozo Law School Professor and former Special Assistant for Science, Technology, and Innovation Policy to President Barack Obama Susan Crawford released her new book entitled Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.  Professor Crawford is known as a tireless and vocal advocate for government intervention in and the regulation of telecommunications, and is perhaps the most recognized advocate for the construction of a government-funded and regulated fiber-optic Internet network servicing all American homes and businesses.  Many vigorously oppose Professor Crawford’s ideas by claiming they are overly regulatory and too expensive, but many support her proposals with equal vigor.  We have seen this love-hate relationship play out in the reviews of her latest book.  For me, I viewed Professor Crawford’s book as an opportunity for her to present to the public a well-reasoned and empirically-supported basis for her policy agenda—an agenda I think even she would describe as “radical,” though the term need not be interpreted necessarily in a pejorative sense.  Put simply, Professor Crawford wants to abandon decades of regulatory reform and return to a utility-model of regulation imposed on a government-sanctioned and government-funded (perhaps even nationalized) telecommunications monopoly.  It’s a radical idea, but not necessarily a ridiculous one, since that was pretty much the status quo in telecommunications regulation until the 1996 Telecommunications Act.  It is, however, an idea radical enough to require a thoughtful, careful, and well-researched argument to be taken seriously in modern times.

After reading Susan’s book I am left with this impression:  her proposal remains a radical idea in need of a thoughtful, careful, and well-researched argument to be taken seriously in modern times.  Put simply, her book fails to move her ideas from the radical to the plausible.  Quite possibly, the book does more harm than good, not only to her ideas, but to Professor Crawford’s credibility. I present three examples below to demonstrate the shortcomings of her analysis, although I could easily point out many more.

Example #1:  The “Spectrum Exhaust” Conspiracy

Professor Crawford asserts that spectrum exhaust is a myth perpetrated by the wireless industry as an excuse to facilitate additional consolidation (“the spectrum crisis did not exist (p. 242)”).  Furthermore, she argues that the industry convinced President Obama to spread this lie to the American people in his 2011 State of the Union Address, an accomplishment to which she notes “you had to admire these guys (p. 233).”

This slant on the issue of spectrum exhaust is problematic in two ways.  First, we have the government’s expert agency (the Federal Communications Commission) and the Executive Branch (via NTIA), after doing their own extensive investigations, determining that spectrum exhaust was very real.  To conclude these findings were in error, one needs to make a very strong case.  Yet, Professor Crawford simply dismisses these findings with a wave of the hand, offering not a shred of evidence to the contrary.

My second problem with her conclusion applies here and to her work more generally.  In the book (and elsewhere), Professor Crawford is a vocal advocate for tight government control, if not ownership, of the Internet.  But, if Professor Crawford is right that the FCC and even the President are the gullible shills of industry, then what’s the purpose of government intervention in the first instance?  By Professor Crawford’s own argument, the industry will simply be regulating itself, easily manipulating its regulatory lapdogs (including the President of the United States).

Therein lies the rub, at least as I see it.  A very clear take away from Professor Crawford’s book is that she believes the government is inept, if not corrupt.  Another clear take away from the book is that Professor Crawford believes that the government should fund and run, directly or indirectly, the nation’s broadband Internet network.  She apparently fails to see the blatant inconsistency in her position.  If your argument is that you want the government to assert control of the Internet, then the assumption going in must be that the government is highly competent, operates with great integrity, and holds the highest interest of society in mind.  (An economist would model this situation as a welfare maximizing social planner.)  It may not be a valid assumption, but if it’s not made, then the argument for government control is profoundly weakened.  What is it that the government is maximizing?  How efficiently will it seek out it goals?  Can it be trusted to do the right thing?  Answers to these questions are critical before a rational reader will buy into government control of the most important communications technology we have.  Professor Crawford’s assumption is that government cannot be trusted and is mostly incompetent and controlled by industry, but then she places her trust in the government with respect to some of the nation’s most important infrastructure.  Stated another way, Professor Crawford’s solution to past government incompetence is more government intervention. Obviously, she is arguing with herself, and if she’s yet to figure it out, then I doubt anyone else will buy in either.

Example #2:  A Total Disregard for Accuracy

Another problem with Professor Crawford’s book is a total disregard for accuracy, both in the use of terminology and in the presentation of evidence.  Consider, for example, this quote from her book:

In [the Internet] market, there are two enormous monopoly submarkets—one for wireless and one for wired transmission.  Both are dominated by two or three large companies (Captive Audience at p. 5).

This statement has no discernible meaning in the modern parlance of regulation, economics, law or antitrust.  In fact, the statement is self-rebutting.  A “monopoly” is dominated by a single firm, not two or three large firms.  The presence of two or three firms is per se evidence of the absence of monopoly.  I suspect after reading these two sentences, appearing very early in the book, every trained expert in and practitioner of the law and economics of the communications industries knew this book was likely to be a rant rather than a serious piece of scholarship.  As the reader progresses through the book, there’s plenty of additional evidence to support that view.

For example, Professor Crawford is particularly fond of describing Comcast as a monopoly, but doing so simply exposes a profound lack of scholarship.  If she took two minutes to download and peruse Comcast’s financial reports, she would see that only 42.5% of homes passed by Comcast’s network subscribe to video service, 34% to Internet service, and 17.8% to voice service.   Yet, nearly 70% of U.S. households have broadband Internet service, about 75% of homes subscribe to a video service, and nearly every home has either a wireline or wireless phone.  By any reasonable standard, describing Comcast as a monopoly is just silly.  The label of duopoly is defensible, at least over some services, but to admit duopoly weakens her case and runs headlong into what (a Democratically-controlled) Congress has labeled “effectively competitive” in relevant communications markets.

Example #3:  A Failure to Study Sources

Professor Crawford’s problems are not limited to the careless use of terminology.  Consider, as another example, Professor Crawford’s discussion of what is arguably the central thesis of Captive Audience—the call for the deployment of fiber optic connections to American homes.  Professor Crawford claims that universal deployment of fiber connections would only cost about $50-$90 billion and “would set the stage for strong economic and cultural health for generations to come.”  (Captive Audience at p. 267)  Professor Crawford then concludes that the federal government should build that ubiquitous fiber network, since the cost is only about the “same amount that the country spends on defense research in one year.”  (Captive Audience at p. 267)  This network will operate as a regulated utility with significant financial support from the government.

Given the importance of the issue to Professor Crawford, and given her experience as a former advisor to the President, a professor at a reputable U.S. law school, and an affiliated scholar with programs at Harvard and Princeton, one might expect that Professor Crawford has researched this issue within an inch of its life so as to present a sound policy recommendation.  Yet, Professor Crawford completely bungles the evidence regarding the cost of the venture.

In Captive Audience, Professor Crawford asks the question directly:  “How much would it cost to bring fiber to the homes of all Americans?” (Captive Audience at p. 267)  In search of answers, Professor Crawford then considers two estimates of such costs, including one from the FCC and one from fiber-manufacturer Corning (the latter of which presumably has a strong interest in a government commitment to buy fiber).  The FCC’s estimate was $350 billion in up-front investment ($670 billion in total cost over a 20-year horizon); Corning reported an estimate of $90 billion.  Obviously, these two estimates are miles apart, and the use of either (or not) to support a public policy position requires an effort to understand and to largely reconcile this disparity.  However, Professor Crawford makes no such effort.  In fact, it is not clear she even gave the numbers a cursory review (a point explicitly and publicly confirmed in responding to Phoenix Center President Larry Spiwak’s direct question at her book unveiling at Cardozo Law School this week).  Rather, Professor Crawford simply rejects the FCC’s estimate as “wildly high (Captive Audience at p. 267),” and then embraces the much lower Corning number as probative.

Unfortunately for Professor Crawford, even a cursory glance of the supporting document reveals a fatal flaw in her use of the Corning estimate.  Consider first the central question asked by Professor Crawford noted above: How much would it cost to bring fiber to the homes of all Americans?  Presumably, the answer to this question requires an analysis of the cost to bring fiber to ALL Americans.  Yet, the Corning document states the following:

The investment required to deploy FTTH in the least dense 20% of areas is difficult to estimate due to the lack of existing deployments and published data.  We have therefore focused on the remaining 80% of [households] in our analysis and recommendations.

Oops!  As is made plain in the document cited by Professor Crawford, Corning’s $90 billion number is not an estimate of the “cost to bring fiber to the homes of all Americans,” but excludes 20% of American homes from the analysis.  This exclusion of one-fifth of homes is not random; the analysis intentionally ignores the cost of serving the most costly 20% of American homes.  The error leads to a significant understatement of the deployment costs of fiber.  According to the nation’s most respected cost modeling consultancy (CostQuest), just over half of all investment in a ubiquitous fiber network (about 55%) is dedicated to the 20% of homes with the highest cost.  Thus, assuming the $90 billion figure for 80% of homes is legitimate (you probably won’t find it terribly compelling, but that’s another blog), the full cost of deploying fiber to all American homes is really about $190 billion.  (CostQuest suggested to me that a reasonable number for a ubiquitous fiber build out today, based on a very sophisticated cost model, is about $240 billion for just the upfront capital investment).

Clearly, Professor Crawford’s use of the $90 billion estimate as an indicator of the costs to pass “all Americans” is in error.  Failing to check sources, especially for a critical element of one’s argument, is careless and a grave error of which Professor Crawford is obviously guilty.  But perhaps the most serious defect in Professor Crawford’s analysis is her failure to provide, or to use, a sensible analytical framework within which to interpret the relevance of the cost data on fiber deployment.  Whether the fiber-to-the-home network costs one dollar or one trillion dollars isn’t really the issue.  Rather, what is relevant is the net present value of the network from whatever business plan Professor Crawford believes the regulator should impose (on itself or others).  The sandwich I had for lunch costs $2 to make, but the government doesn’t need to pay for it; I paid for it.  Costs will be offset, in part, by revenues.  A large portion of the upfront investment will be offset by revenues, but there are of course other costs.  The upfront investment is only a small piece of a large and very complex puzzle.  Professor Crawford also believes broadband prices are too high, and that implicit and explicit subsidies, say from rich to poor, should be widely used.  A serious analysis of the issue requires good questions and good answers.  How much does the government-run network charge for broadband, for video, and for telephone service?  What is the design and what are the sources of subsidies?  How large is the subsidy?  Who and what gets subsidized?  What is the acceptable rate of return on the network?  What compensation is provided to the existing network owners for the stranding of their plant?  If it costs $100,000 to wire a house, do you do it?  These are the interesting questions, yet Professor Crawford fails to mention even one.  It is simply not possible to take seriously the argument for a government-funded national broadband monopoly until these questions, and many more very difficult questions, are posed and answered.

Conclusion: 

In sum, I think Professor Crawford missed a tremendous opportunity with her book.  As our research and others’ have indicated, the policy challenges resulting from the complex law and economics of the broadband market are vast.  Indeed, issues such as high entry costs, universal deployment, vertical integration, spectrum availability, product commoditization, few firm competition, government capture, the IP transition, etc. have vexed telecom scholars for years.  However, rather than make a substantive contribution either to the debate or to the literature with scholarship and attention to detail, Captive Audience comes off as pure advocacy.  Heck, even Professor Yochai Benkler, the person whom Professor Crawford chose to blurb her book, could not help but write that Captive Audience is an engaging cross-over piece, combining scholarship with advocacy journalism.”  Perhaps out of courtesy, he didn’t detail what he thought about the ratio of the two.  As demonstrated here, Professor Crawford’s book contains little scholarship, and the lack of accuracy makes it difficult to call journalism.  There is, however, a whole lot of advocacy.  Accordingly, while the un-initiated may get swept up by Professor Crawford’s anecdotes and compelling rhetoric, Professor Crawford’s error-ridden polemic will have little credibility among serious telecom scholars.

 

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