Robert Reich Gets Broadband Wrong

Robert Reich Gets Broadband Wrong

There's an old parlor game called "telephone" in which someone says something to one person who then repeats it to the next person and so on. By the time the message gets back to the originator, it is garbled beyond all comprehension.

Robert Reich's new book Saving Capitalism reads like the last message in a game of telephone on the topic of broadband policy. He starts with distorted perceptions of the U.S. broadband market — the endnotes confirm the role of Harvard professor Susan Crawford, who stridently opposes for-profit broadband, in Reich's thinking — and then twists them even more to promote his campaign for a Bernie Sanders-esque "democratic socialism."

Let's start with broadband speed and prices. Crawford argued in Captive Audience — a tract advocating government-owned broadband networks — that U.S. speeds ranked only the 22nd-fastest in the world, and that our prices were among the highest. We were actually in the top 10 for speed, and in fact our lower-end services were among the world's most affordable. But when Reich takes his turn in the game of telephone, he goes even further, lamenting that "the United States ha[s] some of the highest broadband prices among advanced nations, and the slowest speeds."

This simply isn't true.

Reich complains about the price of "high-speed" broadband, ignoring the fact that the United States has remarkably low entry-level prices; the International Telecommunications Union of the United Nations consistently ranks the United States in the top three best countries for entry-level broadband prices. This progressive pricing — whereby wealthier Americans pay more for the fastest speeds, essentially subsidizing cheaper, entry-level broadband — is something you would expect a progressive like Reich to embrace.

Reich is even more wrong on speed. His claim that we have "the slowest speeds" has no basis in fact, and the sources he cites don't support it. Even the more modest claim that the United States has relatively slow speeds compared with other advanced nations isn't true. Research that my colleagues and I have conducted (along with many other studies) shows that the United States does remarkably well on broadband speed, especially considering its large size and low population density (which greatly increase the cost of building networks). If individual states were ranked, instead of the U.S. as a whole, they would take six out of the top ten spots.

Overall, we are in the middle of the pack among advanced nations. There's no reason to rest on our laurels, but the notion that our broadband policy is off track simply is not borne out by the facts.

In his campaign to expand government and shrink business, Reich also asserts that we are facing a "cable monopoly" that justifies government entering the broadband business. Reich appears to have bought Crawford's warning of a "looming cable monopoly" hook, line, and sinker, going so far as to drop the "looming." He asserts that cable operators "exemplify the new monopolists" of the capitalism he seeks to save.

Crawford's "looming monopoly" proclamation was a prediction, and one that turned out to be wrong. Between Google Fiber looking more and more like a serious business every day, and the aggressive response from telco companies investing in their own fiber networks, the last five years of broadband buildout is a success story for competition.

Reich is also incorrect that broadband profits are high. Back in 2013, investment analyst Craig Moffet pointed out that the gross margins on cable broadband are considerably higher (around 90 percent) than on the traditional cable video offering (where they are more like 60 percent). Crawford and her acolytes have had a field day with this "90 percent profit margin," willfully ignoring that gross margin is a precise financial metric that disregards all the investment and expenditures necessary before a company is able to offer a product. Moffet's point was a narrow one: that cable TV is costlier to offer than broadband when operators have to purchase video rights. Looking at more appropriate metrics, return on cable investment is more like 4 percent to 8 percent, which is about the same as the average profit margin of all U.S. companies, hardly evidence of unconstrained monopoly power in action.

But by the time Reich gets a hold of this picture, the industry is portrayed as an encrusted monopoly that is sitting back and harvesting profits from Americans' wallets, while doing nothing to improve the countries' networks. In Reich's words, cable companies have "tubes in the ground" that are "slower" than they should be. This is a strange stance, especially when by the FCC's measure broadband speeds more than tripled from 2011 to 2014.

Nit-picking over things like gross margins may seem pedantic, but for those of us trying to figure out good policy to promote the growth of efficient, high-speed broadband networks, it is incredibly frustrating to watch these issues get systematically distorted. In a time when everyone loves to hate their cable company and selling stories of inequality is big business, otherwise legitimate debates quickly spin out of control. Reich's faulty analysis of broadband policy is the latest offender, where facts simply no longer seem to matter.

Doug Brake is a telecommunications policy analyst at the Information Technology and Innovation Foundation, a think tank focusing on the intersection of technological innovation and public policy. Follow him on Twitter: @DBrakeITIF.

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