Ev Ehrlich's Everyday Economics

Brewster’s Gigabit

I had a college roommate named Joe Hartman who, to my great sadness, died last year, the first of our crowd to go.  He was funny, sardonic, unkempt, direct, and had a sweeter disposition than he liked to let on.  His Dad had a job reviewing plays in New York for 20^th Century Fox, scouting them for prospective movies, which was a far cooler job than any of our Dads had -- my step-father, for example, sold plastic flowers wholesale, which makes clear the ample difference between surreal and cool.  Owing to his Dad, Joe had a regular summer job for Fox as a “reader.”  It was a job we all envied – reading books at $20 a pop and then writing a memo as to whether they would translate well to film.  We all were doing that already for free.

The summer before his junior year, 1967, he was given a copy of Terry Southern’s novel The Magic Christian.  In it, the world’s richest man adopts a young homeless guy and spends the rest of the book showing him how people will degrade themselves for money.  This was no small assignment for Joe – Southern was a major guy, having restructured the unexceptional nuclear thriller Red Alert into the classic Dr. Strangelove for Kubrick and then having a writing hand in a series of hit movies.       So the pressure was on Joe when he sent up a note suggesting that Fox pass, or so the story went.  He was overruled and his overruler was then overruled, and so on back and forth up the chain until Darryl Zanuck himself flew to New York, locked himself in a hotel room, read the book, and then emerged to agree with Joe.  Score another one for our suite on the third floor of B wing at Henry (now Hendrix) College (dorm) at Stony Brook.     Someone else ended up making the movie, which starred Peter Sellars and Ringo Starr, and failed both critically and commercially, particularly given the high-wattage names.  Joe was vindicated. 

The Magic Christian’s climactic scene, which is not, as I recall, in Southern’s original novel, is about wealthy British toffs jumping into a swimming pool of excrement in order to get to the cash in the mess.  And this all comes to mind because of a newspaper article I read the other day about a Magic Christian for the new millennium – Google’s promise to build a one gigabit fiber optic network in a mid-sized city, and the reaction it’s getting.

No, it’s not a swimming pool of excrement, but it has its moments.  The mayor of Duluth took a plunge in a frozen lake to demonstrate his desire to be the chosen municipality.  The mayor of Sarasota put himself in a shark tank to respond to his frozen counterpart’s public policy sensibilities.  If you search “Google city gigabit” – on Google, say – you’ll get pages after pages of articles about what various cities across the country, from Philly to Hawaii, are doing to win this competition, although most of it not as sad as the two examples cited here.  Hopefully the Google guys are disqualifying anyone who does something that stupid.

This spectacle is worth mentioning because it turns a very important question into a circus.  The important question is how we’re going to get high-speed broadband to everyone who wants it in the U.S. 

Let’s take a beat here on this “we’re behind and will lose the race” argument, which drives much of the discussion about broadband infrastructure.  The U.S. is behind in some regards – other countries have more fiber strung and offer faster speeds – but ahead in others – our wireless is better, cheaper, and more extensively used.  We have some disadvantages – we don’t have a national phone company with the explicit or implicit mission of getting this stuff done and if they lose money it’s not the end of the world (or a government that tells private firms the same), and we’re a less urbanized geography than most of these other countries, which makes the infrastructure more extensive and expensive.  (And we’ve been our own worst enemy, giving a higher priority to arguing over old infrastructure than to building new.)

But we’ve got advantages as well – we’re really the only country where two separate sets of infrastructures – cable and telco – compete, which is what’s driving our catch-up, and our wireless providers are far more diverse and competitive than almost everybody else – only the U.S. and Great Britain have four wireless providers beating each other’s heads in to bring customers faster and cheaper service.  And at the risk of appearing insufficiently enthusiastic, South Korea probably offers its consumers the fastest access anywhere, and while it’s cool, it hasn’t yet been transformative.  Their standard of living still lags ours.

Google’s plan to build a 1 gigabit speed network in the lucky location is remarkable, to be sure, since that’s about 100 times what users with fast connections now have, and ten times what the FCC’s plan imagines for most Americans a decade from now.  But when you get down to it, it’s part-circus, part-experiment, and its ultimate value is still unresolved.

Google’s caper won’t tell us, for example, anything about how to get a faster or more extensive network built.  It won’t establish the economics of building one – that’s knowable right now.  Google’s going to lose money doing this – or it’s going to con some municipality into sharing its losses through subsidies, which is probably part of the point of the circus. 

And Google says it will operate the network “openly,” meaning that it will let other companies offering competing services on the same infrastructure.  Some regulatory advocates want the entire net run this way; in essence, they want to commandeer the infrastructure that’s been built and require the companies that built it to let their competitors use it at a price the government determines.  That’s how DSL happened, to some extent – companies like Covad and Earthlink rode this train at the government-subsidized fare and offered their service.  Swell, but nobody is going to build new networks if they’re obliged to share them, much as airlines don’t let their competitors fly their planes and Ford can’t bang together a few cars at Chrysler’s assembly plants.  Once fiber and cable started getting much faster than DSL, companies like Earthlink proved to be nothing more than free riders who disappeared once somebody else started innovating.

Besides, Google is in this to lose money – proving it can do so by sharing its investment with its competitors only proves it can lose it with elan.  But it doesn’t change the fact that we’ll see somebody, somewhere, telling us that “if Google can build a 1G network, why can’t everyone?”  Because not everyone has money to lose.

Besides, a gig is super-duper, but for many households, premature to say the least.  Which is why the real value of this project, most would argue, is experimental – what will people do if they are given a 1G connection to their home?  When technologists think about speeds this fast, they think of applications we could readily imagine now but can’t implement.  Speeds that fast allow for real-time, high-quality video, so you could have real-time video of sports or entertainment events right to the home, with all of the perspective-shifting, information-sharing gimmickry you’d expect if you were watching a football game or a concert.  Real-time, high quality video also makes telemedicine work, or remote learning and training.  And although it’s usually thrown in as an after-thought, the first thing I think we’d see in a 1G world is real-time gaming – people playing astonishing blow-‘em-up games against their friends (or not friends).

But the reality is that we won’t see much of that in the designated Gigabit City, not now.  First, many users will have to get new computers to make use of this stuff – imagine what it will take to buffer a stream that fast.  Second, the development of these applications depends on having a mass market to which to sell them.  Like Trotsky’s view of “the revolution” – that it can’t happen in just one place alone – applications need scale.  I hope that the winner offers up a local hospital prepared to put resources into a telemedicine experiment, and if it does, we’ll learn something about how to offer such a service.  But be prepared to lower your expectations.

Other companies have done similar experiments in telecommunications history.  Time-Warner famously gave a community in Queens 150 channels twenty years ago – dig this write-up from the Reading Eagle from June, 1992 –    the writer is so awestruck that he has to write “150 channels” in capitals, or as writers call it, screaming.  It never occurred to him that what Levin would find out was that the wasteland is pretty damn vast.

But perhaps what we’ll learn after this experiment is over is less about the Internet and more about Google.  There is a moment when some companies become so successful that, like Alexander weeping when there were no more worlds to conquer, they struggle to figure out their place.  Exxon, in 1980, astride a booming oil market, invested in office systems, lost the predictable amount of money and, however paradoxically, was fortunate when the price of oil fell in the 1980s, so it could get back to trying to find it and sell it.  Microsoft, once it had colonized the computer industry by the mid-1990’s, was at a similar crossroads before Gates had the presence of mind to realize that the Internet was for real – yes, for a while he wondered – and embraced it.

If Google’s really thinking about becoming a broadband infrastructure provider now that it dominates search, sell the stock.  Google’s done many wonderful things, and the Android phone is an excellent first step towards Google embodying its value in things as opposed to services.  Now and then Google feints towards being in the infrastructure business – for example, it once bid for spectrum at a government auction, but was probably trying to influence policy rather than win.     That’s probably what it’s doing here, trying to get a better seat at the table for its views on Internet regulation while it horses around with a fun project.  But providing infrastructure doesn’t have anything like the margins that Google gets, and is never going to.

In the final analysis, we’re about to learn more about the future of Google than the future of the Internet.  And while the ice-plunging and shark-sitting mayors may seem like something from The Magic Christian, Google’s adventure may end up instead resembling Brewster’s Millions.