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Supply and Demand in Kansas City

A raft of stories in the press today focus on the limited deployment of Google’s fiber network in Kansas City. The Kansas City Star highlights the plight of students at schools with high Internet content and slow connections:

[The Central Academy of Excellence,] with its overwhelmed Internet connection, sits in a neighborhood lagging well behind the pre-registrations Google requires to light up its cutting-edge Web access.

“It’s not fair,” said Mona Price, Central’s dean of instruction. “It’s not fair to the kids in urban settings who are trying to get an education.”

Many of the schools, libraries and poorest neighborhoods given first shot at drawing Google’s ultra-fast Internet service look in danger of missing out on Kansas City’s digital revolution.

The New York Times reports on a sign-up drive to help ensure that Google Fiber comes to as many poor and minority communities as possible. The program has helped, but the gap remains:

Qualifying neighborhoods will get Internet service with speeds of up to a gigabit per second — 100 times faster than the average broadband connection — for $70 a month. Google is also offering a television service along with Internet for $120 a month. Schools, libraries, hospitals and other institutions in areas that qualify would receive gigabit connections for free.

But the feature most attractive to low-income areas is Google’s offer of a free 5-megabit Internet connection for 7 years, but which requires a one-time $300 construction fee.

As of Sunday evening, only about 32 percent of people in the neighborhoods that qualified for Google Fiber were black, while just over 54 percent were white, according to Mr. Beveridge.

Speed Matters, the blog of the Communication Workers of America, points to the gap between the universal service commitment of the telephone network and the tendency toward cherry-picking good neighborhoods among broadband over-builders:

Google made a heavy investment in ultra high-speed Internet, but a company with the demographic resources of Google also knows where the people most in need live and study. And Google should make every effort to see that these residents have at least an equal chance to get to the right side of the digital divide.

Google’s model raises serious questions about how we are going to get truly high-speed networks to all communities. This is not the answer.

Indeed, Google’s system isn’t the answer to Universal Service. The first network in a town or region generally has an obligation to serve everyone, and the government will subsidize telephone service to hard-to-reach areas where the cost exceeds the norm. The FCC is in the process of converting the Universal Service Fund from a vehicle for conventional telephone service to an up-to-date program that supports both cellular and broadband, but the conversion is just getting started. In the meantime, we certainly can’t expect that the newest and fastest networks built entirely with private financing will serve everyone. They will serve those who can be served in a financially sustainable manner, and the rest will depend on subsidies.

This is a different deal than the one that the monopoly phone carrier made in the 1920s to justify its monopoly: It would provide telephone service to everyone through internal subsidies if it were insulated from competition. The breakup of Ma Bell put an end to that deal and ushered in the era of facilities-based competition. So most neighborhoods in K. C. can buy broadband from three providers, but some areas can’t even support one provider. Competition is a great solution where the dynamics exist to support a market, but not a universal solution. Ongoing subsidies to alleviate market failure will be a fact of life until technology makes it cheaper to serve outlying areas with low population density.

Google, like every other player in the broadband network business, realizes that a high uptake rate is the key to its success, so it’s offering a nearly-free option to stimulate demand: Anyone who can pay a one-time $300 hookup fee can have free broadband for seven years. That’s going to help, and so is another program the Times mentions:

Google planned to announce on Monday that neighborhoods that did not qualify this time would have another opportunity to do so, though it did not say when. It also said it would offer grants to community groups in Kansas City to promote digital literacy.

Creating demand for broadband is essential to creating competition to build better networks. Other essentials are making it easy to get access to Rights of Way, and subsidizing broadband service in remote areas until they have enough demand to support a private network in a sustainable way. We’re undergoing a once-a-century transformation in how telecom works, thanks to the Internet and the smart phone, so there’s bound to be some disruption of long-running programs along the way. That’s why it’s important to have a clear goal and to deal with the obstacles that come up along the way.

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