[snowwrestler]

The next step beyond the mail was the telegraph and then the telephone. Those were built out by private companies, but operated under a regulatory regime called "common carrier," which protected the network owner from liability so long as it charged and carried traffic from all parties equally.

These days, that concept is called "net neutrality" in the context of the Internet, and I suppose you may have heard it mentioned in the news recently once or twice. (I think it was a mistake to rename common carrier, but too late I guess.)

Personally, I think that private buildouts are a better way to go than a government-funded network infrastructure. Private industry is better at investment and product development than the government, and any enterprise that generates a profit contributes to the long-term economic sustainability of innovation. A government-run economy becomes starved for capital and innovation slows way down; that is why the Soviet Union lagged U.S. technology and why Cubans still drive 50-year-old cars.

But privately run networks need regulation to deliver the results that citizens want. Railroads needed it, telephone companies needed it, airlines needed it, and yes, ISPs need it. And if that is thwarted, then sure, let municipalities take a swing at it. My town is looking into muni fiber now, and I'm in favor of it because the local service from Comcast is so bad and so expensive and there seems to be no other way to do something about it.

[reaperducer]

>The next step beyond the mail was the telegraph and then the telephone. Those were built out by private companies

Yes, and no.

The electric and telephone companies built out the cities and big population centers, but left 50%+ of the nation without service. Much like today's ISP's would like to do.

Some places only got wired because they formed local electric co-ops and what were called "rural telephone" cooperatives.

Even then, it wasn't always enough, and the feds had to add a Universal Service Fee to every phone bill to redirect that money to the big telephone companies so they would serve the entire nation, and not only the most profitable areas.

[rayiner]

The idea that the industry should self-fund universal coverage is massively distortionary. If we want everyone to have electricity and broadband (an admirable goal), that's fine. The government should build electricity and broadband to places that don't have it (and I'd posit they should do it in a cost efficient way, e.g. with wireless).

Forcing the places that do have it to subsidize the places that don't have it, however, is incredibly destructive to competition. It prevents smaller entrants, and entrenches incumbents. Those are the only entities that can afford to both operate an infrastructure business and run a money-losing government service on the side. It is, in fact, why we're in this mess to begin with. It was municipalities that granted cable franchise monopolies (before that was made illegal), to ensure universal build-out.

[reaperducer]

>The government should build electricity and broadband to places that don't have it

Except every time a government tries to do just that, the ISPs sue to stop it. Even if they have no plans to provide the service, themselves. They don't want the precedent.

[bmelton]

On what grounds do they sue? Clearly local governments have the ability to build/own things like buses, metros, recycling centers, etc.

Do you have any citations?

[owyn]

It's not that they're suing directly, but getting laws passed which block municipal internet. You don't have to sue if you can write the laws. This has happened in 20+ states already.

There are lots of citations:

http://fortune.com/2016/08/10/municipal-internet/

"An appeals court on Wednesday sided with the telecom industry, and with North Carolina and Tennessee, in a major decision that upheld the ability of states to pass laws that restrict municipalities from offering broadband internet services."

And in Colorado:

https://www.techdirt.com/articles/20171106/09481638554/comca...

And here's an argument for why they're doing it. It's all about never allowing taxes to be collected to be spent on something that benefits, well, anyone. Basically since government is inherently bad and can't do anything right, it will cost too much money and they won't work and only private companies have the "expertise" to run "an internet":

http://thehill.com/blogs/pundits-blog/technology/339232-the-...

[rayiner]

Note that the majority of states have no such laws, including the largest. Additionally, only a fraction of the state laws impose more the perfunctory barriers to municipal broadband: https://www.google.com/amp/s/motherboard.vice.com/amp/en_us/.... For example, Washington is on that list of 20. But the only requirement there is that municipalities have to be “code cities” (basically, be big enough to use its own municipal laws and codes). Pennsylvania is also included, and there a city only needs to prepare a proposal to its incumbent, which the incumbent has 60 days to accept or reject (in which case the city can go build its own). The Utah law implements exactly the system folks on HN espouse, where the government builds the system but a private company must be the one to sell service directly to consumers.

Putting up these laws as a reason for the limited deployment of municipal broadband is misleading. Most stages have no legal barriers, and for most of the states that do, the barriers aren’t really significant. They don’t explain why New York, LA, San Francisco, Baltimore, Philadelphia, Boston, Seattle, etc., don’t build their own municipal systems.

[jtbayly]

How exactly would the government do it without "forcing the places that do have it to subsidize the places that don't have it?"

Taxes are how the government funds those sorts of things, and taxes are collected from everybody. So the subsidization still happens.

[rayiner]

All taxing and subsidization is distortionary; but some methods are less distortionary than others. Imposing a tax on "everybody" and using it to pay for a public service dampens economic activity, but at least doesn't distort one industry relative to another. Imposing special, industry-specific taxes, however, dampens demand and investment in that industry relative to the rest of the economy.

Take tobacco taxes, for example. We put special taxes on tobacco because we don't want people to smoke, and we want to discourage people from smoking. Taxing tobacco effectively raises prices, which reduces demand. Various governments employ similar taxes to discourage things like soda, sugary foods, etc. This is a well-understood concept: you put extra taxes on things you want to discourage (relative to the rest of the economy).

Paying for rural telecom by putting a special tax on telecom service achieves exactly the same effect. It increases the price of service, reducing demand and reducing investment (relative to the rest of the economy, which does not bear that tax). But in theory, telecom infrastructure is something we want to encourage, not discourage.

It's even worse when you impose a general public obligation on individual service providers. For example, instead of paying for universal healthcare with general tax dollars, you could simply direct hospitals to treat poor people for free. Nobody does that--they pay for the broad public benefit with equally broad public taxes. But we do it for telecom--we tell companies that in order to be allowed to offer any service in a city, they must shoulder the burden of building out infrastructure even to neighborhoods where few people could afford to subscribe (i.e., neighborhoods that can only be served at a loss). That essentially makes it impossible to have a "minimally viable ISP." You can't compete with an incumbent by stealing away customers neighborhood-by-neighborhood. If the government simply let companies build infrastructure where it was profitable, and built subsidized infrastructure itself using general tax dollars where it was not, you could have that sort of competition.

[mmt]

> you could simply direct hospitals to treat poor people for free. Nobody does that

Actually, I believe that's exactly what happens in the US with emergency departments. Although it supports your point about such a practice being distortionary, it also draws attention to the fact of the sheer complexity of all this.

That's mostly what bothers me about seemingly-simple statement or analogies about economics (or, really, economic theorizing in general), that the reality is far more complex and interconnected.

[bshacklett]

It's not just emergency departments. I worked for a hospital system in Maine. We provided a significant amount of free care (emergency and otherwise) to those with a qualifying income level as part of a state program.

[reaperducer]

>Imposing a tax on "everybody" and using it to pay for a public service dampens economic activity

Yes. That's why we have no interstate highways to move goods around, spurring commerce.

Oh, wait...

[stale2002]

And what is your point?

Yes, taxes to pay for roads do indeed discourage economic activity.

This is a cost.

And the benefit that we get is the roads.

And in this case the benefits outweigh the costs.

But just because the benefits outweigh the cost doesn't mean that the cost doesn't exist.

[citilife]

The way electricity works is by allowing the electrical company to charge everyone (across their whole network) such that they make a max of 10% (depends on state) above their current amortized expenditure. The idea being, if an electric company wants to make more money, it has to spend more money. And it's fixed how much money they can charge (it's based on total network cost). Think of it as a semi-non-profit, which can only make 10% profit.

So, what it does is constantly relay wires, build out to rural areas, etc. and thereby extend their network and keep it up-to-date (wires only last 30 years anyway). This I think is what we need to companies such as Comcast.

[rayiner]

There's decades of precedent on how to do utility regulation, and that is one of the models. (It's called the rate-of-return model.) It was used for telecom for a long time, but has lots of problems. On one hand, it can encourage gold plating (spending money on infrastructure that isn't helpful because there is a guaranteed return on capital investment). On the other hand, political pressure can drive the return rate below the optimal level.

Your post actually highlights the problem. What makes 10% the proper profit margin? BT OpenReach, the U.K.'s regulated infrastructure monopoly, has a profit margin of double that. That number becomes a political football, and the political result probably isn't what most people on HN would want. People are happy with 25 mbps DSL; they're not going to vote to raise Internet rates to drive returns high enough to incentivize investment in replacing everything with fiber. That's exactly what you see in other rate-regulated utilities. People don't vote to replace lead pipes that poison kids, because they would rather have cheaper water rates; they don't vote to replace sewers that leak raw sewage into rivers when it rains, because they'd rather have cheaper sewage fees.

[isostatic]

Your pipe examples are a failure of the market to correctly capture externalities.

I'm not sure how not having cheap fibre to ge doorstep is an externality.

[jimjimjim]

that's why you can't leave some things up to people. people will not act in their best interest if distracted by short term thinking.

[praneshp]

> Forcing the places that do have it to subsidize the places that don't have it, however, is incredibly destructive to competition

This is one reason why the have nots tend to vote for candidates the haves dislike, no?

[extralego]

>A government-run economy becomes starved for capital and innovation slows way down; that is why the Soviet Union lagged U.S. technology and why Cubans still drive 50-year-old-cars.

This assertion of causality is sorely lacking in accuracy. Your examples alone are sufficient for highlighting this.

Being among the most ‘government-run economy’ on earth at the time, the astounding innovation achieved within the Soviet Union is the most glaring contradiction. Cuba is just an awful case study subject, due to so many drastic incongruencies, but let’s remember technological innovation has been fairly low on Cuba’s priority list. If it weren’t their access to the world’s selection of material and media resources would have likely remained open. And this access was very obviously the reason they are driving old cars. Those are just two factors I will assert are far more useful in this sort of prediction.

While of course the correlation is circumstantially critical to varying degrees, many other measurements are better predictors of rich innovation environments.

[086421357909764]

The even shittier thing is, assuming your muni get the efforts going, it's not uncommon for comcast to all of a sudden have a competing product at a cheaper rate. Where the didn't have bandwidth they suddenly can support the increased rates due to competition. It's just nuts.

[chalkandpaste]

>Those were built out by private companies, but operated under a regulatory regime called "common carrier,"

No. "Common Carrier" classification under Title II of the Communications act of 1934 comes more than 30 years after the introduction of the telephone, much longer than the telegraph. More than that, it could be argued that that, along with the Kingsbury Commitment were the contributions that led to an AT&T incumbency in the first place.

[snowwrestler]

"Common Carrier" classification under Title II of the Communications act of 1934 is just one implementation of the legal concept of common carrier, which dates back to transportation systems in England. (warning: simplified)

[chalkandpaste]

No issue with what you're saying here. The primary point I wanted to emphasize was that our application of regulations to the telephone system is not in line with whom I was replying to said, that there was around a 30-40 year gap.

[VikingCoder]

Private industry is better at profit.

It's open for discussion whether government is better at providing essential services like healthcare, water, fire, police, electricity, and internet. I assert that it is, but I respect different views.

[Clubber]

Right. What it really boils down to is a private entity more efficient at delivering a service than the 10% or so profit margin it requires to operate. The more profit margin a company requires, the more efficient over a government implementation it needs to be; so if a company requires a 20% margin, it needs to be 20% more efficient to break even with a government run entity of the same nature.

There are other aspects such as a company can't run without a profit and proper cash flow for nearly as long as a government entity can, because the government entity is subsidized. Also a government entity is much more susceptible to political winds (budget cuts) than a private entity may be.

[VikingCoder]

There's also the aspect that a government-run program can be subsidized so that those who can't afford it can still use it.

Private entities are far less likely to provide that on their own. And when government starts subsidizing business or giving tax cuts for behavior, then things get wonky, too. Like when the company pockets the money, and doesn't provide the service. Like what happened with broadband:

https://www.huffingtonpost.com/bruce-kushnick/the-book-of-br...

[freefal]

I think your point is generally spot on, but I wanted to nitpick at this one:

> airlines needed it

No, they didn't. Regulation of fares, routes and market entry of new airlines kept prices artificially high until airlines were deregulated in the late 70s. Quoting from Wikipedia (https://en.wikipedia.org/wiki/Airline_Deregulation_Act#Effec...): "A 1996 Government Accountability Office report found that the average fare per passenger mile was about nine percent lower in 1994 than in 1979. Between 1976 and 1990 the paid fare had declined approximately thirty percent in inflation-adjusted terms. Passenger loads have risen, partly because airlines can now transfer larger aircraft to longer, busier routes and replace them with smaller ones on shorter, lower-traffic routes."

[dredmorbius]

If you push the fare comparison back to 1972, before the Arab Oil Embargo, rather than 1979, the heart of the Iranian embargo, the fare picture changes markedly.

A jet airliner's takeoff weight is over 50% fuel.

Robert Gorden inThe Rise and Fall of American Growth:

surprisingly, the period of most rapid decline in the real price of air travel occurred before the first flight of a jet plane. As shown in figure 11–10, the price of air travel relative to other goods and services declined rapidly from 1940 to 1960, declined at a slower rate from 1960 to 1980, and has experienced no decline at all in its relative price between 1980 and 2014. The growth rate of passenger miles traveled has mirrored the rate of change of the relative price except with the opposite sign, because lower prices stimulate the demand for any good or service.

The accompanying figure shows not merely a modest rise, but a sharp spike in airline pirces in 1979.

https://i.imgur.com/uykLMUa_d.jpg

Among Gordon's economic specialisations is the aviation industry.

[snowwrestler]

Airlines are common carriers to this day, despite the reduction in regulations governing fares, routes, competition, etc.

[Spooky23]

I'd disagree. Government is much more efficient at funding capital projects. Public companies are largely incapable of sustaining them at scale.

The Bell System was built through implicit subsidy of capital expenses, by the allowance of monopoly, favorable tax treatments of convertible bonds, and a regulatory regime that locked in profit.

[beojan]

When it comes to core infrastructure, government run is better than state run. The government is incentivized to provide service and pricing that maximizes the public good while a private company has to maximize its own profit.

You could strictly regulate to fix this but eventually you end up with a funny pseudo government agency which has to fund itself. As I understand it (not American) this is what the Bell system ended up becoming.

[bcheung]

I think a combination of the 2 is warranted. I'd hate to see it entirely controlled by the government because they tend to be more likely to install backdoors while private companies would push back to protect their users.

With 5G networks I would think there is a lot less digging up streets so municipal plans are more feasible.

[amazon_not]

5G networks require lots and lots of fiber. This means a lot of digging is required.

[mietek]

> that is why the Soviet Union lagged U.S. technology

https://en.wikipedia.org/wiki/NK-33

[wizu]

https://en.wikipedia.org/wiki/Apollo_11

[lovich]

Cubans drive 50 year old cars because their closest neighbor, who is also a superpower, has been enforcing sanctions on them for decades. It's disenguous to try and measure how a system works then another party is putting their foot on the scale.

As for private buildouts being better than government funded infrastructure, that is only true as long as profit is your single measure of "better".

When it comes to services that we don't want any downtime for and want everyone to have access to, then government funded infrastructure has done better than capitalist forces. Water and electricity are both services we want everyone to have access to that as uninterrupted as possible. It's still not perfect as situations like Flint or industrial water usage in California pulling out water without paying enough to be sustsinable, but a capitalist system for those services would lead to many not being able to pay enough for access and going without as well as interruptions in service as companies push their systems to the bone for efficiency or go out of business

[at-fates-hands]

>> Cubans drive 50 year old cars because their closest neighbor, who is also a superpower, has been enforcing sanctions on them for decades. It's disenguous to try and measure how a system works then another party is putting their foot on the scale.

There are a myriad of reasons for the embargo on Cuba. Let's not sugar coat this fact just to use it as an example of "American imperialism".

The reason they drive classic cars has nothing to do with the embargo:

After Fidel Castro assumed power in 1959, he imposed a new law that prevented anyone without government permission from importing foreign automobiles. That turned Cuba into a car museum in the making, sealing the island off from the automotive future.

http://time.com/money/3640018/cuba-classic-cars/

You should also keep in mind it was possible to get a new car imported, but you needed government permission to do so. This meant only the rich, celebrities and professional athletes were allowed to do so, keeping the majority of the population fending for themselves to keep their old decaying cars alive and working.

[JustSomeNobody]

> Personally, I think that private buildouts are a better way to go than a government-funded network infrastructure.

If it is government-funded, then the people own it not some bloated corporation.

[wpietri]

Yeah. I think markets are amazing when you have the right conditions such that you get plenty of sellers, plenty of buyers, and switching vendors is easy.

But the US market mostly doesn't have plenty of sellers. You really want at least 3 to get good competition, and that's very rare:

https://arstechnica.com/information-technology/2017/06/50-mi...

My first choice is strong competition, and I live in one of the few US areas that have that. It's great! I have a gigabit both ways for less than my mobile bill. But my clear second choice is locally owned municipal broadband that can be held accountable by the people.

My very last choice is a local monopoly owned by a giant national corporation, because then we get the the worst features of communism (incompetence, poor service, abysmal customer support) and the worst features of capitalism (high prices, exploitative behavior, use of profits to buy legislation).

[rayiner]

The question is not what is best, but how much competition do you need to beat a government-run service? Here in D.C., with Uber/Lyft versus Metro, that number is just two. Indeed, even a giant national monopoly is probably better than your typical government service. Even Windows 95 was better than most of the public services in D.C.

[wpietri]

Depends on the government, I suppose. And your criteria for comparison.

Broadband in particular is very infrastructure-ish. It's much more like a water utility or traffic lights than a service business like on-demand personal drivers. Many governments run infrastructure quite well.

[rayiner]

What infrastructure is broadband most like? The water utility that's poisoning people with lead: https://www.washingtonpost.com/local/dcs-decade-old-problem-.... The sewer utility that's dumping raw sewage into the local river: https://wtop.com/dc/2017/07/heavy-rain-raw-sewage-potomac-an.... Or the subway infrastructure that constantly catches fire? https://www.arlnow.com/2018/01/22/developing-track-fire-at-p....

I've lived in several major cities: Baltimore, D.C., New York, Philadelphia, Atlanta, and Chicago. Out of those, I might trust Chicago to run municipal broadband. For the others, I'd pick Comcast any day of the week.

[wpietri]

Ok. I've lived in Grand Rapids, Chicago, Sydney, London, and San Francisco. I'd trust all of them except maybe Chicago. People have different opinions and different experiences.

Turning toward actual data, in general, the US's water quality is good: https://en.wikipedia.org/wiki/Drinking_water_quality_in_the_...

In the US most water systems are run by local governments, and generally it works out fine.

[bmelton]

Not that I disagree with your premise, but as someone who's never livd in America's most corrupt city, what is it about Chicago that inspires so much confidence with regard to municipal broadband?

[theandrewbailey]

It would be owned by the people in theory, but it would be just like a 'bloated' corporation owning it, except worse.