[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.

[chc]

Aren't those places already some of the best-served in the country? I don't live there, but it was my impression that the biggest cities already had good options, and it was smaller cities and towns that had more trouble with private ISPs. That seemed to be what the earlier commenter was suggesting too.

[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.

[mmt]

That sounds very much like Medicaid, or are you saying that the state mandates that the cost of the care come out of the "pocket" of the hospital?

[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.

[kazinator]

And even people who don't drive consume goods that are distributed by trucks.

[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.

[rayiner]

There is no market for sewer service—most everywhere, the government runs the service and sets rates in response to voter pressure. My point is that the same voters who vote to keep lead water pipes and overflowing sewers, because they want to minimize their water and sewer bills, will not vote to deploy cheap fiber everywhere (or not set rates high enough to continue to maintain and upgrade it). For most people, especially the older people who disproportionately vote, a 25 mbps connection is fast enough, and they’d rather have cheaper service than better service.

[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?