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Public and Private Infrastructure Investment Alternatives

Electrifying rural South Dakota – A poster promoting membership in rural electric cooperatives. Ca. 1940. Courtesy of the Rural Electric Cooperative Association.

"The strategic goal of infrastructure is not to derive economic benefit from the asset itself but to generate economic benefit by maximizing the use of the asset."
Steve Song

Eric Yuan, CEO of the Zoom teleconferencing service, stated that the average number of daily meeting recipients increased from 10 million in December 2019 to 200 million in March 2020 in a webinar last month. I've been teaching 21 students using Zoom as a result of the COVID-19 pandemic, and the audio and video are smooth, and switching between speakers is seamless. Offhand, I cannot think of any technology that has scaled so well so fast.

When I teach, I use transport offered by Charter, Amazon, and others to reach Zoom's application on a server in an Amazon data center in Virginia. (Zoom has servers in 16 data centers around the world). Zoom's rapid expansion would not have been possible without the transport and application-service infrastructure provided by private investment.

It is a remarkable success story, but imperfect.

Two of my students have been unable to participate in our Zoom meetings because they cannot afford fixed Internet access at home, the campus labs are closed, and data caps limit their participation with mobile phones. I can afford home connectivity, but Charter is the only broadband provider on my block, so I must pay whatever they decide to charge me. That is the situation in Los Angeles, and there are rural areas in the US and many locations in other nations where broadband connectivity is not available at any price. Amazon has competition but their dominant infrastructure position provides them with opportunities to be "be evil" if they are not monitored).

The Federal government funded the research, development, and procurement that led to the Internet then turned to private companies like Amazon and Charter to create the infrastructure Zoom and others use. The COVID-19 pandemic, with its attendant substitution of communication for transportation, highlights the fact that Internet access is as much a necessity today as access to sidewalks, roads, and highways.

Can publically-owned infrastructure fill the Internet infrastructure gap?

Singapore ISP equity, June 2000 (Source)

We have some municipal broadband in the US, but it is roadblocked or outlawed in 22 states, and the states with restrictions have higher Internet prices on the average than the others. Public Internet infrastructure planning and investment are found in other nations as well. For example, Stockholm has provided municipal fiber as a service for over 25 years and around the same time, the Singapore government decided Internet infrastructure was strategic and therefore took equity positions in the nascent Internet service providers. (Internet service in Sweden and Singapore costs less than half of what I pay in Los Angeles today.)

China seems to follow a semi-public strategy of funding private companies and allowing them to compete against each other while retaining political control rather than equity. They followed this strategy in developing terrestrial Internet infrastructure and applications and are doing the same with satellite broadband. Community networks, where the users own and operate the network, are another form of quasi-government ownership.

I don't mean to imply that public ownership is inherently superior to private ownership. Public ownership may lead to cronyism and bureaucracy. For example, Cuba has a bureaucratic government-monopoly Internet service provider and Cuban infrastructure and access lag behind other Latin American and Caribbean nations, content is controlled and they recently confiscated SNET, a large and successful community network (that was not connected to the Internet).

There is no simple, optimal public/private policy and whatever we do needs to be continuously monitored and adjusted as people learn to game the system, but the proposal for the creation of a National Investment Authority (NIA) by Cornell University law professors Saule Omarova and Robert C. Hockett is a good place to begin the discussion.

The NIA would bail out citizens and critical organizations during a crisis like COVID-19 and invest in socially valuable collective goods like rural broadband, renewable energy, affordable housing, and clean water during stable times. An independent NIA governing board would set development goals and strategy, but would not make investment decisions. Those would be made by a National Infrastructure Bank (NIB) and a National Capital Management Corporation (NCMC).

The NIB would buy and securitize bonds that municipalities and other public and private actors issue, and the NCMC would seek investors in a collection of socially valuable investment funds the way a privately owned asset management/venture capital firm like Blackrock does.

But, why would a private investor invest in an NCMC fund that was focused on long-term social return instead of a fund of a private asset management firm that seeks to maximize financial return? The government would guarantee an attractive, relatively short term return on investments in NCMC funds. It would convert the expected long-term return to society into a reasonable short-term return to private investors.

The public foots the bill for bailouts today and the NIA would give us a seat at the investment-decision table. It would face political hurdles, but so did the New Deal at the time of an earlier crisis. If the NIA sounds interesting, check out this short article, podcast interview (with transcript), or this detailed paper.

By Larry Press, Professor of Information Systems at California State University – He has been on the faculties of the University of Lund, Sweden and the University of Southern California, and worked for IBM and the System Development Corporation. Larry maintains a blog on Internet applications and implications at cis471.blogspot.com and follows Cuban Internet development at laredcubana.blogspot.com. Visit Page

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VINTON CERF
Co-designer of the TCP/IP Protocols & the Architecture of the Internet

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