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Forum Report

Woof & Whinny from the Dog & Pony

If you could penetrate the reality distortion field that BellSouth, Cox Communications and their hired hands attempted to deploy at Monday's so-called 'academic' forum on broadband, the outlines of some pretty interesting facts emerged. Since the intent of the forum was to obscure and/or distort facts regarding the proposed LUS fiber to the premises project, that useful information actually emerged must come as something of a disappointment to the event's sponsors.

There was generally solid coverage of the event and Monday's LUS press conference which sought to discredit the attempt to discredit its project from The Advocate and The Daily Advertiser. The Advocate's story can be found here. The Advertiser's coverage of the forum is here; while that paper's coverage of the LUS press conference is here.

What follows is not a blow-by-blow account of the forum. Instead, it identifies three key facts that emerged despite the sponsors' best efforts to take the focus elseqhere. Those facts are: 1) Fiber optic technology is the core technology of the future for both Cox and BellSouth; 2) Technological innovation — and public investments in support of that technology — is a critical component to successful economic development; and 3) BellSouth and Cox are locked in a titanic struggle across Louisiana with BellSouth finding itself at a distinct disadvantage.

1) Fiber optic technology is the core technology of the future for both Cox and BellSouth.

Despite BellSouth Louisiana President Bill Oliver's attempt to play up the potential for innovations in technology using copper networks and his wistful belief that wireless technology will make fiber to the premises obsolete, the fact remains that the ability of his company and Cox to deliver bandwidth-hungry emerging technologies relies on moving fiber closer and closer to the premises.

BellSouth and other regional Bell operating companies (RBOCs) have begun deploying fiber to the premises in a number of locations in their base service areas. BellSouth's senior partner in Cingular, SBC, recently made a commitment to spend in excess of $6 billion to deploy fiber to the premises technology in its sprawling service area. BellSouth deployed fiber to the premises to accommodate communications at the recent G8 summit in Charleston, South Carolina. It has done so in selective sites in its service area. Oliver declared that BellSouth delivers fiber to the premises of at least 50 large commercial buildings in Lafayette.

Wireless technology, while holding promise, operates in the same way as cable in that it can deliver a great deal of bandwidth to points of presence or neighborhood nodes, but as traffic on the network grows, that network slows down. So, in order to maintain the performance that won customers to those networks, more fiber must be deployed to additional points of presence or nodes. So, when BellSouth and Cox talk about using wireless, the fact is that they'll have to deploy more fiber in order to deliver high-speed broadband wireless.

Gary Cassard, Cox Communications' regional vice president, reaffirmed his company's dependence on fiber optic lines as the basis for new and enhanced services, including the new Voice over Internet Protocol (VoIP) telephony it will begin offering across south Louisiana later this year. Cassard said that in Lafayette Cox runs fiber into neighborhood nodes where it jumps off to coaxial (copper) cable to deliver services to 500 homes as a result of a network upgrade completed within the past couple of years. He said Cox could extend the fiber to bring homes served via each node down to 250 each. He event hinted that Cox might begin offering a wireless product in Lafayette which would let Cox high-speed internet service customers gain "free" access to a city-wide wireless network. Again, that wireless connectivity would be carried over a fiber backbone.

Cassard said that Cox had recently deployed a fiber to the premises project at University Courtyards Apartments in Lafayette. He explained that the owner of the project wanted to offer that service to his tenants and that Cox formulated a business plan and deployed the project.

So, both BellSouth and Cox have placed their corporate bets on fiber — regardless of the arguments being made locally to call into question the viability of fiber to the premises as an infrastructure option. What appears to be driving their opposition to the LUS project is the fact that this project — if deployed — could beat both companies to the residential and business markets which they, too, have targeted for enhanced services borne via fiber.

2) Technological innovation — and public investments in support of that technology — is a critical component to successful economic development.

BellSouth and Cox went to great lengths to attempt to discredit the notion that a fiber to the home deployment in Lafayette within the next 24 to 36 months would deliver any positive economic benefits to the city. In fact, one of the six carefully crafter questions read by moderator and home improvement contractor Jim Olivier dealt specifically with that issue. To the surprise of no one, the three panelists all panned the idea.

The most interesting of the three, though, was David Tuerck of The Beacon Hill Institute at Suffolk University. Tuerck declared himself to be "one of these economists who is not interested in fairness, but in what is efficient." He took an absolutist free market approach, declaring that the profit motive of businesses fundamentally conflicted with at least some, if not all, social or community interests. Peering at the world from the sheltered perspective of his university based institute, Tuerck declared himself ready to accept the sometimes irrational and frequently brutally disruptive behavior of uninhibited markets, regardless of the social and economic costs. "You must decide which of the two (business or community interests — which he labeled 'political') is more important," Tuerck said.

He declared monopolies to be inherently inefficient which I found to be a fairly interesting position for someone defending the interests of a monopoly phone company and a monopoly cable company. He declared that the LUS project would do nothing to challenge monopoly power, but would, in fact, give the city the power to enforce its monopoly at the barrel of a gun. I'm not kidding. He said this is where government authority ultimately resides. At other points Tuerck endorsed a core concept at the heart of the LUS case; that is, he declared that "economists agree that growth comes from technological progress."

He later read from a Lafayette Economic Development Authority (LEDA) document about the fiber and telecommunications assets in Lafayette (which was a treat, since I helped compile some of that information over the past few years!). He noted that these assets were pitched as competitive advantages for Lafayette, suggesting, he said, that the community would like to position itself to emerge as something like the next Silicon Valley. Getting in a pitch for his home base near Boston, he suggested that Massachusetts Route 28 tech corridor might be a better choice.

As luck would have it, Silicon Valley, Route 28, Austin and Research Triangle Park in North Carolina are great economic success stories with a common thread. That thread is that they all got started with public dollars which were invested in emerging technologies which succeeded and became the foundations for the respective successes which were built in those areas. Route 28 was first. It's big break came in the form of government funded research at places like Massachusetts Institute of Technology (MIT) and other research labs which performed cutting edge research on things like circuit boards for the U.S. military in the 1940s and 1950s

Silicon Valley became a technological and business hotbed thanks in large measure to research funded by the U.S. government in the early stages of silicon chip development and manufacturing which was conducted at Stanford and the University of California at Berkeley. Yes, Hewlett Packard was already there, but it was this research that led to the creation of Intel and other cornerstones of the modern technological age.

Austin's big break came in the 1970s when U.S. computer chip manufacturers feared they faced catastrophic losses resulting from fierce competition from Japan. As a result, they convinced the federal government to form a computer chip research consortium called Sematech, which involved all of the major U.S. based computer chip manufacturers and significant U.S. government support. Oh, that facility was located in Austin, in order to draw on the intellectual capacity of the University of Texas at Austin.

Research Triangle Park was considered a bust for about the first 15 years of its existence. It was founded by the state of North Carolina as a giant research park linking the intellectual and research capabilities of the University of North Carolina, Duke University and North Carolina State University. While it has become a huge economic engine powered in large part by the private sector companies that have come to reside there, it is still the publicly funded, university based research that sustains the foundation upon which that success depends.

But, in the dog and pony show that was the academic broadband forum, admitting that fact would have brought credibility to the LUS fiber to the premises project, and that was not on the program's agenda.

3) BellSouth and Cox are locked in a titanic struggle across Louisiana with BellSouth finding itself at a distinct disadvantage.

In the brief but intense spike in public activity in opposition to the LUS project, a division of labor between temporary allies BellSouth and Cox Communications has emerged. BellSouth sought to use its leverage at the state government level in Baton Rouge to kill off the LUS project through legislation. Cox, on the other hand, has led the vocal local opposition to the effort. It has been the most shrill (although Cassard tried to play nice Monday night saying how well recieved Cox had been by city parish government leaders — I don't recall if he mentioned the Chamber of Commerce where, it's been said, he burned bridges ahead and behind him over the hardball played over the Chamber's aborted fiber forum).

My read on this is that Cox is the most aggressive because they have more at stake in the Lafayette market. That is, Cox has put more money recently into Lafayette in the form of network upgrades than has BellSouth and the company is continuing to aggressively move into new services. Guess who that new telephony service threatens? BellSouth. Where is Cassard's geographic area of responsibility? Roughly, the 318 and 337 area codes. As he noted Monday night, Cox is the 12th largest telephone company in the country and has plans to get bigger. Louisiana is a key part of that growth strategy, and BellSouth is the primary company at who's expense Cox's growth will come.

Since 1999, Cox has moved aggressively in Louisiana, buying up smaller cable systems and rolling out new services in established areas like New Orleans and, more recently, Baton Rouge. Cassard promised on Monday that Cox would soon announce high-speed Internet speed upgrades with no rate increase to the customer base in Lafayette. It's also bringing out digital video recorders to the set-top box next month. Telephony is coming throughout southern and western Louisiana, probably this year.

Cassard said repeatedly Monday night that Cox has "the winning network" and they're about to roll out new services to prove that to be so.

If Cox will be winning, who will be losing? In a word, BellSouth.

Bill Oliver can talk a decent game about the viability of copper technology, but he has to do that because his bosses in Atlanta and Birmingham are not going to invest in any significant infrastructure upgrade in Lafayette or any other place in Louisiana until they get some idea of where their market share bottoms out at. The problem is that without new infrastructure investments, BellSouth will be outstripped by Cox, unable to roll out new services as rapidly and stuck with an aging copper infrastructure that is more expensive to operate and maintain.

The key advantage that fiber networks have over copper is not in the cost of deployment, it is in the cost of operating. Consider the cost of upgrading network services. To accomplish that for a customer, BellSouth will have to roll trucks along the route to physically upgrade various elements in the network between the central switching office and the customer. On an optical fiber network, upgrades or changes in service are handled via software. There are no trucks to roll. No crews to pay. No gasoline to buy. In saying that BellSouth intends to wring more efficiency out of its copper network in Louisiana, Oliver is consigning his company to losing market share and admitting that his company is at a competitive disadvantage to Cox with little likelihood of changing that in the foreseeable future.

The cultures of the two companies is radically different, as was illustrated by some statistics that Oliver and Cassard threw out during their respective presentations Monday. Oliver repeated a claim that BellSouth has made in print ads that it has more than 13,000 miles of fiber optic lines in Lafayette alone. Cox, on the other hand, has 400 miles of fiber in Lafayette, and 1,314 miles in Acadiana. One reason for the discrepency may that BellSouth counts every strand of fiber as a separate installation. That is, if there is a 10-mile fiber route with, say, 48 strands of fiber in it, the company claims this as 480 miles of fiber, rather than 10.

But consider this fact: Cox already delivers more services over its fiber assets than does BellSouth and they are getting ready to up the ante with the introduction of still more services.

Cox has its foot on BellSouth's throat across Louisiana and is starting to apply pressure. In some ways, the LUS proposal can be viewed as a welcome diversion from the travails that await BellSouth down the road.

In sum, the BellSouth and Cox Communications broadband forum delivered significant value to those who attended. But, as is so often the case in technology, it was the unintended consequences of the discussions that proved more illuminating than the orchestrated presentations which were intended to be an "educational ride of a lifetime."

— Mike Stagg
August 4, 2004