November 20, 2008
Download the full paper here.
Homes With Tails: What if You Could Own Your Internet Connection?
by Derek Slater and Tim Wu
America’s communications infrastructure is stuck at a copper wall. For the vast majority of homes, copper wires remain the principal means of getting broadband services. The deployment of fiber optic connections to the home would enable exponentially faster connections, and few dispute that upgrading to more robust infrastructure is essential to America’s economic growth. However, the costs of such an upgrade are daunting for private sector firms and even for governments. These facts add up to a public policy challenge.
In this paper, we propose and describe a new way to encourage broadband deployment. Most proposals have focused on deployment as a problem for firms and for government. For firms, the question is how a company can justify investments in a fiber infrastructure without a “killer app” – a new and proven revenue source that is different from what is available from existing copper wires. For governments, the questions consider how they might build and operate their own networks, convince or pay existing carriers to do so, or encourage market entrants to arrive and save the day.
Our intuition is that an innovative model holds unrealized promise: household investments in fiber.
Consumers may one day purchase and own fiber connections that run from their homes. They would then be able to connect to a variety of service providers, including today’s Internet, television, and telephone services, as well as ultra-bandwidth intensive services of the future. Consumers would have the opportunity not only to get a fast broadband connection, but also benefit from greater competition and lower prices in the retail service market.
We call this property model “Homes with Tails,” for the fiber would form part of the property right in the home. Key facets of our approach include:
1. A “condominium” model for fiber ownership, in which individual strands of fiber are sold to consumers, while maintenance and other collective needs are managed jointly.
2. Private firms and municipalities could consider selling fiber connections based on this model; and
3. Governments could consider using various mechanisms to support consumer purchases, including a tax credit to homeowners or renters who purchase a broadband connection.
The idea of customer-owned fiber may seem odd, but it is important to remember that many items that consumers buy today would have seemed very strange not long ago. Until the personal computer, a computer was something that only large companies owned. For decades, telephones were available only for lease, not for purchase. Home fiber could be the next technology that moves into the realm of consumer property.
That said, the goal of this paper is rather limited: to outline what customer-owned fiber might look like and suggest why it is worth investigating further. We do not suggest that this model is the panacea for broadband policy challenges; rather, it might serve as part of a broader solution. Furthermore, there are many empirical questions and obstacles to successful implementation that cannot be fully evaluated at this time. In particular, no market for consumer purchase of fiber currently exists, and there is a collective action problem in deploying a network of this sort. The only way to truly test this model’s feasibility is to attempt to implement it. Below, we describe one trial that is already ongoing in Ottawa, Canada, and more experiments of this kind would provide important insights.
In the end, the intuition behind this paper is as old as property theory: that people will spend more on and value more that which they own.