Is government fiber really good for your health?
On the heels of House Democrats releasing yet another health reform bill, I stumbled across an interesting case study when government intervention in the marketplace (in the form of presenting a competitive option – e.g. the ‘feared’ public option) has the intended effect of significantly driving down costs and benefiting the consumer.
Taken by RyanWhiteHealth @ Flickr
There is a town in Minneapolis, called Monticello that has one of the best internet deals in the US. ArsTechnica (a wonderful technology blog) states the following:
The Minneapolis suburb became one of the few non-FiOS communities in the country to experience full fiber-to-the-home deployment, and subscribers will all receive a free upgrade from 25Mbps service to the new 50Mbps tier.
Even better is the price, which starts at $49.95 a month for 50Mbps fiber service without the need to buy other services.
For those that have never heard of FiOS , it is a god-send for the American internet consumer by the large telco Verizon. Verizon has invested heavily in laying fiber optic cables all throughout the nation. Traditionally, ISPs (Internet Service Providers) run the fiber to a central node (a box shared by the entire community) then everybody shares the bandwidth provided by the fiber. The good side to this approach is that it traditionally costs less for the ISP, so broadband penetration tends to be higher (i.e. more people have access to broadband internet).
Verizon, though, has decided to run fiber directly to the consumers home which significantly increases the broadband speed potential. As such, when Comcast charges $52.95 per month, for ‘up to 16Mbps connections’ and this is their best plan, Verizon’s cheapest FiOS plan starts at $49.95 (with a home phone, $54.99 without) for a 15Mbps connection. If Verizon wants to start offering 100Mbps directly to each consumer, because they have laid the expensive fiber, it is almost as easy as the flip of a switch (I know that is a gross simplification, but you get the idea). Verizon’s efforts, in the long-term, will bring the US back in-line with other countries (in terms of cost of access).
However, we digress. Back to Monticello. According to Ars, what happened was the city approached TDS (the regional telecom company) in an effort to ‘coax’ them into building such a fiber network. They were told that there are no such plans in the future. Makes sense right? Why spend/invest when there is no need. Consumers still buy their services. So the city went ahead and passed a referendum that allowed them (the city) to run their own fiber network. Naturally, TDS sued – in an effort to stop the process – then had a change of heart and invested heavily in their own network. Now, they offer a 50Mbps plan for $50 per month. Verizon FiOS offers that same plan for $139.99 per month, and even that was considered revolutionary and ground-breaking. Why did the city plan work? Simple economics – supply and demand. In certain markets (e.g. telecommunications, insurance, energy, etc.) where significant capital investments are required, there tends to be a comfortable monopoly/duopoly/oligopoly. Without good old competition, companies are not incentivized to innovate, drive down costs, and add significant value for the consumer. With the introduction of a formidable alternative, TDS had no choice but to add significant value, and they certainly did.
Now, it has upped the ante by doubling everyone’s speeds. The moves all seemed designed to keep the idea of a muni-owned fiber network from spreading, but they might well have the opposite effect; one takeaway from the entire saga is that trying to build a muni fiber network is an excellent way to “encourage” investment and innovation from regional or national companies that might not otherwise have your town’s own best interests at heart.
Such stories aren’t limited to Minnesota suburbs, either. Just last month Telephony Online ran a piece on how Cox cable prices had “dropped considerably” since Lafeyette, Louisiana lit up a fiber system of its own.
“Cox froze the cable rates in Lafayette, and they didn’t freeze the rates in other areas,” said Terry Huval, director of the muni project. “We figured our citizens saved over $3 million in cable rates even before we could offer them service.”
If what many ‘free-market capitalists’ believe is true, that Government can’t run a business, then why are the health insurance companies so afraid of a government run option?
If the brave city of Monticello is any indication of what a government run option of any service does to prices and services in the private sector, I am intrigued at the possibilities for the health insurance markets.
Who would think that perhaps government fiber really might be good for your health after all.
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