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Proposal for Government-Owned 5G Network Ignores History, Everything Else We Know

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In another multiverse dimension–perhaps the one with the best ice cream–the U.S. government is planning to build and operate a 5G wireless network. In our dimension, that proposal accomplished the unthinkable and united everyone, including all five FCC commissioners, in opposition and has been pulled off the table. But for your reading pleasure we are posting here the blog that ice cream dimension TPI wrote about the network.

In every country in the world except the U.S., telephone companies were once owned by the state. This arrangement did not work out well for the public. The average wait time for a home phone connection in OECD countries in 1979 (excluding the U.S.) was 37 months. Quality was low: The number of reported faults per line in other countries’ networks could be ten times as high as in the U.S. Connectivity options suffered: the U.S. had several times as many payphones per capita as other rich countries with state-owned networks.[1] By the middle- to late-1980s nearly every country realized state ownership was a disaster. They began to privatize their networks and introduce competition. Across the globe, investment soared, prices declined, and innovation and competition exploded.

Apparently, someone in the Trump Administration didn’t get the memo. Or do any research. Under the guise of national security—a reason also given in the past for nationalized networks—the administration is supposedly considering building a state-owned 5G wireless network.

The long history of the telecommunications network teaches us that state ownership is a bad idea for consumers, competition, and innovation. The recent history of government-run technology teaches us that we are fools if we think a government network will be secure simply because the government owns and runs it. If you disagree, please consult Edward Snowden.

Telecommunications markets were intensely competitive when telephone communications was new. Most countries, however, embraced the idea that telecommunications was a natural monopoly—that it could be provided at the lowest cost by a single firm—and nationalized their networks. The U.S. was an exception to the nationalization trend, but not to the natural monopoly belief—Ma Bell became a legal private monopoly.

The natural monopoly argument began to fall apart as early as 1959, when the U.S. Federal Communications Commission decided to allow large firms to use microwave transmission to bypass the telephone network. The argument became increasingly untenable with innovations like cellular and other technologies, which, while capital intensive, were much less so than the then-existing wireline network. These innovations enabled competing networks to roll out service to compete with traditional copper telephone lines.

Meanwhile, the performance of the state-owned monopolists around the world was abysmal. By the late 1980s, however, these countries began to reform their telecom sectors in response to three interrelated factors: changes in technology making less tenable the argument that telecommunications are a natural monopoly, the abysmal performance of state-owned telecom providers, and pressure by The World Bank and other international organizations to reduce corruption and strengthen institutions.

The problems with state ownership derive primarily from wrong incentives, ranging from confusion over the state-owned firm’s objective to those that arise when the state is simultaneously the regulator and regulated firm.

Ultimately, politicians control state-owned firms state-owned, and politicians face multiple pressures: they seek jobs for constituents in state-owned firms, revenues for the state, and other social objectives advantageous to them. The leaked National Security Council proposal for a 5G network highlights these problems perfectly. The proposal’s main objective seems to be high security, but it also touts the number of jobs it will create and the improvements in rural coverage it will bring (never mind that high-frequency spectrum is generally not believed to be particularly suitable for rural use). Setting aside the author’s confusion between costs and benefits of such an investment, politicians are unlikely to react well when the network cannot meet all of these objectives simultaneously.

In addition, there is little reason to believe that a government-owned and –operated network is inherently more likely to be secure than private networks. In the last few years, the Office of Personnel Management lost nearly 22 million personal records, the Securities and Exchange Commission lost sensitive data, and investigations continue into compromised voter registration databases. U.S. intelligence agencies are still suffering, years after Edward Snowden exposed the cracks in its security systems. The leaked powerpoint presentation itself is an ironic reminder of the poor security in some parts of the government. These examples do not demonstrate that the government is necessarily worse than the private sector, which has had its share of breaches, but that the government is not necessarily better, either.

In short, a government 5G network would be an enormous and costly step backwards to an ownership structure we know does not work, for benefits we have little reason to believe would emerge.

The proposal does get a few things right. We need to pay careful attention to cybersecurity. Radio spectrum moves to the market too slowly. But answers do not come from dramatic, and dramatically expensive, gestures made with so little understanding of the industry or its history. Such a retrograde approach is unlikely to lead to any real solution. Instead, answers come from careful consideration and study. Perhaps this proposal will encourage us to take a stronger look at network security, and that could yield benefits. But a nationalized 5G network is not the way to go.

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[1] Not that the regulated private monopolist in the U.S. was not so wonderful, either. It featured inefficient cross-subsidies and little incentive to incorporate innovations, including ones from its own Bell Labs. Still, the U.S. network was superior to most others.