The Economics of Light

In an important OECD discussion forum, Tom Vest and KC Claffy of the Cooperative Association for Internet Data Analysis (CAIDA), along with Bill St. Arnaud, posit a very important concept:

The Economics of Light.

The Economics of Light is a direct outgrowth of what I have called Moore’s Law of Fiber, or DWDM. It is that one fiber line is enough. (The picture, from the CAIDA home page, is a diagram  of the Internet core.) 

Given an unbroken terrestrial right-of-way between any two points, an
initial if sizable one-time capital outlay will yield what amounts to
infinite network capacity between those points relative to all
conceivable human demand for the imaginable future.

This is an extension of something I wrote in my own Moore’s Law book. I illustrated this point with a story about Enron.

     Economics teachers like to talk about widgets in their classes – imaginary products with endless utility but no real economic value. I figure kittens are the same way.

    Enron was trading kittens. It signed a contract for bandwidth, then assumed all its lines would sell for the same price. It knew the bandwidth was really costing it nothing to produce, so it set aside all that money as pure profit.

    The same thing can happen with kittens. Mr. & Mrs. Enron have two cats and a litter of 8 kittens. Some fool offers them $100 for one of the kittens. So they take the money, call it profit, and look again at the litter. I guess that means we have $700 worth of kittens, they figure, plus we still have the cats. Those cats might produce, say, a half-dozen more litters over their lifetime. And the kittens will produce cats, too. So the “asset value” of the two cats might be as much as $10,000. Guess where they put the money – right, they bought more cats.

   But anyone whose cat has ever gotten pregnant knows
that’s not right. Yes, some fool might buy one of your kittens. But
generally, kittens are hard to even give away. It’s a relief for most
families to relieve themselves of litters, and the next thing most
families do is take those cats to the vet to get fixed, so the
nightmare won’t return.

    Unfortunately Enron’s oh-so-clever “bandwidth traders” didn’t know
they were selling kittens. They thought they were selling an asset like
oil or gas, something whose supply was limited and whose demand was
growing. In fact they were selling something whose demand was
constrained but whose supply was unlimited.

    A lot of other companies made the same mistake. In fact, the whole energy sector was treating bandwidth as an energy market.
But when reality hit, when “last-mile” demand didn’t meet the unlimited
supply made possible by DWDM and Moore’s Law, Enron (and the other
players) were caught-out.

    In 2001 executives debated whether the “bandwidth glut” was “fact or fiction.”
(). But reality eventually hit. So-called “OC-3” circuits, 155 Mbps
lines running between New York and Los Angeles, worth $1.8 million per
year in 2000, were trading for under $150,000 just 16 months later.

The point being made is that this continued. Fiber bandwidth is free. There is no market in it. Yet this is the bandwidth AT&T will not re-sell, the bandwidth they insist can only be doled out a spoonful at a time, the bandwidth they claim to regulators is so precious and expensive.

As Tom, Bill and KC are noting, the claim is a lie.