While Baby Bells sit on their assets...

While Baby Bells sit on their assets...

Summary: Let's ask David Berlind's question again. "Are Baby Bells abusing their government granted right-of-way?

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TOPICS: Hardware
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Let's ask David Berlind's question again. "Are Baby Bells abusing their government granted right-of-way?" The answer is NO they are not -- but only because they are doing exactly what the government is allowing them to do. They do it because they can get away with it. The more interesting point is that the Baby Bells just don't get it.

By "hoarding their assets," the Baby Bells are, in fact, leaving money on the table. Like a greedy child hoarding his candy, these assets will eventually go stale as the free market figures out how to live without them. Never mind that United States infrastructure continues to fall behind that of the rest of the industrialized world; we are talking about how a company goes about creating wealth for itself and its stockholders in a commodity marketplace. The Baby Bells have been monopolies in a commodity market for so long that they have no idea how to use their assets to create wealth. It is not by hoarding commodities. They can only create wealth by moving into non-commodity markets -- as quickly as they possible can.

Sure, the cost of completing all those "fiber to the curb" projects they started decades ago is truly staggering, but the cost of NOT doing so is even higher. (In Philadelphia and elsewhere they are tired of waiting and are going ahead without their local Baby Bells. Talk about a lost opportunity!)

Twenty years ago you bought video from the cable TV folks and you bought POTS (plain old telephone service) from a Bell operating company. Cellular service existed but it was prohibitively expensive.

Today, you can buy telephone service from the cable TV folks and from the cellular folks as well as the Baby Bells and you can buy TV service from a satellite company. Streaming video is also coming to a cellular provider near you. You can buy broadband from the cable TV folks and, in a growing number of cities, from the cellular folks, and if your Baby Bell has built out to you, from your Baby Bell. Soon, you will be able to buy broadband from your local electric company -- which means they too will be able to sell you telephone service.

David's article points out that Verizon is holding back 99% of its wired bandwidth. Isn't it interesting that, at the same time, VerizonWireless (a Verizon/Vodaphone partnership) is building out its EVDO cellular data network as fast as it can? The difference is that one is a regulated asset and the other is not. It is no accident that the Baby Bells all have cellular assets. Similarly, the cable TV folks own satellite TV assets as well.

Until federal, state, and local authorities figure it out and mandate that the Baby Bells build-out their infrastructure to provide an acceptable level of service for all (POTS is not an acceptable level of service in an information-driven economy), the Baby Bells are going to pour their investment dollars elsewhere -- no matter how much it costs them in the long run to ignore this valuable asset.

Topic: Hardware

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9 comments
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  • Why are municipalities the only competitors?

    The current battle is telephone vs. cable. I think we can agree that both will survive, and absorb related technologies. Telephone/cellular and cable/satellite.

    What's left? WiFi/WiMax.
    WiFi is being supplied by the telephone companies, but not as the primary source of service.
    The duopoly are leaving this technology alone otherwise, except where tactical considerations require an interest.

    How can they afford to ignore it?
    Big capital investment to become the third player in a market dominated by very large, mature companies.
    Assertion: no corporation large enough to be able to compete is interested. They'd be third in a mature market against intense competitors.

    So we get municipalities trying to become that third competitor.

    The issue will quickly be politicized. A lot of people work for telephone and cable companies, and they all vote. The telephone and cable companies have a lot of resources for lobbying. One place the money goes.

    Cities are chronically short of money. As the mayor of San Francisco said, the city needs a partner capable of writing "a big check".
    Intel and Cisco may supply seed money, but they can't afford to become the competitor themselves.

    Maintaining the system is going to be costly. Anything in a city is costly. If there's a contract, the contractor is going to want to raise prices or obtain a subsidy from the municipality.
    Then what?

    A few small towns may end up with successful programs when the established companies aren't interested or lack finesse.
    But only until Federal and State laws preventing municipal involvement are passed.
    Remeber, the public doesn't really care. They don't knopw about increased internet speed (for what?, email?) and the bills they receive may be acceptable. For now, until the market is fully sorted out.

    The market will be fully sorted out shortly.
    Anton Philidor
    • Marietta, Georgia

      They spent millions to start an ISP and they just sold it for a substantial loss. They did the same thing with a conference/resort center.

      Governments do not know how to run a business. How can they. They don't play in the real world. Most governments stay in debt, a business can't do that.

      IMHO, the only competitor is going to be some rich eccentric that is willing to foot the bill to get the ball rolling. I won't be holding my breath.
      Patrick Jones
      • They don't have to

        [i]Governments do not know how to run a business. How can they. They don't play in the real world. Most governments stay in debt, a business can't do that.[/i]

        The cities don't have to run a business (although basic city services are something that quite a few do very well.) All they have to do is own the "last mile" so that the customers and a large number of ISPs can connect on mutually agreeable terms.

        Market dynamics take care of the rest.
        Yagotta B. Kidding
  • welcome to American business

    I actually think that they're making a calculated gamble. Eventually the government is going to come to the same conclusion--a robust data infrastructure is as critical to America's success as a robust transportation infrastrusture. The Baby Bells are gambling that they'll get the contract to build out that fiber infrastructure (along with a fat government subsidy). This is logical, considering their recent success in getting the FCC to declare DSL to be an "information service."

    So, why pay full price now for something you can build at a discount later?
    tmurph1810
    • Maybe ...

      ... but it is a BIG gamble and if the current trend in Washington DC continues -- that of letting market forces sort things out, there may never be a government contract to build out that last mile.

      The perfect example is the build out of the 3G Cellular network (near-Mbps). Right now 3G cellular services are available to about 150 million people (if they choose to subscribe -- at premium prices.) 2G service is available to about 289 million. That leaves tens of millions of people who have little if any cellular service and NO cellular data service.

      Prior to divestiture (of AT&T) there was ubquitous baseline service everywhere. Improvements were rolled out slowly but became ubiquitous quickly. Divestiture led to freeing up of capital and an explosion of new services FOR SOME. But for those in rural areas, or those of modest means, the baseline of services has not changed since 1984.

      The intended consequences of unfettered competition is rapid technological progress. The UNINTENDED consequence is that those new services are no longer ubiquitous and the gap between the haves and the have-nots grows.
      M Wagner
  • if it was up to local companies we would still be using isdn

    if we were lucky, dialup if we weren't so lucky
    JasonL31
    • Business.

      It's not the home users who determine acceptable technologies and prices, it's business. As SBC's buy of ATT shows, satisfied business companies aren't easy to obtain.

      For business, there has been a move to faster service. When business is satisfied, the movement can stop. Almost certainly, the exisiting technologies can meet business needs; just a matter of making them available.

      The telephone and cable companies will meet the business needs with available technology. What does SBC call its $4 billion program, Lightspeed?
      Anton Philidor
    • No we wouldn't.

      The Baby Bells were quite reluctant to offer ISDN service too. What they really, [b]really[/b] wanted to sell was T1 service. That was what they were pushing customers to when they were allowed to block dialup, and once they were forced to allow dialup they pushed for T1 service for anything faster.

      Fortunately for them, they were mostly able to keep ISDN off the market. If it hadn't been for equal-access requirements, the only choice would [b]still[/b] be dialup and T1.

      The FCC's position is that equal access is blocking broadband buildout, but from watching what happened around here it was the other way around: Covad and others were the first to offer DSL in any area and the ILEC only offered it later to deny them the market.

      Well, it worked. Competitive DSL is pretty much dead. ISDN never got started, and I doubt I'll live to see anything more than DSL/cable speeds in the USA.
      Yagotta B. Kidding
  • Google, too, stays out of the business.

    Google will almost certainly not be the third competitor after the telephone and cable companies.


    From an article in the NY Times:

    The idea that Google might try to build an independent national Wi-Fi network has been discussed, but network industry specialists say that such an idea is far-fetched.

    "Why would they want to get into the customer service business?" said Michael J. Kleeman, a telecommunications industry expert who was chief technology officer for Cometa Networks, which undertook an earlier national Wi-Fi network effort. He noted that two-thirds of the costs involved in such retail businesses are in customer acquisition and support.

    "When was the last time you called Google with a problem?" he said.


    It's not just the technological problems.
    Anton Philidor