Why open access won't fix our telecom mess

Why open access won't fix our telecom mess

Summary: Continuing my previous post, the biggest problem I have with Thomas Bleha's prescription for fixing what ails American broadband is its requirement of open access. At first blush, that might seem a good idea.

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TOPICS: Telcos
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Continuing my previous post, the biggest problem I have with Thomas Bleha's prescription for fixing what ails American broadband is its requirement of open access. At first blush, that might seem a good idea. You can't have 20 wires running into the home. Given those physical constraints, make sure the few lines which are there act as a "common carrier" for other's services.

Unfortunately, the side effect of such a model is that it reduces the incentive to spend the money to upgrade lines to support new technology. If they must share access to the lines, the upside on an upgrade is greatly reduced given that they don't get to keep all the financial benefits.

Of course, this would also apply to Japan, but it may have less of an effect due to higher levels of enthusiasm for new technology and higher population densities. In other words, it already costs less to roll out high-end broadband infrastructure in Japan, and government incentives (of the sort lacking in the U.S.) may go a long way towards making up the cost difference.

Even with more financial incentives, though, the U.S. must rely on companies to do more of the heavy lifting. Therefore, it makes sense to encourage not just competition on existing technology platforms, such as fixed line phone access, but also competition across platforms. This is the true aim of the current policies furthered by the FCC, as the Economist noted in an article critical of Bleha's thesis:

The industry regulator, the Federal Communications Commission (FCC), has tried to make it costly for rivals to piggyback on the infrastructure of today's telecoms and cable firms in order to create an incentive for them to compete using alternative infrastructures, such as powerlines or wireless.
"This is more competitive, more sustainable, and easier to administer," says Michael Powell, who quit as FCC chairman in March. "That means in the long race we're behind the pack for awhile, but we're trying to create three or four platforms."

Bleha does make a good point regarding vested interests, which might slow rollout in order to avoid cannibalizing existing revenue streams (voice phone acess and traditional movie broadcasting). On the other hand, companies everywhere share one thing in common: They want to grow. Korea's KT (also a former monopoly telecom) drove the broadband revolution in South Korea through DSL, even though they still earned all the revenue from fixed-line access. They did this because they wanted to grow. The same applies to American telecommunications companies.

Bleha also doesn't consider the different approach Japan took to dealing with its big telco monopoly. NTT DoCoMo has done great things, inventing iMode and driving a mobile phone revolution that has made Japanese wireless technology a world beater. On the other hand, NTT is also the company that used to be Japan's state telecommunications monopoly. Japan no longer protects them from competition, but they did not break them up into a bunch of smaller pieces, as America did in the 1980s.

America is a big country, and a big country needs a nationwide telecommunications company in order to service its needs. I don't have proof for this, but name a country where a nationwide telecommunications company doesn't exist. It doesn't have to be a protected telecommunications monopoly, mind you, but that doesn't mean that government design of the shape of the telecommunications industry is necessary, either (as was the case with Judge Greene's breakup plan for AT&T).

I mentioned in my previous post that Canada is far ahead of the United States in broadband. Canada didn't break its state monopoly up the way Judge Greene did in the U.S. I'm sure there are more differences, but I'm not up on Canadian telecommunications history (yet). Once I am, expect a blog entry.

Topic: Telcos

John Carroll

About John Carroll

John Carroll has delivered his opinion on ZDNet since the last millennium. Since May 2008, he is no longer a Microsoft employee. He is currently working at a unified messaging-related startup.

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2 comments
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  • Great theory, John

    Unfortunately, it doesn't play out in practice. The LOCs have had a wire monopoly for the better part of a century, and haven't been in any hurry to upgrade. I know places where the wires in the ground are more than 50 years old, and are still being tariffed at new-wire rates.

    The only time they get repaired is when someone else comes along and threatens to lay new wire alongside.

    Presently there are upscale communities all over the USA where the LOCs have scheduled wire upgrades for more than ten years out. When the communities themselves make plans to do their own networking, the LOCs finally respond: with legislative action to prevent them from doing so.

    If there were any indication that the LOCs actually accelerated buildout given the offer of another unregulated monopoly, I might think differently. However, there's plenty of history now to show that they don't accelerate buildout at all; they just raise the rates on what they do build out.

    Keep in mind that the LOCs aren't being refused a return on their investment in new infrastructure. They're allowed to charge ISPs for access. What they're not allowed to do is dictate that their customers have to use MSN [1]

    So, what we have is the LOCs blocking broadband buildout because they want to lock out competition, and in the meantime using legislation to prevent anyone else from offering usable broadband. This, you support in the name of efficient markets.

    [1] Qwest's sweetheart ISP. MSN prices are built into the basic DSL rate even if you use another ISP, so it's not like Qwest is losing money by letting others offer service. [2]

    [2] Is that what you're upset about, John? That MS can't get an Internet monopoly by making deals with the LOCs? [3]

    [3] I can understand Microsoft's interest in this, since they block access to MSN for anyone who doesn't use MSWindows. Nice arrangement if you can get it: have one monopoly (the LOC) effectively support another (MSWindows) so that no competition to either can get traction.
    Yagotta B. Kidding
    • Re: Theory

      [i]The LOCs have had a wire monopoly for the better part of a century, and haven't been in any hurry to upgrade. I know places where the wires in the ground are more than 50 years old, and are still being tariffed at new-wire rates.[/i]

      Fine, but why is the American situation any different than that faced by Japan or Canada? Besides, I'd be more willing to consider open access rules if we hadn't broken up AT&T and fragmented our telco market all to hell (not to mention throw up a hornets nest of regulations). As things stand, though, we need incentives for telcos to grow, and open access rules are simply too costly at this point when we need RAPID broadband rollout.

      [i]Presently there are upscale communities all over the USA where the LOCs have scheduled wire upgrades for more than ten years out. When the communities themselves make plans to do their own networking, the LOCs finally respond: with legislative action to prevent them from doing so.[/i]

      On the other hand, with open access rules, they are less likely to WANT to perform the upgrades. Likewise, with the hyper-regulated telco environment which exists in the US, they CAN stifle alternatives.

      That example doesn't convince me that regulation is the solution, nor that the multi-platform approach advocated by Powell is wrong.

      [i]Keep in mind that the LOCs aren't being refused a return on their investment in new infrastructure. They're allowed to charge ISPs for access.[/i]

      Sort of. Every open access rules I've seen have involved low, government-mandated prices for access to the network. No open access rules involve zero fees. Rather, they involve access fees designed for political considerations, not business considerations.

      [i]Is that what you're upset about, John? That MS can't get an Internet monopoly by making deals with the LOCs?[/i]

      Guess that endearing conspiracy theory part of your brain is still active. Well, expect it to go wild in the next week, as I'm going to do something that will drive it nuts.
      John Carroll