Unshackling telecom innovation

David Berlind's "The double-edge of the FCC's DSL ruling" brings up some very interesting points. Whether you agree or disagree with David depends a great deal on how you feel about government regulation in general.

David Berlind's "The double-edge of the FCC's DSL ruling" brings up some very interesting points. Whether you agree or disagree with David depends a great deal on how you feel about government regulation in general.

All we have to do is look at the last 20 years (that's a lifetime -- and ancient history -- for many of you) to get some idea of what I am talking about. Prior to 1984, there was one BIG telephone network -- wholly owned and operated by AT&T. Sure, there were a few small operators of local exchanges, but they were mere mosquitoes on the arm of AT&T.

By virtue of the Telecommunications Act of 1956, AT&T was a federally regulated monopoly. While the various states regulated charges for local service, the federal government chose to regulate AT&Ts profits when it came to long-distance. The end result was that AT&T was encouraged to build-out the last mile. Why? Because only through re-investment of their profits could they increase their revenues, and thus increase their profits. As volume went up, so did profits, while rates continued to drop. The end result was a very high-quality ubiquitous service -- available to every household in America. Those that could only afford local service paid very little for unlimited local service while those that could afford to pay outrageous rates for long distance did so. This was a socialist's dream -- the haves were subsidizing the have-nots.

The downside? Often referred to a POTS (plain old telephone service), the underlying technology remained virtually unchanged for over 100 years. Sure the service was reliable -- and it is still more reliable than any other telecommunications service available today. The problem is that there was absolutely no innovation. As a result there is no comparable access to data services faster than dial-up -- which itself is limited by POTS technology.

Twenty years later -- where are we? Although they still own most of the wired infrastructure in America, AT&T is a mere shadow of its former self -- soon to be gobbled up by one of its own Baby Bells. All of the long-distance carriers are living on the margins of a commodity industry. (Once free from the saddle of subsidizing local service, these giants started a price war like none we have ever seen before.)

Where is the innovation today? Well, it is still not found in the regulated landline telephone industry. This industry is still ubiquitous but it is no longer the bargain it once was. Unlike every other segment of IT, the cost of unlimited local landline service has at least tripled in most markets. Ironically, the cost of adding unlimited long-distance to that service has become small by comparison.

David's article targets the de-regulation of DSL service -- one of those "value-added services" that should be making the Baby Bells money but isn't. Why not? Because the Baby Bells have been unwilling to build-out the necessary infrastructure to make it a ubiquitous service. Perhaps this decision by the FCC to deregulate DSL service will motivate the Baby Bells to provide DSL out to the last mile, but I doubt it.

So where is the innovation taking place? It is taking place in unregulated markets. Why would a Baby Bell invest anything in regulated landline infrastructure when they can pour those same investment dollars into the unregulated cellular network? The simple answer is that they wouldn't and they won't.

Twenty years ago, cellular telephone service was a luxury only a few could afford. It was usually justified by one's profession -- usually one in which communications was time-critical. Today, pay-as-you-go cellular service, while still not ubiquitous, is available at your local Wal-Mart for as little as 10 cents per minute and value-added services such as free long-distance, free nights/weekends and unlimited in-network calling is available to subscribers. The once ubiquitous payphone is quickly becoming a relic of the past -- almost impossible to find -- and the question of whether to even pay for landline service into the home is being raised across America.

The wireless data network is still in its infancy but dial-up-like speeds on an always-connected basis are available in most markets and DSL-like speeds are now available in many markets and will continue to expand over the next few years. Is it ubiquitous? No. Will it ever be ubiquitous? Probably not. The bottom line is that, as a society, America will have to come to grips with whether we value ubiquitous access for all more than we value innovation.

David is correct. Those who are at a disadvantage as a result of the FCC decision to deregulate DSL service will complain about it, but in the end deregulation will bring about innovative ways to provide services across that last mile. POTS and cable-TV are just two ways to access that last mile. Cellular data networks are another. The most remote customers can even subscribe to satellite-based access. Power-line broadband is another which may soon be available to all. (In reality, more homes have access to electric service than to land-line telephone service.) Wi-Max is another. Tomorrow, someone will come up with something even more cost-effective. Will any of these services be available to all? No -- but as any technology matures, the availability of that technology becomes more widespread.