Global infrastructure nearing collapse
One of the key messages at The Start of the Year Roundtable earlier this month was that we are entering a panic-driven boom and bust cycle in infrastructure building.
However, unlike the last few international traffic-driven cycles, this one will be concentrated on local access.
At the moment 50% of the traffic is consumed by less than 5% of Internet users. And, with an ongoing range of new services like Joost, Apple TV and INUK being added to services such as MySpace, BitTorrent, Google, Yahoo, MSN and YouTube, it is only a matter of time before the other 95% catch up.
There is, of course, no way that the global telecoms network would be able to handle that, and this time it will be the local access network that will suffer.
Wild growth in local access
Over the next five years we will see a wild growth of local infrastructure projects, using whatever technology can be used and whichever service provider is willing to offer local access.
I am concerned that even within our industry there are still people who believe that it is not going to be a major problem, as compression technologies will allow more capacity over existing technology. Believe me, we do need these technologies, but the broadbanded countries will still run out of capacity as early as the end of this year.
Dark fibre providers setting the scene
There are a number of quiet achievers who have been adhering to the message over the last few years, and who have started to look at solutions.
These are the providers and users of dark fibre networks.
Dark fibre networks are super-efficient and super-cheap networks that will now need to be deployed beyond their current niche markets. These networks are presently deployed in some cities (Stockholm since 1990). Many universities and hospitals have their own networks. CityLink in New Zealand, Pipenetworks in Australia, and the ICON network in Canberra are excellent examples of such business models.
This will become the future model for nationwide last-mile access as well. Continuing to resist it will only aggravate the pain the incumbents are enduring, as well as hampering the economic growth of the countries involved.
Expect the bust in 2012/2013
As in previous cycles, this will attract plenty of cowboys, and we will once again see a lot of grief, from investors and from customers who will find themselves stranded with a rogue provider.
I expect the bust to take place around 2012/2013. However, I hope that by then we will have structurally separated infrastructure providers who can mop up the various stranded local access infrastructure assets.
I am pleased to report that there is now more global consensus that the real solution is structural separation, which will lead to the development of very focused, cost-efficient infrastructure operators.
You might recall that I started to call for this solution back in 2000. For a long time I was a voice in the wilderness, with just a few supporters in the OECD and the ACCC (Professor Alan Fels).
Financial world getting on board
At that time, my comments inspired some abusive reactions from the financial market, since they didn’t see this as being in the interest of the shareholder. But things have changed, and now it is only the incumbents who are trying to stop the waves. And not even all of them are resisting – in Europe, in particular, at least half a dozen incumbents are preparing for structural changes and, according to my analysis, Telecom New Zealand is doing the same.
US regulatory model is bankrupt
For the last few years I have also seriously criticised the American telecoms environment.
For a leading economy the USA is performing poorly in areas such as mobile and broadband, and for many years I have argued that this is due to the FCC’s flawed regulatory models.
The USA, which was way ahead of the rest of the world in liberalising its telecoms environment, is now one of the most monopolised markets (a duopoly between cable and telecoms companies). This is a very unhealthy situation. I was accused of heresy when I argued a few years ago that even in the USA I could see structural separation taking place. And I predicted that, in the end, AT&T and Verizon would become the infrastructure operators, and that the cable operators would use them for their entertainment distribution
I am now, at last, receiving support from more and more of the American financial analysts, who are beginning to argue for highly specialised infrastructure providers.
One minute to midnight
It is most regrettable that the decision-makers in our industry are coming to that conclusion so late in the day. I don’t think that we will be able to hold back the tide of municipalities, local ISPs and others who are beginning to involve themselves in local access infrastructure – well beyond their level of understanding of this market.
In that respect I agree with the telcos, who are saying that they are much better-suited to do this. However, most of them believe the solution is to revert to a monopoly (net neutrality, regulatory holidays, etc). This is no longer acceptable in today’s world; they can complain for as long as they want but that era has gone forever.
The only way to prepare for the incredible boom in the demand for local access is to create highly efficient infrastructure.
We urgently need operators who can build these networks at the lowest possible cost. And, as I have said many times, this a national interest issue. However, with the financial market now coming on board new, more helpful, financial models are being developed. And the financial market is awash with private equity capital. What a great way to use this money – for important national infrastructure investment.
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