BuddeBlog

It is interesting to observe the energy that Obama’s win has unleashed around the world.  And it is also having an enormous impact within the telecoms industry.

I am involved in email discussions with some valued colleagues around the world and we were asked to come up with comments on some of Obama’s telecoms policy options. This got many of us excited and we sprang into action - very interesting indeed.

A key element of this dialogue was that if you want to change the American telecoms environment you can’t avoid issues such as open networks and structural changes to the industry. I was amazed to observe the zeal with which my American colleagues took up the discussion. This has been a ‘no go area’ for a long time. Nobody considers that this is going to be easy, but there is general agreement that it is an issue the USA can’t avoid addressing.

Somebody argued that the USA - with its telco, cable and wireless networks - was different from countries that were embarking on structural changes.

I made the following comment:

The countries who are leading in structural change are often also the ones with 2.5 or 3 infrastructures (telco, cable, wireless) such as the Netherlands, Sweden, Singapore, Hong Kong, etc. The reason for this is that, because of their heavy use of infrastructure, these countries have a much better understanding of the need for FttH. They quickly arrive at the conclusion that when HFC needs to be upgraded to FttH an interesting economic situation will arise, whereby the content providers (cable operators) will need to decide if they want to duplicate telco fibre, or whether they will use (open) networks of the telcos.

Obviously there will be areas that can sustain two FttH cables, but somehow I can’t believe that there will be all that many of these. We also don’t see this in electricity, gas, water, etc. My engineering colleagues are also telling me that even with DOCSIS 5, 6 or 7 HFC will eventually be unable to compete economically with fibre.

The reason we have two netwoks - cable and telco - is that, in the past, entertainment and telephony required vastly different technologies. But that is no longer necessary.

While the competitive nature of telco versus cable served America well in the early days of broadband (1998-2004) this no longer applies, due to the existence of regional monopolies and duopolies. The industry members are far more interested in protecting their own patches (for example, through net neutrality) than they are in using the infrastructure to advance the national digital economy.

Wireless broadband is a different infrastructure and will develop parallel to FttH. It has a totally different (sound) business case so I don’t see this as an ‘overbuild’, and it certainly is no alternative to, or replacement for, FttH.

Duplicating basic infrastructure no longer makes any economic sense.

Therefore, once countries start to understand that infrastructure is equally important for healthcare, education, smart grids etc the issue of network separation arises. Those social services need to be built at the lowest possible cost and their ROI models therefore need to be based on utilities-based costing - otherwise the nation can’t afford universal e-health, etc.

In situations where it is effective, competition is definitely preferable to regulation.  But where the market is dominated by a monopoly, it makes no sense to simply say that those who wish to compete can do so.  This is an ill-informed and cheap cop-out on the part of the FCC - the sheer dominance of the incumbents makes competition impossible and completely economically unviable.

In the USA it was the USF (Universal Service Fund) debate that brought this topic into the foreground. The Obama Team posed the question why USF has not delivered a good outcome for the broadbanding of America. Once you start exploring the failure of the USF the fundamental issues of open networks and structural changes need to be investigated, and now that these have been put on the agenda I can’t see them ever going away again (this is an historic moment/opportunity). I fully realise how difficult it is to realise such a fundamental change, but Obama wants change so if we want to push the issue now is the time to do so. We can do it now or in five years’ time, but it will never go away.

In the end we will see that economic commonsense will prevail, and open network policies will become more accepted in the USA. I have no doubt about that. And when that happens the whole issue of telco versus cable infrastructure will resolve itself - simply because it makes economic sense to combine it in one fibre network.

However, this change will not take place without strong government policies - this debate is not going to be led by the telcos or the cablecos.

It is very likely that over the next few years America will invest between $1 trillion and $2 trillion to stimulate the economy. What a great opportunity for change that represents! America is now lagging behind in the development of the digital economy (incl. e-health, tele-education, smart grids) and it can’t afford to be in that position - I believe America should be the leader here.

This leadership cannot be won by tweaking the current faltering telecoms systems. A profound transformation is required, and major structural changes will need to be made to the telecommunications industry. There is no doubt about that.

Paul Budde

For more information on developments in US telecommunications’ markets, see: BuddeComm - USA - North America

This entry was posted on Tuesday, November 18th, 2008 at 11:36 am and is filed under BuddeBlog. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.