NNSquad - Network Neutrality Squad
[ NNSquad ] Re: nnsquad Digest, Vol 5, Issue 306
re:
> 4. Europe's Telecoms Chafe at Opening Networks to Rivals
There's a fundamental underlying economic problem here. Historically, massive investments in communications infrastructure have often let to a boom-bust cycle: The boom is driven by the very high prices charged for communication before the buildout, which promise very high profits; the bust by the collapse in sustainable prices when the new infrastructure produces a glut in capacity. The classic free market investor's dilemma, on a massive scale over a short time period. It's been written up particularly for undersea cables, where all the initial investors went bust and others came along, scooped up the cables at pennies on the dollar invested, and were then able to make a profit that the original investors could not possibly make.
So if we want new broadband networks to get built it, we're left with a couple of alternatives:
1. Assume there will be a new group of investors who ignore past evidence, let hope triumph over experience, and build the new stuff out. This has, in fact, happened repeatedly. Given the current state of the world economy, it's unlikely to happen soon.
2. Let the incumbents build out the infrastructure and keep it to themselves, charging monopoly rents. This "works" exactly when approach 1 doesn't, the theory being that the incumbents will find it worth their while exactly because they lack competition. (Of course, in the US, the incumbents play all sorts of political games to keep the new guys out.) As recent US experience shows, however, the incumbents have little reason to invest since they already charge their monopoly rents *without* making the investment.
It's worth noting that this isn't just obstinacy by the incumbents. Verizon invested huge amounts of money in FIOS, despite market skepticism that it could ever be repaid. AT&T made smaller but still large investments in U-Verse. Just yesterday, I received a flyer from my local cable company, selling their Internet services as "up to three times faster then FIOS". (This is their 101Mb/sec service - very expensive, more of an advertising point than a real product. BTW, this is an especially curious bit of ad targeting since FIOS isn't available where I live!) Anyhow ... both Verizon and AT&T have announced they won't be building out any more FIOS or U-verse, and the cable companies are pretty much sitting on what they have as well. The market has looked at the results of the earlier build-outs and doesn't see a profit potential there, even given the duopolies and even monopolies these services have.
3. The European approach - also practiced here with electricity - of forcing sharing of privately-constructed infrastructure. Unfortunately, this only makes the funding issues worse: If it isn't worth investing in this stuff when you have a monopoly over its use, it certainly isn't when you have to share it (at regulated prices). Legally-required sharing of infrastructure is a fine idea once you get the infrastructure built, but as these discussions make clear (and as should be obvious), such an approach can only share what exists, it's really bad at making new stuff come into existence.
4. Hope for/work for technological breakthroughs that will make build-outs much cheaper. The only effort I know of is Google's wiring of Kansas City, though I suspect there are other, quieter attempts around.
5. Government funding of a shared infrastructure. This is, of course, what we did with roads. Australia seems to be the most prominent experimenter in this direction right now. There seems little stomach - or money - for it in the US or Europe. I'd guess that when Europe gets out from under its current economic woes - which could be a while - they eventually go in this direction.
None of these is a great alternative. We're in need of some really bright new ideas here - either for the technology, for on the business/funding side.
-- Jerry