Convergence Conversation

Last week the Regulatory gratin (as we say in French) was gathered in Madrid for a conference on NGA as I mentioned in my previous posts. I had the great opportunity to meet with Tony Shortall (ex-commission, now independant with Telage) and reconnect with Grant Forsyth (whom I interviewed in the Stavänger Podcast). We had a very interesting three-way discussion on Infrastructure Competition. Post-conversation pondering brought back this great quote to my mind:

 

(One year of free Zirconium membership to the first who tells me where it's from.)

And indeed, I don't think Infrastructure Competition means, or rather will come to mean what many regulators think it means (or would like it to mean).

Regulators say they want to encourage infrastructure competition, and the implied meaning is that a given customer will have a choice between several underlying infrastructures for his communication and entertainment services (and incidentally, whether they like it or not, this very position enshrines vertical integration as a by default norm for delivering these services). And while one might suggest that every home only gets a single water infrastructure, electricty infrastructure, etc. regulators actually have a good reason to want this.

They have understood as has every one looking at this market in depth that the key driver for anyone to invest in next-generation networks is competition. I've mentioned this in the past as the domino effect whereby most incumbents only decided to roll-out fiber when threatened by an altnet doing the same or by a dangerous cable competitor. Therefore, the reasoning goes, by lowering infrastructure roll-out costs (through regulation of duct-access) regulators seek to encourage not the infrastructure competition itself but the upgrade in networks that it implies.

In other words, "infrastructure competition is the only way to kickstart the shift to next generation networks". And it's a fair point.

Sure, there are some visionary incumbents who have made the jump without much competitive pressure, either to upgrade a really clunky copper network or to preempt future competition. But on the whole, if you're not threatened, sweating your copper asset for another decade makes financial sense. Maybe you'll roll-out VDSL if feasible, just to adapt to the rising demand for bandwidth.

The issue, I think, is that infrastructure competition practically means something else. Look at US Cable roll-outs in the 80s and 90s. They had the freedom to get concessions anywhere, but strangely enough, there's a cable monopoly everywhere. Why? Because it makes no economic sense to be the second player to roll-out in a given location. And we're already seeing the exact same thing everywhere fiber is being rolled-out. Players are carving out the market, but they overlay each other's infrastructure only when they're rolling-out at the same time (as in Paris).

As soon as a given player is established though, forget it. Unless that guy is so lame (or perceived as such) that you can actually hope to eat into his market share significantly by rolling out your own infra (like Verizon decided to do), it's simply not economical. Not only do you have to bear the full cost of rolling out, but your acquisition costs will be much higher, not to mention the response that your entrenched competitor will throw out at you.

To cut a long story short, what I think "infrastructure competition" will mean at the end of the day is not a choice of underlying infrastructure for the customer but a multiplicity of infrastructure monopolies with very little overlap. A patchwork network.

And that, of course, raises very serious questions about actual service competition - which is what the customer ultimately cares about - because if I'm right, multiple vertically integrated monopolies is what we will end up with.

And if, at that point, regulators turn around and enforce bitstream, the telcos that have rolled-out will (legitimately) call foul for having been promised they would not have to share their infrastructure.

• Write a post
• Invite colleagues
• About us

• Search

  Advanced search