North American Network Operators Group

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RE: What do we mean when we say "competition?" (was: Re: [Latestdraft of Internet regulation bill])

  • From: Owen DeLong
  • Date: Wed Nov 16 01:18:38 2005

--On November 15, 2005 8:14:38 PM -0800 David Schwartz <[email protected]> wrote:

--On November 15, 2005 6:28:21 AM -0800 David Barak
<[email protected]> wrote:

OK... Let me try this again... True competition requires
that it be PRACTICAL for multiple providers to enter the
market, including the creation of new providers to seize
opportunities being ignored by the existing ones.
	The worse the existing provider it is, the more practical it is to
compete with them. If they are providing what people want at a reasonable
price, there is no need for competition. If they are not, then the it
becomes practical for multiple providers to enter the market. If you
assume that the cost to develop existing infrastructure is not insanely
less than the cost to develop new infrastructure, the isolation from
competition comes directly from the investment.

1.	The existing infrastructure is usually all that is needed for
	many of the services in question.  Laying parallel copper
	as a CLEC is not only prohibitively expensive, in most
	areas, it's actually illegal.  Usually, municipalities
	have granted franchise rights of access to right of
	way to particular companies on an exclusive basis.  That
	makes it pretty hard for a competitor to enter the market
	if they can't get wholesale access to the existing copper.

2.	The existing copper was actually deployed (at least in most
	of the united States) using public subsidies.  The taxpayers
	actually paid for the network.  The physical infrastructure
	should be the property of the people.  The ownership claim
	of the telephone companies is almost as baseless as the
	Verisign clame that they own the data in whois.

	For example, if Bill Gates took a few billion dollars out of his pocket
and launched 80 satellites to provide wireless Internet access, it would
be damn hard to compete with him if he wasn't trying to recover those few
billion dollars. But if you spend a few billion, you get a few billion
worth. Anyone else can spend the same amount and get the same advantage.

3.	Except when you consider that there are only so many orbital
	slots that can be maintained.  (see 1 above as well).  If Bill
	manages to launch N satellites and N leaves N/2 orbital slots
	available for other uses, then, it's pretty hard to launch
	another N satellites at any cost.

	If he already has the satellites and is providing the service other
people want at a low price, then other competitors will lose. But so what?
Consumers win. And competition doesn't exist to benefit the competitors.

4.	But, what tends to happen instead is that Bill charges whatever
	he can get to recoup his billions until someone else launches
	their satellites (has expended the capital).  Then, when they
	start to go after revenue, Bill drops his prices to something
	they can't sustain because they don't have his bankroll and
	have to recoup their costs.  They go out of business and Bill
	either buys their satellites, or, they become space-junk.
	Bill brings his prices back up to previous levels, and,
	consumers lose and the competition loses too.

	Even if Bill doesn't actually do this, the knowledge that he could
	causes investors to view the new satellite company as a bad risk,
	so, Bill's monopoly position prevents investment into competitive
	entry into the market.

	Finally, since Bill doesn't have to worry about anyone else being
	actually able to launch competing satellites, Bill has no reason
	to innovate unless Bill can see a much higher profit margin
	at the end of said innovation. (look at today's Telco as a prime
	example of this form of complacency.  Actually, telco's are
	very innovative, but, they focus on regulatory innovation instead
	of technical innovation).

	If he already has the satellites but is not providing the service other
people want or isn't charging a reasonable price, or both, then anyone
else can make the same infrastructure investment for a comparable cost.
If he's not satisfying demand, the demand is still there, and he's just
losing some of the benefits his infrastructure could be giving him.

5.	But, if you want this analogy to match the current copper plant
	in the ground in most of the US, then, you have to also account
	for the fact that Bill received 30-45 of his 60 billion in
	investment in the form of public subsidies.  Are you going to
	give all comers the same public subsidy (blank check)?  Instead,
	you end up with exactly what we have today in the telcos.
	Semi-regulated monopolies that think they own an infrastructure
	built with taxpayer money. (see also 2 above)

No... Actually, the lack of market forces in the beginning
is what allows the incumbent providers to have an advantage.
	There is only a lack of market forces if the incumbent is meeting the
needs of the consumers. And if they are, there is no need for a

Nope.  There is a lack of market forces for several other reasons.

+	Lack of access to right of way
+	Burdensome regulatory environment requiring huge up-front
	overhead -- you can bet that AT&T didn't start with 5
	full time lawyers.  It's pretty hard to run a CLEC
	in most states with anything less today.  Even if you
	only want to serve your neighborhood.
+	Public subsidies for the ILEC's initial (and in some cases
	subsequent) buildout which is not available to CLECs.

The list goes on, but, believe me when I tell you that there are
plenty of consumers in California that do not feel that SBC
is meeting their needs, but, they don't have access to a real

Nope... What I want is LESS subsidy to incumbents and
a recognition that infrastructure built with public funds
belongs to the public.  Said infrastructure should be equally
open to all service providers on equal terms, regardless
of who holds the contract to maintain it.

Imagine instead of today's scenarios, an environment where
SBC didn't think they OWNed the pipes, but, instead, the
city's owned the copper in the street and contracted with
<entity that doesn't sell direct end-services> to maintain said
infrastructure for the city.  Then, all RBOCs/ILECs/CLECs
paid the same price to the City through said entity for
the same services, whether dry copper connection, dark
fiber, OC-X, etc.  The city would have a term to the contract
and would put it up for rebid periodically.

That would be market forces at work and not MORE regulation.
	How would governments owning the infrastructure and setting the rules not
be more regulation? And how would designing a system that favors one set
of business models and effectively prohibits others that would otherwise
be viable not be more regulation?

Huh?  How does this favor one set of business models?  What it does is take
the portion of the infrastructure that was built with taxpayer money and
put it back in the hands of the taxpayer so that whatever carrier the
tax payer wants to buy service from has equal access to the infrastructure.

The current bill actually has a pretty good chance of levelling this playing
field by giving not only access to infrastructure, but, also access to
right of way to all comers on a non-discriminatory basis.  I think that's
a good thing.

If the people have control over the "last-mile" infrastructure and it is
operated in a carrier neutral fashion, that creates a level playing field
for innovation in everything outside of "last-mile" infrastructure.

If the people also make sure that right-of-way is managed in a
carrier-neutral fashion (no more exclusive franchises to single
carriers), that creates a level playing field for innovation in
infrastructure.  All providers have the same difficulty getting
stuff into the right-of-way and the same inherent costs.  No
carrier gets favorable treatment over another.

Today, nobody can put CATV infrastructure anywhere in San Jose
if their name isn't Comcast.  Period.  The city sold us out to
an exclusive franchise deal.  The current bill proposed eliminates
that.  That's a good thing.

	Competition in business models, infrastructure technology, and the like
is just as important (if not more so) as competition in price and services
within a given model.

Yes... By taking away the subsidized monopoly infrastructure from the ILEC
and making them compete on a level field with other LECs, they can do just
that.  The existing infrastructure was built with taxpayer money and
should be equally accessible to all service providers.

	What happens if the government builds a copper infrastructure and someone
else wants to build fiber? How can they compete with the subsidized
infrastructure you propose (what else can you mean when you say the
"city's owned the copper")?

My point is that the subsidized copper infrastructure already exists.
It's already in the ground and has already been subsidized (actually
outright paid for in most cases).  Unless you think we can get that
money back from all the ILECs (i.e. they will buy the current
infrastructure from the government at the current value of the
subsidies at the time paid), the ILECs already have exactly
that.  OTOH, if you put that infrastructure into a pool where
any provider that wants can use it on the same terms as the ILEC,
that's a different scenario.

Sure, FFTH is another roll-out.  One way that could happen is when
a new provider comes along and wants FFTH to provide their service,
they are asked to provide a quote for the roll-out cost.  Then, after
roll-out, if another provider wants access, the people have the option
of buying said infrastructure and rolling it into the existing management
system for the price quoted.  That way, the provider didn't pay for
infrastructure being used by someone else and the people aren't
forced to pay for infrastructure they don't want.  Market forces
still dictate which infrastructures get deployed, but, there's
no early-deployment monopoly as a result.

What we have today is an attempt to reduce regulation without
recognizing the need to correct the damage already done
by regulation.
	You can't "correct" the damage. It's not possible. All you can do is pick
winners and losers *again*. The previous chosen winners and losers don't
really exist anymore in their previous form -- all you can do is more

Actually, once AT&T and SBC merge, it will be pretty close to the original
form of AT&T prior to Judge Greene's decision.  Sure, there will always be
winners and losers.  The question is the selection method.  Today, the
selection method is the government selecting the incumbent carriers as
winners and the ratepayers are the losers.  Under the proposed bill,
that changes and I think the ratepayers at least get more input into
the selection process.


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