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RE: Internet access in Japan (was Re: BitTorrent swarms have a deadly bite on broadband nets)

  • From: Rod Beck
  • Date: Wed Oct 24 15:11:33 2007

Title: RE: Internet access in Japan (was Re: BitTorrent swarms have a deadly bite on broadband nets)

> Exactly. And because they installed fiber, the FCC has ruled that they
> do not have to provide unbundled network elements to competitors.

It's this last bit that seems to be leading to lots of complaints, and
it's the earlier pricing of "unbundled network elements" at or above the
cost of complete service packages that many CLECs and competitive ISPs
blamed for their demise.  Some like to see big conspiracies here, but I'm
not convinced that it wasn't just a matter of bad planning on the parts of
the ISPs and CLECs, perhaps brought on by bad incentives in the law.

I don't think this was what was intended.  My impression is that the
wholesale copper was supposed to be a temporary bridge to allow the new
entrants time to build infrastructure of their own.  That's why the rules
about sharing didn't apply to infrastructure built by the ILECs later.
But new entrants building their own infrastructure generally didn't
happen.  Instead, the end-user ISP operators I was dealing with at the
time generally seemed outraged that the evil phone companies, which should
have been there to sell wholesale services to them, were instead competing
in their markets.  Unfortunately for them, the phone companies not only
undercut them on cost, but generally built better networks.  Given the
impending obsolescence of the phone companies' traditional businesses, what
else would the phone companies have been expected to do?

The exception to this was the cable companies.  They already had some
physical plant of their own, but they invested a lot of money in a lot of
new construction.  Many of them didn't do financially well on the deals,
but even those who ran out of money left behind infrastructure that is now
effectively competing.

This isn't to say the original encouragement of CLECs using ILEC copper in
the 1996 telecommunications act wasn't without benefits.  I rather doubt
the ILECs would have gotten as interested in DSL as they did, if there
hadn't been the threat of losing the business to competition.  But given
that improvements in speed since the initial crushing of the upstarts have
been mostly limited to trying to match the capabilities of the cable
companies, perhaps it wasn't the best strategy for the long term.  If
those who want to compete need to build some infrastructure of their own,
and if anybody is successful in doing so, that should have a much bigger
impact in terms of putting long term pressure on the ILECs to provide
better service.

That's where I disagree. The economic argument is that it is more efficient to share the Last Mile subject to rate of return constraints than for a dozen carriers to build their own Last Mile facilities.

In fact, it is extremely naive to think that long term all these carriers would actually build their own Last Mile facilities. It is not economically sustainable or efficent to have massive overbuilding.

Simply put, if the ILEC loses a customer to the competition, why not use the ILEC copper pair to reach that customer? Given copper pairs do have the ability to provide the services most residential customers want (except for a bloggers who insist every needs a 10 gig wave to their home), why waste scare econonomic resources to do overbuilding?

In Europe unbundling has worked well and led to a highly competitive market where no such market would exist in its absence. All of this suggests that the problem was not the 1996 Telecom Act, but the ability of the incumbents to use the Courts to undermine (which they did quite successfully) and a lack of political will. You can't get away with bizarre legal interpretations on this side of the Atlantic like you can in the States. If European regulatory agencies want unbundling, they get it and the PTTs make sure it works or they are subject to more than Mickey Mouse fines a la FCC.

And there is no expectation that this a stop gap measure. Unbundling will exist as long the competitors want to exist.