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Re: Internet access in Japan (was Re: BitTorrent swarms have a deadly bite on broadband nets)
On Oct 24, 2007, at 8:11 PM, Steve Gibbard wrote:
On Wed, 24 Oct 2007, Rod Beck wrote:
Consider the implications of this line of reasoning.
A rational would-be competitor should expect to build out a new, completely independent parallel (national) facilities platform as the price of admission to the market. Since we've abandoned all faith in the use of of laws or regulation to discipline the incumbent, we should expect each successive national overbuild to be accomplished in a "very hostile" environment (Robert De Niro's role in the movie "Brazil" comes to mind here).
A rational new entrant should plan to deliver service that is "substitutable" -- i.e., can compete on cost, capacity, and performance terms -- for services delivered over one or more incumbent optical fiber networks -- artifacts of previous attempts to enter the market. The minimum activation requirements for the new/ latest access facilities platform will create an additional increment of transport capacity that is "vast" ("infinite" would be only a slight exaggeration) relative to all conceivable end user demand for the foreseeable future. The existence of (n) other near-infinite increments of parallel/"substitutable" access transport capacity should not be considered when assessing the expected demand for this new capacity.
A rational investor should understand that capex committed to this new venture could well be a total loss, but should be reassured that the new nth increment of near-infinite capacity that they help to create will be useful in some way to whomever subsequently buys it up for pennies on the dollar. The existence of (n) other near-infinite increments of parallel access transport capacity should not be considered when estimating the relative merits of this or future access facility investments. Every household will become equivalent to a core urban data center, with multiple independent entrance facilities -- unless of course the new platform owner determines that it would be it more rational to rip the new facilities -- or the old facilities -- out. (Any apparent similarity between this arrangement and Mao's Great Leap Forward-era backyard blast furnaces is purely coincidental).
A rational government should welcome the vast increase in investment created by successive attempts by would-be competitors to enter the market, and by the liberation from all responsibility for the causes and consequences. The FCC can be dismantled, but cashiered former telco regulators can find new employment in the booming network facilities construction sector -- or perhaps in the new Resolution Trust Corporation that will handle the administration/liquidation of successive would-be facilities-based competitors -- and the financial institutions that bankrolled them.
The current "incentive problem" is basically a one-time problem. However, the first full optical network platform that reaches households will be the last one, and the problem of access segment market power will be with us forever. History and the existence of 200 + other simultaneous experiments in national network economics provide abundant information on how to solve (or fail to solve) the problem.
But maybe "Brazil" really is the right reference...
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?