While there is much discussion in the United States about the mergers of Comcast and Time Warner Cable, and of AT&T and DirectTV, issues such as this are generally discussed from a very narrow perspective and, we maintain, from the wrong underlying telecoms regime operating in that country — one that has stifled competition in the telecoms for nearly two decades.
The same wrong parameters apply to the endless debates on net neutrality an issue that is, by the way, largely of significance to the US market alone. Without wholesale competition net neutrality is a far more serious issue: with proper competition the issue will mostly sort itself out.
The irony is that the way these issues have been addressed in other developed economies is based on lessons learned from America several decades ago: 'Let the market sort this out through competition'.
Over the last few decades competition in the American telecoms market has weakened, while the opposite has happened in most other developed economies.
We have now reached a situation globally where it has become clear that over the next few decades the old copper telco and HFC cableco networks will need to be replaced with deep fibre — and eventually all the way to premises with FttP infrastructure. When that point is reached it will not make economic sense for America (or any other country for that matter) to have a collection of competing FttP networks. At that stage it will be clear that these networks are another utility, just like water, gas and electricity.
The construction of such networks is very expensive, and in the larger countries will take 10 to 20 years to complete. Planning and design are necessary before the end results become visible. So while in many cases FttP may still be a decade or more away, now is the time to make the strategic decisions about these investments. Since this means that there will be a looming monopoly in infrastructure, it also means that government policy decisions will need to be made now to ensure that the market's proper functioning will be safeguarded during the process.
As has been shown by the net neutrality and recent merger proposals, the network operators involved can no longer maintain their current business models. ARPU for many operators is falling, which is having a detrimental effect on infrastructure investments which need to increase. So, as we are seeing in other sectors of the economy, costs need to be taken out of many of the existing old-world business models. The same economic transformation is needed in the telecoms industry, and here also network operators will need to change their old business models. Instead, they are trying to avoid doing so through merger and acquisition activity. This process will indeed take costs out of their models, but it will lead to monopolies being formed.
That being the market reality, it is necessary to look at the effect this will have on other elements of the market, such as competition, innovation and customer services. It is well established that under monopolistic conditions all of these three elements will suffer, so we need to find ways to counteract the negatives of what constitutestoday's market reality.
The solution is not too hard to find, however. It is to declare the infrastructure a utility. Yet it is in the implementation that the real problem lies: given that these mergers will lead to a monopolistic market situation, appropriate government policies and regulations will need to be put in place to counteract those negatives.
The positive in all of this is that when looking at the new digital economy developments it is evident that real innovation, competition and customer services are already largely taking place on top of utility infrastructure. So the obvious solution is to ensure that this level of competition can take place on top of that infrastructure.
Why is it so difficult to facilitate these changes, since most people would consider that it makes sense?
The problem is that over the last two decades the various American governments have taken their eye off the ball and let the key network operators write the rules and regulations that best suit them. The government and the FCC have been made captive of the highly successful telcos' lobby (tellingly, these telcos now call themselves ISPs simply to confuse the issue and avoid regulation). Telcos have become so powerful that they believe they are too big to be subjected to government policies that could turn them into utilities.
This is exactly the battle that is now taking place in relation to all of the key telecoms decisions that need to be taken in Washington.
As all the issues have been turned into a political and regulatory game by the operators, the reaction to this will have to be similar.
If the operators want to offer special services to content providers — contrary to the principles of net neutrality — and if they want to consolidate further, they should be able to do so as long as they separate access to their infrastructure from the services they offer. With that infrastructure rapidly becoming a monopoly (especially at regional levels) access to it should be regulated. With open, equal and transparent access and interconnect rules, whatever the incumbent players and others want to do on top of that network could largely be left unregulated.
And from here the message will be the same as the one that America has been sending out to the world for over a century: may the best ones win.
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