Fixed Networks Featured Article

The Federal Communications Commission appears to wish to consider again its rules for third party mandatory access to broadband access facilities.

It isn't the first time the FCC (News - Alert) has looked at this, not the first time it has made and then modified rules and not the first time such rules have changed the competitive landscape. And some of the same questions remain.

At some fundamental level, policymakers will have to decide whether they want maximum deployment and innovation in terms of new physical facilities, or maximum third party access.

Some will argue this is a false choice. That is possible. There is no way to predict with certainty what will happen if robust open access policies are instituted.

That would be especially true if cable operators, for the first time in industry history, also were forced to open up their facilities for open access.

Those sorts of rules are in place in Europe and some Asian countries and some consumer advocates say open access is one reason why Internet service is cheaper and faster in those countries. It's a complicated question to answer, however.

In most, if not all countries where robust open access rules apply to telcos, the competitive landscape is quite different from that of the United States. Few other countries have ubiquitous cable broadband and telco broadband.

That has huge financial implications for any firms contemplating building ubiquitous high-speed access facilities. In countries where, for legal, regulatory or other reasons there is not ubiquitous cable broadband already in place, a service provider might seriously entertain building an open access network, relatively safe in the knowledge that virtually all contestants will be wholesale customers.

There always is the follow-on issue of what the pricing for such wholesale access is, but the main point is that both the infrastructure provider's own retail operations, and a healthy wholesale business, can be supported by the one network virtually everybody will use.

The U.S. market is different. It already has two strong broadband access contenders in mostly every market, and most people who want broadband already buy it.

Leave out, for the moment, the existence of two national satellite broadband providers, Wildblue and HughesNet, as well the potential to substitute one of the four mobile broadband networks or Clearwire (News - Alert).

The business implications are huge. Neither of the two ubiquitous providers can ever expect to attain more than 50 percent of the addressable market for upgraded connections and services.

So where the open access broadband model, in a different country, might reasonably be expected to achieve nearly 100 percent or more of the addressable market, the potential return is cut in half where the achievable share is no more than 50 percent.

Assume the expected uptake by households is 85 percent. In a one-provider open access market that means the investment is paid back by revenues from 85 percent of homes. In a two-provider open access market, the investment has to be paid back by revenue from 42 percent to 43 percent of homes.

Also, one has to assume that the only new service is "faster broadband," as voice, entertainment video and high-speed broadband already can be provided by the older network or networks.

That can dramatically affect the profit from, and time to break even from, a new broadband upgrade.

As noted above, matters actually are worse, as Clearwire and four separate facilities-based broadband networks also are in operation, all five of them with current or planned national availability.

One might argue that fixed broadband does not compete directly with wireless broadband most of the time, and that might remain true. But the additional competition sometimes will take share from both the cable and telco providers, meaning the potential payback from new optical access investments is less than 42 percent to 43 percent. By how much is not entirely clear yet. But potential upside is negatively affected by competition from the other broadband providers.

One might take the attitude that, while this is "tough," service providers simply need to "deal with it." The problem there is that nearly all the investment capital plowed into access every year is raised in the private market, one way or the other.

The private market will not lend, or at the very least, will not lend at attractive rates, if the payback on invested capital is too little compared to other alternative investments.

One can argue that the competitors will "have no choice" but to invest, but we already have seen previously-unimaginable bankruptcies in the U.S. landline business. It simply is not true that any of the telecom or cable providers really is "too big to fail."

One might go further and argue that one or more of the companies should simply be nationalized. That likewise once-unimaginable scenario is no longer so unthinkable. But the investment would still have to be made. You can make your own estimations of the likelihood that public financing would then be able to do the job.

Keep in mind the government would have to nationalize AT&T, Verizon and Qwest just to reach 90 percent of potential users. Alternatively, the government could nationalize Comcast, Time Warner, Cox (News - Alert) Communications and several others to reach about the same coverage of the population. You can make your own estimations of the viability of such an approach.

The point is that it is fallacious to apply policies from other nations with very-different economic realities to the U.S. situation. You don't have to take anybody's word for it. Build your own spreadsheet.

The FCC itself has estimated that the cost of building a ubiquitous 100 Mbps access network throughout the United States would cost as much as $350 billion. And that is the cost to build one network in each community. In the U.S. market, the problem is that there are two ubiquitous fixed broadband providers. So you can increase that figure by up to $700 billion if you want to argue that two networks will have to be created.