Our friends at The Economist have a survey of telecoms (subscribers only) in their October 11 issue. They suggest that the current approach to regulation of legacy telcos is the worst possible method, except for all the others (with apologies to Winston Churchill). The argument they put forward is that in the absence of meaningful established competition, deregulation just creates virulent monopolies that can't be displaced. The alternative of horizonal breakup into network assets and service operation is also dismissed. This is because you either have to create a nationalised network infrastructure operator (the equivalent of kiddie porn to the Economistas), or equally belligerent private access monopolies.
I beg to differ. Local and district/state government could be the custodian of such assets.
When national PTTs are privatised, it is reasonable to suggest that the local populace have already paid for the infrastructure, and already carry the debt burden of what is not yet paid for, so they might as well carry on owning it. Of course, operation of that infrastructure is clearly better done by a private company.
Localities still have to compete against each other for populace and business. Places that underinvest or overprice their access infrastructure will fall behind. The physical building and operation of the infrastructure can still be sub-contracted to private entities. Monopoly rent-seeking will cease to be the driving force. Monopolies deliberately under-supply the market. This has external effects on local business, education and employment that telcos don't need to take into account. A more holistic economic model would probably suggest a much higher (and cheaper) level of pervasive service.
There is also a strong precedent in the roads system. Few would argue that we should have a pervasive metered private road system, depite that system having to reach every door, much like Internet access needs to be.
The usual argument against commie concepts like communal ownership is that such endeavours are captured by political interests, fail to respond to market needs, and are grossly inefficient in implementation.
In this case, these are red herrings.
The local government will only control wholesale rates, with free market entry to any retailer. Political favors just won't be possible. Ideally the national law should mandate universal service for any municipal solution, so nobody is left with the cost of service without getting the benefits. Corruption in public life in public contract tenders is not a major issue in most developed democracies, at least when measured against private corruption.
Few disagree with asphalt as the target technology for road building. Likewise, in urban areas, fiber is clearly the winning technology. In rural areas, wireless is often more attractive. Multiple technologies can still compete, just in a mosaic of municipalities. There is no need for interoperability at layers 1 and 2 of the network stack.
Keeping retail separate also means that innovative pricing, bundling and marketing schemes are still possible and likely.
Of course, in the USA municipal broadband efforts have encountered fierce lobbying resistance from private telcos that would lose their cosy monopoly or dupololy rents. So you need to choose your timing, or have friends in high places with a lot of political will.
And while I'm picking bones with The Economist, I'd also disagree with the following statement:
As this survey has argued, the three trends currently driving the telecoms industry are wireless, broadband, and the convergence of voice and data, telecoms and information technology.
Maybe it's just a matter of wording and emphasis, but there is one, giant, over-riding trend: end-to-end networks and the separation of connectivity and service. Everything else is a corollary of this. I'm surprised that they can have a telecom supplement on structural change in the industry without once mentioning this driving concept.
PS -- If anyone from the Economist is reading this, send job offers for a new improved telco correspondent to the address on the right...
Posted by Martin Geddes at 11:27 PMTrackBack URL for this entry:
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