The telecom menopause
I’m a bit short of time, so I’ll keep my comments brief. But I have to echo James about the just-announced first phase of the Amsterdam municipal fibre network. They are creating an open “layer 1” fiber-optical network, with a diversified ownership model, low cost of deployment, and no public subsidy. This has more significance than meets the eye at first look, since muni network announcements are ten a penny these days.
I’ll chop out the tedious logic (and the effort of constructing an argument) and jump straight to the conclusions:
- The natural unit of purchase of connectivity is not necesarily the household. I see it polarising upwards around the municipal subdivision, and downwards around the devices tethered to a given access network. Application-level price discrimination disappears at one extreme, and is embedded in the form factor of the access device at the other. In response to James’s musing on the privatized market structure, I would only add that the failure was to make it easy for users to co-ordinate in their purchase decisions. We manage it for garbage collection and roof maintenance, but somehow struggle when it comes to telecom.
- The only escape routes from the paradox of the best network are (i) out-distribute the other guy by having a network that reaches places and offers capacity that the others cannot match. Verizon Wireless is following this in the USA, for example, offering speed and coverage the others can’t rival; (ii) move to a new ownership structure that better aligns user and network owner interests. OPLANs are an example, as are vertically integrated muni nets, mesh nets, user-built nets, etc; (iii) Get a politicaly-mandated monopoly/duopoly. This is the Baby Bell approach. Sustainability of this strategy remains in doubt.
- Telcos that divide connectivity from service, by design or through regulation, are in a better position to survive. I think BT will still be around in 30 years, and they’ll bless the day that the regulator forced their access division into being, and wish they hadn’t voluntarily gone further. But they’ve got to get leaner and meaner to compete against upstarts without legacy pension promises, union rules and wannabe media company distractions. Dig deep into your engineering, project management and finance talent and you’ll live to see another day.
- You can’t put the genie back in the bottle. It only takes one Napster to make people see that the music and the disc were separable. It only takes one Amsterdam to succeed to blow away the “it doesn’t work” argument. Bit haulage and application service are equally separable and economically viable independently.
If you’re ever invited to a funeral for a tired and expired telco, I suggest bringing some tulips to lay on the grave. Just don’t grin too much, folk will get suspicious.
Posted by Martin Geddes at 09:34 PM
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