Predictably, AT&T has been criticized in some quarters for pausing gigabit access network investment until certainty about high speed access regulation is settled. To be sure, all participants in regulated, or potentially regulated markets, take actions to bolster their chances of winning an argument. That is as true for Google as it is for AT&T.
Uncertainty or regulations that reduce return on invested capital have a direct impact on deployment of next generation networks, many would argue. And it appears we need look no further than Europe for proof.
Incumbent market share across the EU-27 in 2010 was 38 percent. In other words, competitors had gained 62 percent share of the fixed network market.
But that degree of competition has come at a price. The EU is in danger of failing to make its announced goal of 30 Mbps by 2020, a target that originally was set before the launch of Google Fiber, which has changed market dynamics and investment in the U.S. market, for example.
So regulators should ease up on IT and telecommunications companies to allow them to compete with rivals around the world, said Guenther Oettinger, new European Union digital economy commissioner.
“So far, we have ensured that consumers benefit from the liberalization of telecoms markets,” Oettinger said. From now on our actions must be more geared more toward allowing companies to make fair profits.”
That represents a huge change in thinking. The main point is not that the EU has decided to take a “North American” or “U.S.” approach. Instead, the big shift is the recognition that promoting competition and promoting investment can become rivalrous and mutually-exclusive goals.
In theory, regulators try to create regulatory frameworks that simultaneously promote both competition and expedited investment in next generation networks. In practice, almost any set of policies will be criticized.
That was the case in the United States prior to the Unbundled Network Element Triennial Review. Competitive local exchange carriers were thrilled about their ability to get wholesale access to incumbent telco switching and access facilities at healthy discounts.
The incumbent telcos predictably were unhappy. As AT&T Chairman and CEO Michael Armstrong said in a 1998 speech, “no company will invest billions of dollars to become a facilities-based broadband service provider if competitors who have not invested a penny of capital nor taken an ounce of risk can come along and get a free ride on the investments and risks of others.”
After a rules change that eliminated mandatory access at highly discounted rates, competition in the consumer segment of the U.S. voice and high speed access market shifted to a war between U.S. cable TV operators and telcos, both of which owned and operated their networks.
Some competitive providers made incremental gains where they were able to focus on business customers, not consumer accounts.
Some will point to the Verizon FiOS upgrade as a direct response to the change in wholesale rules. Verizon Communications did not begin the massive investment in fiber-to-home facilities until after the 2003 rules change that ensured Verizon it would not have to sell wholesale access to FiOS except at negotiated commercial rates.
Others might note that the unregulated cable TV industry, by 2003, had gained a two-to-one advantage over telcos in high speed access market share, a development some observers attribute to the differences in regulation of telco and cable TV wholesale rules, between 1999 and 2003.
Simply, cable TV operators have never been required to sell wholesale access to their networks. Between 1996 and 2033, telcos were required to do so at significant price discounts to retail. After 2003, when the mandatory wholesale rules were lifted, high speed access market share quickly equalized in two years.
To be sure, non-facilities-based competitors were not happy about the 2003 triennial review changes, as the switch in policy favored the cable TV companies, who had facilities in place, and essentially eliminated the profit for consumer service providers using wholesale access.
But some would say the switch to an emphasis on “facilities-based competition” has succeeded, as per-capita investment in U.S. access networks has been substantially higher than in the EC region; about twice as high, by some estimates.
It now appears that a decisive change in thinking has happened. EC authorities are worried about lagging investment in next generation networks, and are prepared to take steps to promote investment, not just competition.
The larger point is that policies matter. Both competition and investment in next generation networks are important. EC regulators now are thinking about how to promote investment, not just promote competition.
That remains a valid framework in the U.S. market as well, as the network neutrality framework is debated. Uncertainty jeopardizes investment. So do rules that jeopardize financial return from long-lived capital investments.
by Gary Kim