Broadband access: keeping the eye on the ball

Citation

Blackman, C. (2002), "Broadband access: keeping the eye on the ball", info, Vol. 4 No. 2. https://doi.org/10.1108/info.2002.27204baa.001

Broadband access: keeping the eye on the ball

Broadband access: keeping the eye on the ball

In the quest for the information society, policy makers throughout the world, and especially in the USA and Europe, have focused on the need for greater access to high-speed broadband services. Over the past twenty years or more, telecommunications policy has been directed towards opening up the local loop through legislation based on non-discriminatory interconnection and equal access to local and long distance networks.

However, despite this, the local loop continues to be a major difficulty. Incumbent telecom operators still, by and large, control the "last mile", often still monopolists owned by the state. Potential alternative broadband providers must either buy the incumbent's DSL products at wholesale prices to sell-on or install their own equipment at the incumbent's local exchange. Incumbents have been largely successful in thwarting the regulators and have been able to dictate the pace at which the local loop has opened up.

As a result, broadband access has been slow to take off, particularly in Europe. As Peter Curwen points out in his rear view column in this issue, the USA has done better than Europe with 13 per cent of households now having a broadband connection, partly owing to the greater supply of cable modem service. Overall Europe is lagging badly with only 3-4 per cent of households with broadband access. Germany is the best performing country in Europe but even so the European Commission has instigated infringement proceedings against it for failing to implement local loop unbundling.

More significantly, nearly all DSL lines in Europe have been installed by incumbents as alternative providers have faced overwhelming difficulties in obtaining reasonable wholesale rates or access to local exchanges. As Curwen remarks, "that incumbents have been the main beneficiaries of LLU is, to put it mildly, perverse".

The response of policy makers to this situation seems even more perverse. In the USA, for instance, the Tauzin-Dingell Bill, which recently passed the House of Representatives, would remove local network unbundling and TELRIC (total element long run incremental cost) pricing imposed through the US 1996 Telecommunication Act. Sandbach and Durnell examine the proposals in the Tauzin-Dingell Bill and conclude that any departure from TELRIC-based charges would have two undesirable effects:

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  First, it would protect incumbent telephone companies against competition in downstream services, and so dampen incentives for efficient service provision, in a similar way to that which has been evident in much of Europe.

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  Second, any attempt to artificially stimulate facilities competition by raising wholesale prices would permit the incumbent to engage in anti-competitive leveraging. This could raise rivals' costs in downstream markets, solely to subsidise marginal, inefficient investment by the incumbent.

The problem, according to Lawrence Spiwak (2002), is that policy makers are now asking the wrong questions and inevitably are coming up with the wrong answers. Policy makers are so concerned about promoting broadband deployment, regardless of the source, that they have taken their eye off the ball – the promotion of new entry and curtailing incumbents' market power for the last mile. The regional Bell operating companies (RBOCs) have been successful in convincing the FCC to change direction, evident in three recent Notices of Proposed Rulemaking and One Notice of Enquiry designed to promote "regulatory certainty" and encourage RBOC investment in broadband networks. Spiwak sees this development ominously:

By nakedly seeking to benefit incumbent monopolists exclusively, however, these "four horsemen of the broadband apocalypse" threaten to eviscerate twenty-five years of FCC precedent and cut off the remaining lifeblood of the competitive local exchange carrier (CLEC) industry.

The FCC has asserted that unbundling requirements on incumbent LECs may deter investment by both incumbent LECs and others but Sandbach and Durnell show the reverse to be true. This points to the need for more, rather than less, stringent regulation of local access unbundling if the future development of broadband services is to be assured.

Colin Blackman

ReferenceSpiwak, L. (2002), "Opinion: US competition policy – the four horseman of the broadband apocalypse", Communications Week International, 1 April.