Lack of Competition & Illogical Conclusions
August 28, 2008
We’ve been talking about what is in place relative to the “pro-competitive deregulatory framework” Congress authorized under CA96, including the historical context on forbearance. Here, again, are the four answers I proposed in the last post:
- A near zero cost of entry for competition.
- Complete fall off of innovation.
- Severe lack of true, real broadband facilities competition.
- Illogical conclusions where forbearance on wholesale pricing has been granted and, temporarily, where it has been denied.
I explained the first two points in the last post, “What has CA96 given us?” Now let’s explore the next two answers.
Lack of Facilities Competition. If you want a 90-day business that Wall Street analysts will eventually run from, don’t own fiber. Our present reality is that CA96 did little to promote and rationalize fiber deployment. Yes, we had crazies that built on top of each other or joint built in the largest of cities only to find a route based fiber glut where service prices decline 30% to 50% annually.
What people have difficulty understanding is that revenue growth and margins are route specific, not market specific. However, lazy marketers often price their services not by a network/route advantage but by those prices the renters charge market wide because they work out of Ma Bells copper central offices.
Let me share a story. A few years back, we had a prospective 100-megabit customer pushed to me by sales for assistance. What this prospective customer wanted was the same price for a circuit in Kansas City as they were getting in Columbus Ohio. The prospective customer could not understand why our price was higher. Now, it’s a fact that Columbus has a twenty plus duct system running around it in which everyone and his brother placed fiber. Thus, the route was saturated. If our company sold totally on price and not on the value of the unique routes we provide as a network owner , we would have dropped our drawers like most do to get the sale! Instead, I politely told the prospect if they want that Columbus price, they need to go to Columbus, dig up the fiber and install it in Kansas City. The prospective customer went away for a while in search of options but eventually ordered from us as our fiber route was unique.
Where I believe Congress screwed up was not applying sunset provisions for Ma Bell pieces & parts in CA96 whereby new market, light-asset competitors would realize and rationalize their plans and capital expense. I believe such a sunset provision would also have had a rationalizing effect on local fiber deployment as well which would have incented “gas pipeline” like partnerships and contiguous metro fiber builds. It’s still not too late to sunset pieces & parts renting; such clarity may actually attract new capital for infrastructure investment. Capital investors want clarity.
Illogical Conclusions. Once again, my opinion, but market share measures have little to do with actual competition. The FCC relies on market share data instead of actual competition which is misleading in applying forbearance. I live outside the beltway, so here is a simple question/observation: How do the sparse markets of Omaha, Neb., and Anchorage, Alaska, qualify for wholesale forbearance with literally a handful of competitors, while cities like New York, Boston, Philadelphia, Los Angeles, San Francisco, Dallas, etc., have gobs of competitors of all ilks, and forbearance in these highly competitive cities gets denied/delayed? It is illogical.
Another documented logical conclusion which supports my position on forbearance comes from a November 2006 Federal Government GAO report. The Federal Government Accountability Office (GAO) collected data highly critical of the FCC for a report on competition by actually pulling circuit type data from 16 markets through a proprietary, highly confidential database that Telecordia keeps. This database identifies who has what circuits and where. The GAO report was highly critical of how the FCC measures competition as the GAO released their findings on true, real, physical facility based competition. This November 2006 report stated that 94% of business buildings in the United States have only one true, real, physical facility based provider … Ma Bell. The FCC would identify 5-7 competitors in a building, however, all riding over the same Ma Bell infrastructure including Ma Bell. The report may be found at www.gao.gov/cgi-bin/getrpt?GAO-07-80 . The data supports a need for wholesale forbearance to attract new infrastructure investment. It’s been 12 years since CA96. Should asset-light competitors get another 12-year term to figure out that they should stop relying on Ma Bell? I think not.
Written by Dave Rusin - Telecom Executive
Posted by admin | Filed Under American telecom, Forbearance, Telecommunications industry, Telecommunications news, Trends + telecommunications, Trends in telecommunications
(No Ratings Yet)
Loading ...Comments
Got something to say?
Feeds
