Tuesday, August 19, 2008

Comments by AT&T exec show U.S. cannot rely on big telcos to speed lagging broadband deployment

Recent comments in the New York Times by AT&T technology chief John Donovan underscore why the United States cannot rely on for profit, private sector providers to bring advanced Internet protocol-based telecommunications services to a nation that continues to lag years behind where it should be on broadband deployment. While America’s largest telecommunications company, Donovan’s comments show that AT&T is simply too risk averse to make the necessary investment to bring its rapidly aging last mile infrastructure up to date.

"The ideal way to deploy technology is on the last day as fast as possible, because it gets more capable and cheaper every day," Donovan told the newspaper. This has been AT&T’s failed broadband deployment strategy that has seen its seemingly bold broadband initiatives such as Project Pronto and Project Lightspeed collide with the company’s conservative culture aimed at maximizing depreciation and cash flow and paying large dividends to shareholders.

As your blogger has previously noted, that conservative capex strategy also likely reduces demand for advanced IP services over time since residential and home office based users who have repeatedly asked for such services conclude they will never be made available to them and give up and stop requesting them. The reduced customer demand in turn self justifies AT&T’s decision not to upgrade its plant and also limits competition since competitive local exchange carriers can’t sell their services if there are no circuits over which to deliver them. Moreover, cable companies won’t bother to extend their systems to such deprived areas either, leading to highly persistent broadband black holes.

The U.S. has already begun to move toward an alternative last mile broadband delivery model that’s playing out at the local level with support in some cases from state and federal funding. Under this emerging model, the last mile infrastructure — typically fiber — is privately owned and maintained by local property and business owners similar to privately owned roads. On a larger scale, entire communities opt to form nonprofits or cooperatives to deploy fiber systems. California Gov. Arnold Schwarzenegger recently signed legislation into law that would allow community services districts to construct their own infrastructure if for profit providers decline to do so.

1 comment:

Carol Anne said...

Actually, Donovan is spewing S**T!

The "costs" of fiber are in materials plus installation. The materials costs are negligible. However, the costs for meeting new regulatory requirements (e.g., burying cable instead of 'aerial' stringing), and the costs of labor are only going to rise (in both relative and absolute) terms in the future.

And, of course, he's ignoring the revenue side of the equation: What revenue opportunities will AT&T lose (permanently) as new providers move in to the market that AT&T doesn't adequately serve.

Donovan's remarks have only one beneficiary: The shareholders (read, "executives") of AT&T. Donovan is saying, in essence, "My bosses and I will retire richer if we don't waste money on capital investments, and we don't give a damn about our customers' retirement accounts!"

Can you imagine Eisenhower saying, "Let's not build the Interstate highway system now, it'll be cheaper in the future"{ in 1954? It was built for less than $1 Million/mile, while just fixing the Placerville area is costing close of $40 million (I'll let you adjust for inflation). And the "revenue" (in terms of GDP; i.e., the benefit to citizens) has skyrocketed due to the Interstate system.

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