Saturday, March 06, 2010

Alternative telecom business models urgently needed

Fundamentally, America's outmoded and incomplete telecommunications infrastructure isn't solely an infrastructure issue. Rather, it's a business model challenge caused by market failure that discourages the build out of this vital infrastructure to allow all homes and businesses access to the Internet protocol based telecommunications technology that is today's standard for Internet access, video and voice communications.

As such, the market failure that has brought about the current travesty of the world's most advanced economy dotted with broadband black holes demands alternative business models to fill in the gaps. It also requires a paradigm shift in thinking away from the proprietary, investor owned telco and cable infrastructure that's based on a business model suited to the 20th century and not the 21st.

Bob Frankston and Andrew Cohill of Design Nine note the 20th Century telecommunications business model provides services similar to other utilities such as water and electricity. The more you use, the more you pay. As Cohill puts it, it's about selling "bandwidth by the bucket."

As Internet era dawned with dial up access in the early 1990s, telcos simply sold and billed Internet access like an additional voice calling feature. They have continued to do so with DSL and ISDN before it. In Cohill's view, this business model to use a military acronym is FUBAR. "This business model is fundamentally broken," Cohill declared in a recently issued white paper. "There is no way to fix it."

Why? Because building advanced telecommunications infrastructure cannot pencil out for telcos and cable companies based on a business model of selling an incremental, usage-based menu of services over their proprietary cable plant. It simply doesn't generate enough revenue to be profitable. That's why they have adopted an ultra conservative posture when it comes to expanding their infrastructures, leaving millions of would be customers in their so-called "service areas" unable to access services they could otherwise sell to them. So conservative, in fact, that telcos and cable companies will parse a single road or street providing some residents and businesses with broadband access while their neighbors go without, making lack of broadband access a problem that occurs in non-rural as well as rural areas. As previously noted on this blog, the search term that brings the largest volume of visits is "my neighbor can get broadband but I can't."

As U.S. policymakers are about to consider a framework for a national broadband plan to be issued this month by the Federal Communications Commission, Cohill has proposed an alternative business model that probably won't be in the FCC's plan but deserves to be. It calls for a public private partnership between regional and local governments and private sector Internet Service providers (ISPs). Local governments sell bonds to finance the construction of fiber optic-based infrastructure and then service the bond debt by selling access to ISPs. Federal and state government can help defray construction costs with grants and loans.

Telecommunications infrastructure under Cohill's "Third Way" isn't owned by a telco or cable company but instead is public infrastructure like roads and highways. In effect, Cohill and others who support this alternative business model propose the deprivatization of telecommunications infrastructure while retaining a private market of competitors who wish to sell various communication and entertainment services. It's called an "open access" network.

Cohill"s "Third Way" provides a solution to those who believe more competition is needed for telecommunications services. Since telecommunications infrastructure is itself a natural monopoly due to the high cost of constructing it, an open access network puts in place the framework for a competitive market for telecommunications services sold to homes and businesses.

Cohill argues that the United States can no longer wait for telcos and cable companies to build out their infrastructures -- and he's right. Moreover, he asserts, in a weak economy where business and job creation are desperately needed, retaining a failed business model of telco and cable owned infrastructure in areas that lack adequate broadband access is "disastrous" from an economic development perspective.

Critics will likely argue that the open access model is too radical and hasn't been sufficiently tested in the real world to ensure it pencils out where a proprietary, investor owned closed network cannot. Cohill would point to three open access networks his company orchestrated in Virginia and Florida to show that it can.

Given studies linking expanded broadband access with economic growth, the open access business model, regional and local governments should not look to solely the feds for solutions. Since they stand to benefit from increased per capita incomes (and by extension, higher tax revenues), they should take their telecommunications -- and their economic destinies -- into their own hands and explore this much needed alternative business model to the dysfunctional, failed market of the status quo. The current privately-owned telecommunications "ecosystem" as some in the FCC have termed it isn't sustainable and cannot be expected to accommodate the burgeoning growth of digital telecommunications services and the concomitant demand for bandwidth. New business models such as proposed by Cohill and others are urgently needed now.

1 comment:

daniel john said...
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