Wednesday, May 12, 2010

U.S. telecom market needs alternative business models, not more regulation

Telecommunications like other infrastructure such as roads, electric power transmission equipment, natural gas and water lines that serve homes and businesses is not a competitive market. It is a natural monopoly and at best a duopoly. Overlaid by market failure, represented by 7 million U.S. homes the Federal Communications Commission estimates are off the telecom grid because they are located outside cable company footprints or unable to subscribe to DSL due to distance limitations. Last October, the Yankee Group estimated about 12 percent of U.S. households, including those in some major metropolitan areas, lack access to broadband service.

This is perceived as a regulatory conundrum by regulators like the FCC. Too much regulation, the legacy telco and cable companies warn, will choke off infrastructure investment. The implication that will make the existing market failure worse. But would it really? The legacy carriers' own business models already severely limit network build out to neatly defined geographic and demographic market segments that can generate a return on investment in about five years.

The real challenge facing regulators isn't regulating the market. This is a market that needs stimulating and alternative business approaches that will solve the existing market failure and create a new telecom market to deliver the Internet protocol-based telecommunications services Americans need now and into the future.

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