Tuesday, February 03, 2015

UTOPIA’S “fiber highway” offers roadmap to greater competition for premise telecommunications services

A major complaint about Internet service in the United States is legacy incumbent telephone and cable companies lack incentive to provide better value and customer service and to build out their networks to fully serve communities and neighborhoods and not just selected segments. Many believe the solution is introducing more competition.

But given that telecommunications infrastructure costs a lot to build and maintain, that circumstance creates high economic barriers to potential competitors. That leaves the incumbent telephone and cable companies firmly entrenched in a market that naturally tends to be monopolistic. It puts them in the dominant position and consumers in the weaker role, forced to be what economists call “price takers,” meaning they must pay whatever their ISP charges or go without service. 

Summed up, a market that’s naturally monopolistic can’t easily be transformed into a competitive one without a radical reordering. One such example is the Utah Telecommunication Open Infrastructure Agency (UTOPIA), which operates its regional fiber telecom infrastructure as public works -- like a road or highway. That introduces competition by giving consumers the choice of what Internet services they want to purchase and from which ISPs. “The value to users is generated through greater choice of providers that generates a shift in the balance of power from the ISPs to the user and the superior service that the new network will provide,” notes this recent update by Macquarie Capital on its public-private partnership venture with UTOPIA.

As the report notes, there has been some resistance to a key financing element: a proposed monthly utility fee. But as it also points out, the estimated $22.60 monthly utility fee is offset by better value consumers would receive than as price takers of the incumbent telephone and cable companies.

As the maxim holds, there’s no free lunch. But some lunch deals are better than others, particularly when they help fund fiber to all and not just some premises as with Google Fiber’s “fiberhoods.” UTOPIA’s open access model provides the additional advantage of ensuring everyone is connected regardless of where they live or operate their business. Applied on a regional basis as UTOPIA plans, the utility fee model is a particularly important financing mechanism in places like Bettendorf, Iowa and Danbury, New Hampshire -- small localities that would be challenged to fund Internet infrastructure construction without new revenue streams.

The Obama administration and the Federal Communications Commission – looking for ways to increase competition for premise telecommunications service amid a growing tide of consumer dissatisfaction – would be wise to look to UTOPIA’s open “fiber highway” model. And consider tax incentives such as making utility fees tax deductible for all taxpayers to make them more palatable.

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