Saturday, June 18, 2011

Incumbents’ strategy to lock down underserved, unserved territories could backfire

Telecommunications infrastructure costs a lot to build and maintain. In that regard, it’s like roads and highways. Roads and highways are typically publicly owned and operated because the upfront cost to plan and build them added to the significant expense of ongoing maintenance can’t attract capital. The return on that major investment takes too long. Investment capital can earn a quicker and more certain profit invested elsewhere.

Under the same rationale, legacy telephone and cable companies build and upgrade their networks to provide today’s advanced telecommunications services utilizing Internet protocol on a limited basis— only where they can generate fast returns for inpatient investor capital.

The result is an incomplete telecom infrastructure. Or to use the transportation metaphor, it’s like having thoroughfares in the central part of town with outliers forced to rely on dirt and gravel roads. Investing additional funds in cable plant and other facilities to provide these services would take too long to cover the cost and begin generating profits on that investment.

But that doesn’t mean legacy providers see those dirt and gravel roads as outside of their transportation system. Since telecom infrastructure is a natural monopoly, investor-owned legacy telcos and cablecos want to keep it locked down as if it were their exclusive franchise.

That underlies the debate over public versus private ownership of telecom infrastructure. Incumbent providers decry public or community owned and operated infrastructure as duplicating their own proprietary networks, constituting unfair competition. Winning that competition from their perspective isn’t about traditional business competition: gaining and retaining market shares. Rather, it’s all about preserving hegemony over their self-declared service (or more accurately, “unservice” territories.)

That’s a zero sum game that produces many losers, condemning millions to an indeterminate future of dirt and gravel roads. According to a recent Federal Communications Commission report, an estimated 26 million Americans are offline and unable to obtain Internet access at a time when the Internet is rapidly replacing the single purpose legacy telephone and cable networks as an all purpose, global telecommunications system capable of simultaneous delivery of voice, data and video services.

Because of its high construction and operating costs, telecom infrastructure is a natural monopoly. However, a deliberate strategy to oppose community-based efforts to build a more complete and sustainable telecom infrastructure to reach those neighborhoods typically served solely by POTS (Plain Old Telephone Service) copper plant and shunned by cable providers could be construed by regulators and the courts as monopolistic and unfair market conduct.

It would be easy to argue citing the recent FCC data on Internet disconnected America that such conduct produces measurable damage and deprives consumers of telecommunications services and choices. For the incumbents, attempting to keep a lock on an unserved or underserved service territory may be more of a liability rather than an asset in the long run.

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