Sunday, December 02, 2012

Telecom infrastructure demands competing business models

The Salt Lake Tribune has published a set of articles on UTOPIA, a public open access fiber network.  For other publicly owned and operated telecommunications infrastructure, the take away is they are like building and financing toll highway systems over a period of many years.  A prudent, long term financial plan is essential and their success can't be measured in isolation over the short term.

That's why investor owned incumbent telco and cable providers haven't built out fiber to the premise infrastructure. Their shareholders expect a certain return on investment within five years or less as well as hefty dividends.  Infrastructure projects have long term time horizons that aren't compatible with their business models.

Some of those interviewed in the articles assert that UTOPIA and other publicly operated telecommunications networks shouldn't be competing with incumbent, investor owned telcos and cablecos.  I disagree.  The challenges of constructing and operating telecommunications infrastructure demand competition to produce the best business models demonstrating the greatest potential for long term viability.  It's not an easy task.  The incumbent providers been unable to produce one.  That has led to extensive market failure in wireline telecommunications services, leaving millions of Americans without premises Internet access.  UTOPIA and other non-incumbent operators despite their shortcomings are to be commended for making the effort to develop alternatives to build and construct this essential infrastructure for the 21st Century.

1 comment:

InfoStack said...

Communication networks may share similar network effect principles with roads and water and gas utilities, but they are dramatically different. There can be multiple layer 1-2 networks developed in the same geographic space. How they are funded and amortized is a function of how demand develops.

Until the market (academics, regulators, capitalists and trade management) buy into a horizontal model that scales layers from end to end across disparate geographic and market (application/demand) verticals we will continue to regress.

We had the beginnings of this model develop via competition until 1996. Since then we've witnessed the remonopolization of the sector based on the mistaken (and fraudulent) notion of the natural monopoly developed when few if any had an understanding of information networks in the early 1900s.

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