[1st-mile-nm] The Broadband Gap: Why Is Theirs Cheaper?

[Tom Johnson]

 [image: Bits - Business, Innovation, Technology,
Society]<http://bits.blogs.nytimes.com/>
<http://www.nytimes.com/adx/bin/adx_click.html?type=cookie&pos=Position1B>
  March 11, 2009, 4:00 am The Broadband Gap: Why Is Theirs Cheaper? By Saul
Hansell </author/saul-hansell/>

*This is the second in a series of three posts looking at the lessons for
the United States from broadband deployment in other countries. Read the first
installment here<http://bits.blogs.nytimes.com/2009/03/10/the-broadband-gap-why-is-theirs-faster/>
.*

Broadband is cheaper in many other countries than in the United States.

“You have a pretty uncompetitive market by European standards,” said Tim
Johnson, the chief analyst at Point-Topic, a London consulting firm.

Other countries have lower costs for the same reasons their DSL service is
faster. Dense urban areas reduce some of the cost of building networks. In
addition, governments in some countries subsidized fiber networks.

But the big difference between the United States and most other countries is
competition.

“Now hold on there,” you might say to me. Since I wrote that many countries
don’t have cable systems and the bulk of broadband is run by way of DSL
through existing phone wires, how can there be competition? Aren’t those
owned by monopoly phone companies?

True enough. But most big countries have devised a system to create
competition by forcing the phone companies to share their lines and
facilities with rival Internet providers.

Not surprisingly, the phone companies hate this idea, often called
unbundling, and tend to drag their feet when it is introduced. So it
requires rather diligent regulators to force the telcos to play fair. And
the effect of this scheme depends a lot on details of what equipment is
shared and at what prices.

Britain has gone the furthest, forcing BT Group to split off a unit that
operates the actual network and sells to various voice and Internet
providers, including its own telephone service, on an equal basis.

The United States was early with this sort of approach, requiring telephone
companies to allow rival Internet service providers to sell DSL service
using their networks. The way these rules were written, however, meant the
wholesale cost was so high that providers like AOL and Earthlink couldn’t
offer a better deal than the telcos themselves.

And the plan was largely abandoned in 2003 by the Federal Communications
Commission on the theory that the country is better served by encouraging
competition for Internet service between cable companies and phone
companies.

The commission has a point that there is something rather forced and
artificial about creating competition to resell what is essentially the same
service. It’s like a supermarket that sells six different brands of peanut
butter, all made with the same recipe in the same factory. Sometimes
broadband providers try to create unusual price bundles or nice add-on
features, and in some countries they use different underlying networks. But
Internet providers that share the same line to their customers’ home will
very often be more the same than different.

Unbundling can be seen as a slightly disguised form of price regulation.
Profits dropped. Many of the new entrants have found it difficult to build
sustainable businesses, while margins for the incumbent phone companies have
been squeezed as well.

It’s not exactly clear, however, that this approach is in the public’s
long-term interest. Phone companies have less incentive to invest and
upgrade their networks if they are going to be forced to share their
networks.

Some argue that this is the main reason that there is little investment in
bringing fiber to homes in Europe. “Investing in fiber is a huge risk,”
Kalyan Dasgupta, a London-based consultant with LECG, wrote me in an e-mail,
“and the prospect of taking that risk alone, but having to ’share’ the
rewards with other players, is not a prospect that most rational businesses
would consider.”

Britain, which has been the biggest proponent of line sharing, has decided
to deregulate the wholesale price BT can charge for fiber, so long as it
doesn’t favor its own brand of Internet service.

Japan faced a similar problem after several years where regulation forced
NTT, the incumbent phone company, to sell access to its lines to rival
Internet providers at low prices. In order to get NTT to invest in a faster
network, the government set a much more attractive price for sharing access
to its new fiber lines.

Restoring some form of line sharing is one of the biggest issues facing the
F.C.C. Without it, or some other way to increase competition, the
oligopolistic nature of the market in the United States may well keep
broadband prices well above the rates for similar service in the rest of the
world. At the same time, the commission is looking to expand broadband
access to rural areas and speed the deployment of higher speeds, so it may
not want to slash telco profits if it will also slow investment.

http://bits.blogs.nytimes.com/2009/03/11/why-is-their-broadband-cheaper/?pagemode=print

-- 
==========================================
J. T. Johnson
Institute for Analytic Journalism -- Santa Fe, NM USA
www.analyticjournalism.com
505.577.6482(c)                                    505.473.9646(h)
http://www.jtjohnson.com                 tom at jtjohnson.com

"You never change things by fighting the existing reality.
To change something, build a new model that makes the
existing model obsolete."
-- Buckminster Fuller
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