Twitter
« All Tricks, No Treats | Main | COPPER IS KING »
Thursday
Oct042012

CONSUMERS WIN WHEN CARRIERS COMPETE

From streaming video content as an alternative to traditional video providers, to leveraging multiple vendors in e-commerce, to connecting grandparents to grandchildren via FaceTime rather than traditional phone lines, everyone wins in a competitive broadband market.  And as a competitive market clearly leads to rising broadband speeds with falling costs, even more important is the role faster, affordable speeds play in spurring innovation and economic growth across the country.  Much like people can’t imagine life without electricity and modern plumbing, broadband is now an indispensable input into American life and our global competitiveness.  And while all this growth and dynamism may seem too good to be true, retracing the steps on how we got here helps ensure we continue down this path.

If the course of telecom “evolution” had been left on its former path for most of the 20th Century, America could have been light years behind in technological progress instead of the global broadband pioneer we are today.  Fortunately, there were two seminal events that changed the course of history, igniting competition and unleashing the innovation that connected everyone, everywhere, all the time.  Starting in 1982, when Judge Harold Greene oversaw the break-up of the Ma Bell monopoly, the result was seven regional providers that couldn’t provide long distance (but still had a choke hold on the local market) and a long-distance provider that couldn’t offer local service.  New entrants were then able to provide an alternative long-distance service, and with competitive options for businesses and consumers we saw the beginning of the demise of high prices for long-distance calling.  Fourteen years later, Congress passed the Telecommunications Act of 1996 (“the ’96 Act”), which finally broke the local monopoly by allowing competitive access to the customer premises in exchange for local incumbent entry into the long-distance market.  This change accelerated the affordability of long distance – where today people don’t even think twice when calling across the country.  The ’96 Act also unleashed a whole new class of carrier, one that didn’t grow from the legacy monopoly tree and as a result had to win every customer through innovative offerings, more affordable products, or tailored services.    

But what does that innovation look like and how has competition helped?  Before competition was introduced into the telecom market, old Ma Bell had developed DSL as a means to transmit data at faster speeds than dial up.  Only, if they chose to sell this service to customers, it would have meant cannibalizing another, more expensive product: Integrated Services Digital Network or ISDN.  ISDN was a premium priced and very profitable service, where consumers were charged significant fees to connect an extra wire to their homes at expensive monthly charges.  After the passage of the ’96 Act, a new competitive entrant to the market, Covad, was the first carrier to deploy DSL to residential customers.  It was a huge hit.  People flocked to the new, fast and affordable broadband connection, causing incumbent telephone providers to abandon their more expensive plan requiring an additional line and were forced to offer DSL themselves.  Competition worked.  A decade later, after successfully closing off wholesale access to fiber optic lines, the Bells thought they’d have a monopoly on broadband connections to businesses.  But the competitors innovated again and worked with US-based companies to develop new technologies using the copper network and created super-charged connections.  Today over copper the copper network, we are seeing speeds up to 50 megabits per second (Mb/s).  In fact, some companies have even been providing connections at over 100 Mb/s, with engineers testing equipment that allows for connections even faster.  And once again, the Bell companies have followed and adopted this fast, affordable technology.  Simply amazing.

Broadband innovations continue to emerge in today’s competitive environment.  The most recent example is XO Communications’ launch of coast-to-coast 100 Gigabits per second (100G) backbone service in America.  XO is the first to reach this milestone coast-to-coast, and it’s the fastest broadband transport speed yet.  But this latest break-through is not being provided by one of the big, legacy telecom companies; it’s being provided by one of the upstart competitors.  These speeds will help address the growing demands driven by Internet video, higher speed Internet access, mobile wireless data, and the increasing number of Internet-connected smart devices.  It’s like water for those thirsting for faster speeds and greater capacities.  And it will spur even more innovation, and most certainly imitation.

What does this mean for the future?  Well, first it means that competition is a crucial ingredient in telecom innovation.  And based on what we’ve witnessed since the passage of the ’96 Act, we can clearly expect that competition will continue to spur positive change and consumer benefit in the telecom market.  In order for that to happen, the legal framework that ensures a competitive broadband market must be preserved.  Also, it means that policymakers should not buy the snake oil that the Bells are selling, that says only fiber can provide broadband speeds and that the copper network ought to be decommissioned.  Nor should regulators fall for the Bell argument that if the government simply subsidizes the incumbents and cuts off competition, the legacy companies will innovate in a vacuum.  History does not bear this out.  And of course such short-sighted, backward-looking policies are the exact opposite of what would benefit the US economy, and actually hurts technological innovation.  More wires, more connections, more competition is the correct telecom policy for this country, not fewer.  After all, if Ma Bell had her way in the 1990s, we’d probably still be overpaying for Internet access using an ISDN connection.

 - XO Communications

Reader Comments

There are no comments for this journal entry. To create a new comment, use the form below.

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
Post:
 
Some HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>