Monday, August 27, 2007

The challenges of broadband policy and regulation in North America

[At one time Canada had the second highest penetration of broadband in the world and the US was a bit lower. Both countries have declined substantially in their international rankings. Canada is now around number eight and the USA is in the high teens or low twenties, depending on which study you look at.

This decline in broadband ranking has caused considerable concern amongst the Internet "technocrati", not so much in the absolute rankings, which are always subject to debate, but in the growing trend of appearing to fall further behind the rest of the world. More ominously, it is not only the decline in our respective broadband rankings that is causing angst, but the quality of the broadband being delivered. Most other countries who rank higher in terms of broadband deployment are also deploying various forms of fiber to the home with much higher data rates, as much as 100 Mbps for example in Japan. When taken into consideration, both the decline in broadband rankings and the low availability of higher speed broadband the situation in North America looks even more dire.

It is generally accepted that greater broadband penetration and higher speeds is a reflection of country's ability to innovate and support new business opportunities and greater productivity. With the coming wave of new Internet tools and applications such as Web 2.0, SOA, mashups, new media, citizen science and so forth a first rate broadband infrastructure will be critical to our future society and economy. Various studies have shown that ICT in general, and broadband Internet in particular, have a significant and measurable impact on GDP.

Canada and the United States are quite unique in terms of how broadband Internet is delivered compared to most other countries. Both countries have a financially sound and vibrant cable industry which is providing strong competition to the traditional DSL services offered by the telephone companies.

The cable industry penetration in North America has allowed for very competitive duopoly to exist. In most other countries the argument for regulatory intervention is much more compelling because there largely exists only one monopoly supplier. Structural separation, to varying degrees, is now the mantra of most regulators in these countries.

Structural separation in other infrastructure industries like electricity and gas has been extremely successful (see below). It has had a significant impact in allowing new business models to develop and reduces costs. We are starting to see the same results occur with broadband Internet in those countries that have started down the path of structural separation e.g. England and France. But it is yet unknown if structural separation will somehow provide the business case for building fiber to the home or any other type of next generation network.

It is interesting to note, that historically it was "regulated" structural separation that allowed the cable-telco duopoly to be created in North America in the first place (a fact often forgotten by many cableco executives). In the 1970-1990's regulators in Canada and the US prevented telephone companies from acquiring cable companies and/or offering cable TV services. In Canada this structural separation was mandated for cultural content reasons and in the US it was done to prevent concentration of ownership in the media industry. This strong regulatory enforcement allowed for the creation of a thriving, and now extremely successful cable industry. In countries where there no structural separation was mandated between cable and telephone, the nascent cable industry usually failed to reach any substantial penetration.

As a result in the North America duopoly situation, other than in some remote rural and northern areas, there is no perceived market failure in delivering broadband. More importantly most customers are quite happy with their current broadband service and there is little demand by them for greater bandwidths that would be afforded by fiber to the home.

There continues to remain the futile hope that wireless, in particular WiMax will provide inter-modal competition. I remain skeptical, not from a technology perspective, but by the business case. This is true regardless if its Muni WiFi or a more sophisticated commercial service. Any perspective retail broadband wireless company must compete with well entrenched cable and TV companies whose infrastructure has been largely amortized through their earlier delivery of their basic service of cable-TV and telephone. More importantly cable and telephone companies can offer a variety of bundled packages of triple play or quadruple play which is beyond the reach of any perspective wireless broadband company (delivering HTDV over wireless broadband remains a stretch). An important indicator of these developments is the almost complete disappearance of the retail Internet industry in Canada and the US. Although a few small players exist in niche markets, the retail Internet industry has largely been displaced by the facilities based providers. This was not due to any malfeasance on behalf of the cablecos or the telcos, but by the economic reality of operating a very thin margin business competing against large mass market competitors.

So what is a regulator or policy make to do? I personally don't believe re-regulation is the answer. More facilities based competition is required. One of the puzzling questions is why aren't the big telephone and cable companies competing in each other's backyard? They have the financial resources and clout to be effective competitors and yet they seem to be studiously avoiding competing against each other? In Canada we are further challenged by the trade barrier of foreign telecom ownership.

I naively remain hopeful that a private sector solution will be found. There were many of the same laments of falling behind when Europe was leading with videotext or Japan with ISDN, GSM cellphones and so on. And yet at the end of day American ingenuity and entrepreneurship triumphed in all these cases, especially with the Internet.

In my opinion the university/research community has a critical role play to help develop new business models and architectures to address this challenge. The MIT "Living the Future" program is a good example of this type of thinking, where non-technical students on and off campus will be encouraged to use the network and develop their own applications and services. The following are some excellent pointers to articles posted on Dewayne Hendricks and Dave Farber's list.-- BSA]

Game Over: The U.S. is unlikely to ever regain its broadband leadership Robert X. Cringely

The question we were left with two weeks ago was "Why has America
lost its broadband leadership?" but it really ought to have been
"Whatever happened to the Information Superhighway?"

It died.


New OECD report shows limitations of US broadband public policy By Eric Bangeman

The Organization for Economic Co-operation and Development has just released a 319-page report titled "OECD Communications Outlook 2007" (PDF
REF=9307021E.PDF&TYPE=browse). As you may have guessed by the title and the size, it's a comprehensive look at the state of the telecommunications industry around the world. Of particular interest is the section on broadband deployment, which tracks usage, deployment, and pricing trends over the past couple of years. Overall, broadband has become faster and cheaper, especially in countries where there are a large number of cable and DSL providers. [..] Competition is key The OECD notes that the broadband situation is better in areas with multiple broadband options. "Price decreases and improved services have been the most marked in markets characterized by intense competition," says the report. "Competition may be the product of regulatory intervention, as in the case of local loop unbundling, or may be the result of new infrastructure-based competition."

The countries with the lowest cost per megabit per second are generally characterized by two things: a significant fiber infrastructure and a healthy amount of competition. In Japan and Korea, for instance, fiber is widespread, resulting in the fastest residential broadband speeds available anywhere. In Europe, the regulatory environment allows consumers in many countries to choose from any number of DSL and cable providers. When Nobel Intent correspondent Chris Lee moved into his flat in the Netherlands, he had no less than three cable and three DSL providers competing for his business, including one company—KPN—that offered both. France is another country with abundant broadband competition—and it has the fifth-cheapest broadband in the world in terms of price per Mbps.

In contrast, the Federal Communications Commission's policy of deregulation (
20050804-5168.html) has left most consumers faced with duopolies (at
best) and de facto monopolies (I live over 20,000 feet from the nearest DSLAM in Chicago, so DSL isn't an option for me). The situation is such that the nation as a whole is a broadband laggard, according to one FCC commissioner ( post/20061109-8185.html). As a result of the FCC's policies, competition based on price and speed is spotty at best, and fiber deployments are in their early stages.

The FCC's vision of competition entails different broadband modes (e.g., cable versus DSL) rather than different providers offering the same type of service, which is why there have been rumblings about an "open access" requirement for the upcoming 700MHz auction. The FCC is on the wrong track, according to the OECD's reasoning. "Regulatory decisions across most OECD countries to allow the fixed PSTN's incumbents local loop to be unbundled has been a major factor in the development of OECD communications markets and stimulating the development and competitive provision of broadband offers," explains the report.

[SOURCE: BusinessWeek, AUTHOR: Olga Kharif]

The road is getting bumpier for cities and the companies they have
partnered with in a bid to blanket their streets with high-speed
Internet access at little or no cost to users. While 415 U.S. cities
and counties are now building or planning to build municipal Wi-Fi
networks, "deployments are slowing down slightly," says Esme Vos,
founder of consultancy Vos's tally still marks a
nearly 70% jump from mid-2006, when there were 247 muni Wi-Fi
projects on tap, but that's down from the torrid pace of a year
earlier, when deployment plans doubled. Perhaps the clearest hint of
trouble ahead is that some of the companies partnering with cities on
these projects, including EarthLink and AT&T, are having second
thoughts about remaining in the municipal Wi-Fi business.


Muni Wi-Fi: Its limitations
Telephony Online
By Carol Wilson

The recent spate of criticism regarding municipal Wi-Fi networks
falls into two different categories: technology and business case.

Note: This is a three part article. Here are pointers to each part:

Part 1: muni_wifi_networks_071807/index.html>
Part 2: muni_wifi_networks_072707/>
Part 3: muni_wifi_limitations_080207/>

Structural separation has been very successful with electric power and gas Latest data indicates significant reduction in prices and increased reliability