Tuesday, February 21, 2006
Dale Hatfield at Silicon Flatirons
Dale Hatfield, the man who in 1997 called me out of the blue and said, "I'm from the FCC and I'd like to meet you," and then, over breakfast weeks later, invited me in his low-key way to the metaphorical table where telecom policy is discussed, made a comment from the audience on Sunday. Hatfield said he was even more pessimistic about competition than "duopoly" implied. He said that he saw good reason why the infrastructure could collapse back towards monopoly.
Indeed, version 2 of the BITS Bill removed language prohibiting ILECs from buying cablecos. Will Congress re-insert it?
I pointed out in SMART Letter #85 that once the telco owns the DC-to-daylight capacity of a fiber into somebody's home, it can undercut the cableco, saying, "Why spend all that money on a coax drop, when, for a fraction of that price, I can let you deliver your service on my fiber." The only rational cableco decision is to ride the telco's fiber drop. That scenario plays out until all the cableco's customers are served by the telco's fiber plant, and the telco starts jacking its rates, playing the game carefully, knowing the costs for the cableco to rebuild its plant, keeping its rates just low enough to keep the cableco from doing it.
Of course, the telcos may not be that smart. If the new law allows, the telco might just buy the coaxial plant and operate it. This is the Bruce Kushnick scenario -- the telco promises advanced digital services, but then breaks its promise and takes the easy way out, extracting rents and converting them to dividends. This has happened so many times, we should have a word for it. We should just say, "The telcos did a kushnick."
In any case, we would do well to heed Dale Hatfield's words. Look what the telcos have done in the last ten years while mouthing, "Competition." Duopoly may be an optimistic assumption.
Indeed, version 2 of the BITS Bill removed language prohibiting ILECs from buying cablecos. Will Congress re-insert it?
I pointed out in SMART Letter #85 that once the telco owns the DC-to-daylight capacity of a fiber into somebody's home, it can undercut the cableco, saying, "Why spend all that money on a coax drop, when, for a fraction of that price, I can let you deliver your service on my fiber." The only rational cableco decision is to ride the telco's fiber drop. That scenario plays out until all the cableco's customers are served by the telco's fiber plant, and the telco starts jacking its rates, playing the game carefully, knowing the costs for the cableco to rebuild its plant, keeping its rates just low enough to keep the cableco from doing it.
Of course, the telcos may not be that smart. If the new law allows, the telco might just buy the coaxial plant and operate it. This is the Bruce Kushnick scenario -- the telco promises advanced digital services, but then breaks its promise and takes the easy way out, extracting rents and converting them to dividends. This has happened so many times, we should have a word for it. We should just say, "The telcos did a kushnick."
In any case, we would do well to heed Dale Hatfield's words. Look what the telcos have done in the last ten years while mouthing, "Competition." Duopoly may be an optimistic assumption.
Technorati Tags: BruceKushnick, Cableco, Competition, SiliconFlatirons, Telco
Comments:
David,
Thanks for saying what needs to be said about the potential for monopoly to be an outcome of a FTTH initiative--and for being thoughtful about the possible advantages.
I do suspect that Dale Hatfield was referring to something more primeval than buying out or co-opting the cablecos. FTTH's capacity makes it possible for its owner to simply outcompete the cabelcos. Why buy up redundant plant or allow them even a decades worth of evenb declining profit on "your" network.
In video, one simple competitive advantage would be to offer to carry all the channels you can find and let the consumer have (2, 6, 10) "free" channels from the smorgasbord of extra channels for each tier. Or aggressively blur the line between "channels" and downloads pushing your advantage wherever bandwidth is valuable. All you'd have to do is find attractive products that, in the aggregate, consume more bandwidth than the cablecos can muster. Take market share.
Both of the current wireline networks, phone and cable, have proven to be natural monopolies. Real, "modal" competition is so rare as to be remarkable. There is no reason to think, after all the dust has settled, that FTTH will be any different. Or at least I haven't heard that reason articulated.
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Thanks for saying what needs to be said about the potential for monopoly to be an outcome of a FTTH initiative--and for being thoughtful about the possible advantages.
I do suspect that Dale Hatfield was referring to something more primeval than buying out or co-opting the cablecos. FTTH's capacity makes it possible for its owner to simply outcompete the cabelcos. Why buy up redundant plant or allow them even a decades worth of evenb declining profit on "your" network.
In video, one simple competitive advantage would be to offer to carry all the channels you can find and let the consumer have (2, 6, 10) "free" channels from the smorgasbord of extra channels for each tier. Or aggressively blur the line between "channels" and downloads pushing your advantage wherever bandwidth is valuable. All you'd have to do is find attractive products that, in the aggregate, consume more bandwidth than the cablecos can muster. Take market share.
Both of the current wireline networks, phone and cable, have proven to be natural monopolies. Real, "modal" competition is so rare as to be remarkable. There is no reason to think, after all the dust has settled, that FTTH will be any different. Or at least I haven't heard that reason articulated.
