IP Convergence: Beyond VoIP, Beyond Cost Savings

The release of a white paper by ETNO (the Eurpean Telecommunications Network Operators Association, a coalition of incumbent network operators) purporting to demonstrate that network investment would increase if policy makers would just stop insisting on unbundling and allow “inter-platform” competition to flourish is of course a re-packaging of the same arguments put forth here in the U.S. by the Bell Companies (unfortunately with great success). 

Thankfully, ECTA (the European Competitive Telecommunications Association, a coalition of competitive carriers) has offered a rebuttal to these arguments.  Like their U.S. counterparts at Comptel, ECTA must now counter what is sure to be a huge political and public relations push by the incumbents to roll back the regulatory progress made over the last ten years. 

We have seen this investment debate before and it runs a predictable course.  Let’s hope that ECTA has learned from the mistakes of the past that allowed the incumbents to be successful in the U.S.  These lessons include –

1.            Establish a political constituency.  If the debate is about what price competitors pay for access to the incumbent’s network, the competitors have already lost.  Incumbents are typically one of the largest employers in a country and those employees vote.  Moreover, incumbents are typically some of the largest political donors.  Competitive carriers do not match up well in this regard for the simple reason that they do not have a bloated payroll from a century of political largesse.  So, competitive carriers need to establish a political constituency of their own.   Ideally, competitive carriers will be able to rally the business, academic, and scientific community to their cause.  After all, these are some of the most telecommunications-intensive industries in the economy who surely have benefited from the improved service and reduced pricing that competition has spurred.  Competitors need to encourage the business, academic and scientific community to be active participants in the debate.  Of course the incumbents have the advantage here as well since they often are large contributors to universities and scientific organizations who are naturally loathe to antagonize such generous benefactors. 
2.            Simplify the debate.  The incumbents have a very facile argument – if carriers want to compete, let them build their own network.  Competitors shouldn’t expect to have subsidized access to the incumbents’ network to compete.  Inter-platform competition between stand-alone platforms is more robust than competition “created” by forced resale and unbundling.  Unfortunately, when rebutting this argument competitors fall into the trap of trying to explain how access prices are cost-based and how unbundling works.  The better response is to simply say that if government wants to grant carriers free access to public and private rights of way, give them 100 years of advertising and public relations support, and commit 100% of their telecommunications business to them, then competitors will indeed build their own networks.  Since that is what government did for the incumbents, it is only fair they do the same for competitors.  After all, how are competitors supposed to compete with a bunch of “welfare queens?”
3.            It’s not about investment, it’s about risk.  The incumbents always talk about investment incentives, but really what they are asking for is risk insurance.  They don’t want to place their capital at risk.  They want a guaranteed return on investment.  You can’t blame them for asking.  It’s the policy makers that are to blame for actually minimizing the risk.  But the reality is no politician wants the largest employer to cut back on spending and initiate layoffs.  Moreover, in the competition for broadband penetration rankings, there is no easier way to increase broadband penetration than to give your incumbent carte blanch.  With tens of millions of subscribers, a minimal sales and installation effort can result in millions of new broadband subscribers and an uptick in the rankings.  So the lesson for competitors is not to present themselves as such a threat to the incumbents.  Unbundling and resale is not about taking market share from the incumbents.  It is about improving service to consumers and maximizing the value of an aging asset (the old copper network) and guaranteeing sales on a new asset (next generation networks).  Incumbents should embrace a business model that allows them to monetize their aging asset in the form of resale and unbundling while investing in next-generation networks that easily out-compete legacy networks.  Competitors would be foolish to rely on unbundling and resale as a long-term strategy if they knew the incumbents were aggressively investing in next generation networks.  So naturally they too will invest in new networks and if they don’t, shame on them.  And if the incumbents are concerned that unbundling and resale of their next generation network will erode their market share, then they are admitting that competitive carriers are better at sales, marketing and customer service. 
4.            It is not a zero sum game.  Telecommunications traffic continues to grow at phenomenal rates.  Competitive gains do not equate to incumbent losses.  It is a growing pie that all parties can share.
5.            It’s a national security issue.  In today’s world, telecommunications is a critical component of everyday life for individuals, for business, and for government.  Major telecommunications outages have as great an impact as power outages on economic activity and the conduct of government.  Moreover, control over the flow of information should be as dispersed as possible in order to ensure an informed electorate.  Consolidation and control of the telecommunications infrastructure in the hands of a single incumbent is a poor strategy for protecting critical infrastructure and ensuring the free flow of information.  Nations need robust telecommunications infrastructures that are only possible when you have a “network of networks” seamlessly interconnected.  The more interconnection points you have, the more robust your network of networks is.  And if you have interconnection at all levels of the network (which is what unbundling is all about), your network of networks is more robust still.

Finally, European policy makers should recall that during the 1980s and early 1990s the United Kingdom resisted efforts at unbundling in favor of inter-platform competition.  At the same time, the U.S. was implementing unbundling.  The result was enormous growth and investment in the U.S. telecommunications infrastructure and nominal activity in the U.K.  This caused the U.K. to change course and pursue its current policy path.  So the experiment in inter-platform competition was already tested and abandoned as a failure.