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Digital Town hypothesis: the future of access networks

We’re working in the background preparing our next Telco 2.0 brainstorm event. We avoid the word “conference” as the format is so different: interactive technology, brief pre-screened stimulus presentations, real-time expert analysis, and after-event reviews. One of the ways in which we depart from the conference format is we frame up issues for debate — and also have a point of view ourselves.

One way we are trying to improve on the conference format is by giving all speakers and attendees a brief session “hypothesis” that provides STL’s view on the topic of discussion.

First on the lauchpad is our Digital Town work stream, which looks at how to improve the economic and social well being of municipalities via high speed broadband access. In a nutshell, we don’t think investors are happy with “business as usual” for redundant, competing access networks — unless they can capture monopoly rents and also keep the regulator at bay. The uncertainty of regulatory intervention ultimately works against the carriers, as it drives away risk capital. Are there better ways of dealing with the problem? We think so, and successful “pipe” providers will examine and embrace change in network funding models.

We’ll be debating these issues with a line-up of speakers representing communities, altnets, users, incumbents, new entrants, innovators, and technology disruptors. Do join us!

The state of the access market today

  • Retail prices for broadband in competitive markets have lowered substantially, stimulating growth.
  • Commercial FTTH seen in a few markets (Verizon Fios, Japan, Denmark), but generally limited compared to cable and DSL.
  • Variable results from muni network projects: lots of different service models, plenty of early lessons.
  • Investment in access technologies slowly recovering from the telecom slump; wireless (notably WiMax) looking healthier than optical.
  • Copper and coax networks benefit from new technologies (VDSL, DOCSIS 3.0).
  • Partial or total structural separation existing or proposed in many markets (UK, France, Ireland, Denmark, Japan).
  • Wider social and economic benefits of improved connectivity and broadband seen as strong.

The status quo leaves few participants happy

  • Competing wired access providers results in lower take-up rates, and risk bankruptcy cycle whereby losing network comes back without debt.
  • Funding from services revenue (TV, telephony) risks regulatory intervention and/or capture (most notably in US market)
  • Copper assets are being “sweated” and prices may be too low to fund access investment
  • Reach of true high-speed access in limited, and asymmetric networks don’t reflect increasing volumes of user-sourced traffic (home video, online backups, P2P file sharing).
  • Public sector connectivity purchases are highly fragmented, raising costs and limiting general public benefit
  • Emerging industries dependent on universal high-speed access are stifled
  • Social divide problems with access to social care, e-government and information/education facilities
  • Investors are scared of asset confiscation through anti-trust if “winner takes all” happens

What’s the issue?

How can we better fund more abundant access networks using the best of demand-driven market means and private risk capital - without the downsides of monopoly or eternal regulation?

STL’s proposed answer

  • More models for paying for connectivity than just “all you can eat broadband” — ad-funded, device-embedded, service-funded, free (social tax-funded), etc.
  • Different ownership and operational models (e.g. OPLANs, co-ops, muni, private shared like cell towers)
  • Innovation in the fiscal vehicles used for networks, appealing to long-term infrastructure investors (e.g. pension funds) seeking annuity-type returns
  • Diversification of network funding sources to include more of the beneficiaries: real-estate owners, public sector, local commerce, consumer electronics, etc.
  • Better co-ordination of public sector efforts: rights of way, attachments, commissioning, service provision, etc.

We’ll be debating these issues in-depth at the Telco 2.0 Brainstorm in the Digital Town workstream.

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Comments

> The uncertainty of regulatory intervention ultimately works against the carriers, as it drives away risk capital.

Doesn't "uncertainty" = "risk?" or is this some use of either term with which I was not previously familiar?

Isn't uncertainty precisely where risk capital is supposed to be invested?

This of course is one of the many hypocrisies of our brave infrastructure capitalists, risk rewards for gilt-edged security. Champagne on a beer budget.

They bloviate about the risk, when we all know there is zero risk in frequencies, copper or fibre. They will all return, not at the monopoly rent level that may be their wish, but how much more sunk could a cost be than copper?

Yes, there have been losses on all those infrastructures, but I would argue it was because of over-enthusiatic investment based on monopoly rent returns that didn't arrive.

Even fibre's cheap, if you're not a Telco ("How we paid the construction guys 18 pints of beer and they gave us a free metro fibre network in Palmy North," http://www.nznog.org/conferencepapers.html)

Not sure of the situation in the UK, but our roads, sewers, water pipes, electricity lines, ie all transport infrastructures are funded by the commons, the services over them from a range of suppliers. Telecommunications at the fibre, frequency or copper, is no different.

You can debate the options, but its done:

http://www.usa.att.com/fiber/index.jsp

Having proprietary service/carriage integration in this day and age is like banks issuing their own notes.

There's a difference between political risk and market/commercial risk. The former is like environmental risks -- you're mitigating a value-destroying event, where's the latter is about making educated guesses as to where unrealised value might lie. We want to reward taking market risks, but winning through influence-peddling tends to make the public net losers.

Actually, here in Scotland, the banks do issue their own notes... which may indeed be your point.

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