What do we mean when we say "competition?"

Owen DeLong owen at delong.com
Wed Nov 16 02:27:26 UTC 2005



--On November 15, 2005 7:25:54 AM -0800 David Barak <thegameiam at yahoo.com> 
wrote:

>
>
>
> --- Matthew Crocker <matthew at crocker.com> wrote:
>
>> That is the exact problem with a [mon|du]opoly.  The
>> incumbents drive
>> the price so low (because they own the network) that
>> it drives out an
>> potential competition.
>
> So you're complaining that the problem with lack of
> competition is that the prices are too LOW?  As a
> consumer, I'm thrilled with low price, and would only
> change providers for a well-defined benefit or a lower
> price.
>
I think what is really represented there is that because
they own an existing network that was built with public
subsidy and future entrants have no such access to public
subsidy to build their own network, it reduces the costs
to the incumbent provider well below those of any potential
competition.  Thus, faced with competition, they can afford
to reduce prices until competition cannot survive, then,
go back to charging whatever they think they can get away
with.

>>
>> We don't need 8 fiber networks overlaid to every
>> home in the US to
>> provide competition.  We need a single high quality
>> wholesale only
>> fiber network which is open to use by all carriers.
>> I don't want
>> 200' telephone poles down my street with 10 rows of
>> fiber. It doesn't
>> make sense.
>
> So should the government charter such a build?  My
> understanding is that Verizon and SBC (maybe others,
> but I don't know about them) are currently working on
> doing a FTTH build at this time.  Presumably, as
> they're private companies doing it, they'd like to be
> able to be the ones that obtain the primary benefit.
> Do you think that a municipal build/new monopoly build
> as you describe would be cheaper or better than what
> SBC or Verizon are doing?  If so, you should be able
> to convince some cities of the math.
>
The government should recognize that the existing build
has actually been paid for mostly by public subsidy anyway
and as such, should require the ILECs to split into two
separate divisions.  One division would be a wholesale
only infrastructure delivery company that would maintain
the physical infrastructure.  As part of this, ownership
of the physical infrastructure in place would be
transferred to an appropriate local civil body (city,
county, district, etc.) and said body should have an
initial 5 year contract with the infrastructure portion
of the ILEC to provide existing services on a provider-
neutral basis (same price to all ILECs, Clecs, etc.).

At the end of that 5 year contract, the maintenance of
the infrastructure should be up for bid, and, if the
existing ILEC infrastructure portion can't win the bid,
they are out of luck.

I realize there are tons of reasons this won't happen,
not the least of which being that the government stupidly
gave the infrastructure ownership to the ILECs in the
first place and doesn't really have the authority to take
it back.

>> Again, because of the monopoly held by the
>> incumbents keeping the
>> price low enough that you can't afford to build your
>> own infrastructure.
>
> This is such an astounding comment that it needed to
> be singled out: most of the complaints about
> monopolies are that they artifically RAISE prices.
>
Right, but, faced with potential competition, they are
notorious for temporarily lowering prices well below
sustainable levels in order to eliminate said competition.

>>
>> We don't need competition in the infrastructure
>> business, we need
>> competition in the bandwidth business.  That can
>> only happen if the
>> infrastructure is regulated, open and wholesale
>> only.   The RBOCs
>> should be split up into a wholesale *only* division
>> (owns the poles,
>> wires, buildings,switches) and a services *retail*
>> division (owns the
>> dialtone, bandwidth, customers ).   The wholesale
>> division should
>> sell service to the retail division at a regulated
>> TELRIC based price
>> which will allow the wholesale division to make
>> enough money to build/
>> maintain the best infrastructure in the world.  Any
>> competitive
>> service provider can buy the same services at the
>> same price as RBOC
>> Retail.  Regulated such that wholesale profit can't
>> subsidize retail
>> services.  In high density areas there may be
>> alternate
>> infrastructure providers that can sell to CSPs and
>> in rural america
>> there will be one infrastructure provider and many
>> CSPs
>
> Aren't you pretty much describing the '96 telecom act?
>  The result has been the glut of inter-city fiber, and
> a dearth of advanced access services at the
> rural/suburban edge.   Saying "we don't need
> competition in infrastructure, only in bandwidth"
> ignores the fact that infrastructure upgrades are
> required to support increased bandwidth.  In addition,
> why treat L0/1 infrastructure in a different way than
> L2/3 infrastructure?
>
Nope.  The '96 telecom act did nothing to take the last
mile infrastructure out of the hands of the existing
ILEC.

>> > This IS the market at work.  If you want it to be
>> > different, what you want is more, not less
>> regulation.
>> >  That may or may not be a good thing, but let's
>> just
>> > be very clear about it.
>>
>> More regulation of the physical infrastructure (the
>> expensive piece)
>> and less regulation of the bits to foster
>> competitive solutions and
>> bring along new innovations.   The future
>> innovations are not going
>> to revolve around new types of fiber.  They will
>> revolve around what
>> can be done with high bandwidth to everyone.
>
> First, I wouldn't be so sure to rule out new
> improvements in fiber or other physical transmission
> media as important - as an example, I think the
> widespread adoption of 802.11 has been part of a huge
> shift in the way people use the Internet.  That said,
> I agree that the biggest innovations are likely to be
> applications, not media.
>
Agreed.  However, for any given last-mile buildout, the
people should retain title to the infrastructure(s)
and management should be by a carrier-neutral party
under contract to the people.  (yes, practically
speaking, s/people/government/, but, I use the
term people to remind us that the government is
supposed to be acting as our proxy for such things).
If a company wants to deploy new infrastructure, they
should have equal access to right-of-way to deploy it.
However, such access should include a mechanism for
transfer of ownership (with appropriate compensation)
of said infrastructure to the people for carrier
neutrality after some fixed period of time at
the option of the people.

> So let me take the devil's advocate position: why
> should prices be raised so that multiple ISPs can get
> a layer-2/3 connection to customers without having
> their own layer-1 infrastructure?   Is there some
> service which is provided which wouldn't be
> cheaper/simpler to mandate that the incumbent provide?
>  The content providers and innovators you mention
> should be able to work with the customers of any ISP,
> right?
>
They shouldn't.  What should happen is that ILECS
should be divided into two entities and the current
infrastructure and service portions of the existing
pricing should be determined.  After that, the
infrastructure portion should be the price anyone
can pay the infrastructure management company for
said service, and, the service portion should become
unregulated.  Now, the ILEC can continue to provide
service at the same price, but, they no longer have
a cost-basis advantage or the ability to delay,
defer, interfere with CLEC installs on the same
infrastructure.

> I guess what I'm saying is that "competition" is a
> virtue only when it leads to either improved or
> cheaper service.  Do you think that there are
> improvements to service that alternative providers
> could make which justify the cost of the regulation
> you describe?
>
I think there are improvements and cost reductions that
could be made by alternative providers.  I don't think
we need more regulation so much as to recognize that
the subsidized infrastructure should be owned by the
public for the public good, managed by a trustee on
a contract basis.

Owen

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