I usually blog only on technology topics, but I found this recent debate about the merits of unbundling extremely interesting, and I couldn't resist the opportunity to share it.
The Berkman Center
for Internet and Society, at Harvard University, recently published an
interesting report (http://www.fcc.gov/stage/pdf/Berkman_Center_Broadband_Study_13Oct09.pdf) comparing
broadband access and policy around the world. One of its key conclusions
appears to be that successful unbundling policies in countries other than the US
have been instrumental in stimulating competition in broadband access, resulting
in lower prices to consumers and wider availability of services. The report
elicited a furious response (http://www.scribd.com/doc/22638569/USTA-Berkman-Comments-in-FCC-GN-09-47-09-51-09-137-Filed-11-16-2009)
from the USTA, which claimed that the report's conclusions were seriously
flawed.
While some of the
criticism may be justified, I can't help feeling that there are some important
truths in this report. The broadband market in the UK has shown that, where the
regulator is prepared to get really tough with the incumbent, the result can be
very positive for consumers (if not for the incumbent!).
In 2001, the UK
followed the example of the US in introducing regulations that required
incumbent local exchange carriers to open up access to their copper loops in
order to provide competition in the provision of broadband services. These
regulations did not succeed in achieving that purpose. Just as in the US,
would-be broadband service providers found that it was very hard to build a
profitable business on the back of unbundled loops. Loop leasing costs were too
high (because the incumbent had successfully argued up the cost of loops with
the regulator), and the bureaucracy was just too hard to deal
with.
Faced with this
situation, regulators in the US and the UK took very different paths. In the
US, the regulator appeared to accept that unbundling had failed as a strategy
because of some fundamental limitations that made it impossible for competing
broadband providers to succeed, and the obligation on the incumbent to support
unbundling was quietly dropped. The UK regulator, Ofcom, was not so easily
persuaded that unbundling was a bad idea. It took the rather drastic step of
requiring the incumbent (BT) to separate its network operations from its retail
business, forcing BT's broadband retail business to rent loops from the network
business at the same rate as competing broadband providers. The effect was
dramatic. After four years of the old regime, only 200,000 unbundled loops were
in service. In the three years since the separation of BT, this number has
grown to 5.5 million, while broadband service prices have fallen by an average
of 16% a year.
It's possible
that the history of the UK network played in part in Ofcom's ability to impose
such draconian measures on BT. A good proportion of the copper in the ground
was laid in the days when phone service was provided by the Post Office, then a
nationalized organization - and hence it could be said that these loops were
really the property of the taxpayer, and not the shareholders of BT. It's hard to imagine the FCC being able to impose on telcos in the US in the same way -
and without such measures it's hard to see loop unbundling being any more
successful in the US than it was the first time around.
I suspect the FCC is
wise enough to understand that, so I'm surprised that the USTA chose to react in
such strong terms. In my view, USTA members have little to fear from the FCC's
response to the Berkman Center report.
