Europe continues to move toward a more radical telecom regulatory posture, with EU Commissioner Neelie Kroes proposing that the unbundled copper rates for operators who fail to develop credible FTTH plans be reduced. The goal is to provide an incentive to move beyond the basic copper infrastructure, and making copper less profitable would seem a logical path to that goal. It’s not that simple, unfortunately.
Our model says that virtually every EU country could in fact deploy FTTH profitably, providing one defines “profitably” as meaning “meets the company’s IRR guidelines”. The challenge is that the telcos, as privatized entities, have an obligation to their shareholders to enhance profit and not just sustain it, and there are other ways that investment would bring a higher return. In point of fact, revenue per bit for residential broadband has plummeted worldwide, and in the majority of countries the subscribers are unwilling to pay for top-tier broadband even where it’s available. So from a pure bottom-line perspective, this may be bad juju.
The second issue is the public policy goal. As I’ve noted before, I’ve been unable to come up with a convincing case for broadband serving any specific public good. That’s not to say that people don’t like it, but they like ice cream too and we don’t promote its consumption at a government level. As a technology consultant, I’m all for stuff that makes technology grow because it makes my own business grow, but I’m also one to insist on proof for claims, and I’m not finding it here.
I believe that there is a global trend toward the “Australian Solution” to broadband, which is a form of nationalization of the access network to move the problem of infrastructure modernization out of a for-profit business. Again, I’m all for what people want in a democracy, but I wonder whether everyone is aware of the consequences. If fiber isn’t going to be profitable to deploy then it will have to be subsidized, and that’s an increased tax burden at a time of global economic turmoil. Can government create regulations that will sponsor innovation? Remember, we used to have regulated monopolies and government-owned telecom in Europe and we abandoned these because the network wasn’t being modernized. So now we abandon the privatized mechanisms for the same reason? That’s an awful lot like situation ethics, and I think the EU needs to justify this more than it has.
Speaking of public policy, Verizon has kept its promise and filed suit to block the FCC’s neutrality order. It appears as though the order is going to be the subject of more than one lawsuit, and ironically neither the pro- nor the anti-neutrality camps are happy with it and so both are appealing. I’m of the view that’s probably a good thing because there are parts of the order that are fatally short-sighted and parts that are smart. Everyone disagrees on which are which, of course.
The smart side is that it should be illegal for an ISP to either block traffic on the Internet or interfere with it, and I think everyone agrees with that part. Where I think the order goes awry is in the prioritization regulation. “No paid prioritization” is in my view a very bad thing because it forces QoS-sensitive IP services to go off the Internet, and given the almost universal movement toward convergence IP services are about all we’ll have anywhere. Rather than have telcos hire a thousand lawyers to figure out how to dodge this with “managed services” outside the Internet, why not simply say “anyone can get priority handling for a fee”, and then let anyone who wants it do the paying? The argument that the Internet would get worse overall might be slightly true, but if it is the truth would be that it HAD to; that revenues were too low to sustain investment. Only where there’s no competition would any sort of price regulation be needed, I think.
Logic isn’t the answer here, though, because the law isn’t logical (as anyone who knows a lawyer probably realizes). The question here is one of law and not of fact; does the FCC have the authority to do this in the first place? I don’t think so, and so the question may be whether the Court of Appeals tosses the whole thing or just sections. Congress might also step in, and if there’s a change of administration in the next election, the next FCC might elect not to fight an appeal or even reverse itself. Unlike courts, the FCC is not bound by precedent.