Funding Broadband Deployment

I decided to rush out a brief post before my holiday break when I read this article. I fully sympathize with the need for more broadband competition and broadband deployment to under-served areas, it's just that we should not confuse the two: competition and ROI (return on investment), respectively, are completely different animals.

Line sharing (aka network access unbundling) can improve broadband competition in currently served areas, by driving down prices and creating incentives for better service where facilities-based competition is limited -- this is the reasoning behind GAS (gateway access service) in Canada. However, line sharing will not only not create an incentive to deploy broadband to under-served areas, it will slow deployment to those areas.

I would have thought this would be obvious, but perhaps it isn't. I think the discussion has been confused recently by reports about AT&T's declining investment in their networks, which is occurring even in the face of a moderately-competitive market for mobile wireless in the US. The contention seems to be that the present level of competition isn't sufficient to prod AT&T to maintain or increase their capital budget, therefore the regulator should encourage investment by other means. It must be said that the criticism of AT&T may turn out to be misplaced since it could very well be that they are making a sufficient investment in their wireless data network, and that the decreases may be elsewhere in their budget; AT&T is a diversified corporation with several major lines of business.

Getting back to the topic at hand, if line sharing for currently-served areas ends up in reducing the price for broadband service (or increasing investment in the service side of the business) there will be less money available for capital expenditure in the network. Of course one could argue that the carrier should find cost savings elsewhere in their operations to compensate for the reduced revenue, although that is easier said than done when you consider just how much they have been trimming the fat (including massive headcount reductions) over the past several years.

If you then combine this price pressure with the loss of service revenue due to line sharing on new technology -- deployment to under-served areas or upgrades of existing networks -- the business case for capital investment gets much tougher: same or higher costs, and less potential cumulative revenue from served customers. This situation in the US has its parallel in Canada, as exemplified by the recent government decision to overturn the CRTC ruling on GAS for higher-speed technology. I discussed this point in an earlier article.

With that, I am out of here. My next post won't be until after the coming Earth perihelion in early January, assuming we survive our annual close brush with the Sun. Enjoy the holiday.