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August 05, 2005
A watershed for broadband policy
The Federal Communications Commission ruled today that big telecom companies like Verizon don't have to share their networks with rivals. This is a major ruling that will shape the deployment of broadband in the U.S., where service lags what's available in South Korea and many other countries.
Consumer advocates will howl, but I say the ruling is bound to promote the deployment of more and better broadband in the U.S.
To be fair, the argument for network sharing makes a certain intuitive sense. The idea of forcing big, powerful telecom companies to share their investments with upstarts would seem to promote competition. But the argument makes better sense on a political level than it does on the economic level. It costs billions of dollars to construct high-speed networks that carry voice, video and data. Big telecom companies reacted to the old network sharing rules by slow-rolling the deployment of their broadband networks, a serious setback for the U.S. economy and U.S. competitiveness. The cable TV industry, by comparison, never faced such network sharing requirements. And the deployment of broadband by cable companies raced ahead of telecom deployment.
Over the last few years, we've seen the government ease the economic burden associated with such network sharing rules. And the telecom industry has responded by stepping up its investment in broadband, better late than never. By easing the rules even more, we'll get more investment yet.
This ruling doesn't bode well for the future of some smaller players. But those companies that owe their existence to favorable wholesale pricing schemes mandated by the government never really had a sound business plan anyway. Over time, the best of these smaller companies will find a way to adjust, quite possibly through consolidation.
We'll end up with a few, powerful suppliers, just like we have in other industries such as airlines and automobiles, where capital costs create high barriers to entry. And if anyone thinks there's a lack of competition in those industries, take a good hard look at Ford or GM.
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