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How to Move Telecoms Forward in the USA

No we can’t

In the last few weeks courts in the USA have carried on business as usual. They continue to provide the two major telcos in the USA, Verizon and AT&T, with extraordinary protection—basically retaining the outdated regulatory system in the USA that identifies the duopoly between the telcos and the cablecos as the best way forward for the development of telecoms competition in this country.

This is rather different from the position taken by the new Obama Administration, which has indicated that it will break with past regulations. The clearest indication of what its future policies might look like is that in its stimulus package it emphasizes the importance of the common good element of broadband and smart grids, and the need for open networks.

Ingrained flawed systems

I am a staunch supporter of structural changes to the telco industry in the USA but at the same time am very much aware of the current regulatory system and its history. At the same time, based on the experiences Australia had with a very similar approach to its national telecoms policies by the former US West CEO, and past CEO of Telstra, we have a fair understanding of the mentality operating within some of the incumbent telcos in the USA.

The basic rule of these incumbents is to run telecoms on a ‘laissez faire’ basis. Don’t put any restrictions on the incumbent players and they will look after the country and, yes, if there is anybody who wants to compete with them they live in a free market so they can do whatever they want.

Incumbents are part of the old-world problem

The rest of the world, however, has moved on from such unrealistic regimes and has come to the conclusion that in most cases telecom infrastructure is a natural monopoly and that on any mass market scale nobody is willing to invest in fixed infrastructure to compete with the incumbents, as that would just mean suicide.

This provides the incumbents with a de facto monopoly or duopoly and this leads to a lack of competition and a lack of innovation, which then results in relatively high end-user prices and a low penetration of broadband, as well as an absence of investigation into what other nation building benefits can result from high-speed networks.

Countries that have embarked on structural changes are now ready to move the discussion from infrastructure to e-applications for the digital economy. This requires trans-sector thinking and utilizing the multiplier effect that broadband infrastructure can offer to other sectors, and at the moment the US is hardly involved in this kind of discussion. Trans-sector coordination will be required, so perhaps there needs to be a Department of Internet; or a coordinated function within one of the existing department or a function like this at the Cabinet level.

The new Administration in the USA has clearly indicated that it wants to develop policies along these lines. It has earmarked broadband as important national infrastructure and is putting policies in place to underpin this. To follow on this the Administration might consider trans-sector coordination. This perhaps requires a Department of Internet; or a coordinated function within one of the existing department or a function like this at the Cabinet level. Australia has Federal Minister for Broadband, the Digital Economy and Communications.

This can not be left to the industry alone. Verizon and AT&T have taken some interesting initiatives to roll out fiber, but the reality is that these rollouts are limited to those areas where people are prepared to pay a premium price for this service and there are few, if any, indications of where they aim to go from here, and within what timeframe. As a matter of fact there is clear evidence that they see this as being limited to not much more than half of the population in the USA, in any case within the foreseeable future.

No use fixing the broken system

Other governments around the world are increasingly recognizing the importance of broadband for the delivery of other social and economic services, and that this will require some form of open network. The Obama Team has also recognized this but the problem is that the legal system in the USA will take years to change to the point of making legal decisions based on the new direction the Obama Team is taking.

The ILECs and cablecos will be only too keen to make sure that such changes are watered down as much as possible, and to delay and frustrate any progress for as long as possible. And they certainly have the current legal system on their side. Look at how Sol Trujillo tried to get his way, including suing Ministers and abusing regulators and the rest of the industry. And the Australian story will be child’s play compared with what Verizon and AT&T will do when they unleash their legal machines to hold on to their lucrative monopolies.

Luckily for Australia two consecutive governments didn’t give in to Trujillo’s ‘American way of thinking’ and rejected his totally outdated ‘laissez faire’ approach. Incumbents in Europe and Asia have also failed to bully their governments into the level of protectionism that the previous US government has given to the American ILECs and cablecos.

America is over regulated

During the 1990s and early 00s most governments tried to regulate their market via complex access regulatory formulas but regulations based on these accounting formulas proved futile, and with tens of millions dollars to spend on lawyers the incumbents had quickly fine-tuned the system to have a perfect platform to game the regulator. This gaming led to more regulations that were piled on those that already existed.

It was at that point in time when other governments began to recognize that fixing this regulatory system was not the solution—they concluded that the problems were far more structural to the industry.

The USA is one of the few remaining countries with such a complex regulatory system, which paradoxically is also leading to a great deal of over-regulation in certain areas.

My current view is that even if the new Administration in the USA begins to change telecoms policies the current legal system can support up to a decade of delays and frustrations before such changes would filter through into real-life changes.

At the same time this would put the US further behind in the global broadband league and would seriously undermine the role broadband can play in the economic stimulus that is so desperately needed in the USA.

America gets globally isolated

While America doesn’t shy away from pointing the finger, year after year, at governments that, in their eyes, fail to implement policies that will open up their economies to competition, the reality is that competitiveness in the domestic US telecoms market is now well below most of its major trading partners.

Access to the telecoms market is now more difficult in the USA than in many other economies. From being a global leader in telecoms competition until approximately 1996 (when wholesale competition was abandoned), the USA now has one of the most closed domestic telecoms markets in the western world. Increasingly, in a world that is becoming more and more interconnected, this will lead to international trading complaints. But perhaps far more worrying is the fact that the US is undermining its position as the hub of global telecoms.

Embarrassing the US by showing them how far behind they are compared with other countries might also help to get the government to make changes.

Yes, we can do it the Obama way

While these developments might result in some action, I believe it will still not be enough to bring the US market in line with other countries any time soon.

The most important avenue to use is to do whatever we can to assist and support the vision, strategies and policies the Obama Administration will bring to the marketplace. Fixing the broken US regulatory system is not an option. Building new structures based on new policies will potentially be far more successful.

If we can build a positive momentum within the next few years, utilizing the broadband stimulus funds, we could use this as a lever to generate cracks in the old system. This will hopefully lead to a decomposition of the old structure, and only then will we be able to build new systems—systems that will be better-suited to the digital economy—aimed at trans-sector strategies offering an infrastructure multiplier (intERstructure) effect for e-health, tele-education, e-commerce; digital media, smart grids and so on. See also: http://www.erikcecil.com/2009/02/interstructure.html).

In our Open Network Report (Think Strategies - Open Access Policies [PDF - 176KB] we promote looking at building local loops in communities that are ready for it. Many ripples here will at least create a circle and, who knows, maybe a tsunami.

If we look at how local communities are using the new technologies and how through social networks and other digital communication means they are becoming more and more connected (even a political force) we might want to consider giving more power to these communities—letting them be part of the decision-making process around the developments in high-speed broadband networks and trans-sector issues in relation to the e-applications we need for a digital economy.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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