On more than one occasion, "natural monopoly" arguments have been used to obtain, and/or hold onto, a government granted monopoly, This is definitely true of access networks where the physical right-of-way to any specific real estate parcel is a limited resource, but the economics of what you put in it have changed over time. At one time it made sense to consider telephone service a natural monopoly. And for most of the twentieth century, telephone service was operated that way (think Bell System in the US and government run PTTs in most of the rest of the world). In the latter 20th century, cable TV became a second such monopoly. Today, it's increasingly clear that telephony and television are higher layer services, not inherently tied to the access network. Yet our laws and regulation have barely evolved ― each access network is still regulated as a different vertically integrated monopoly. And, managers in each business focus on preserving their historic monopoly even as market forces or government regulations force them to also offer Internet access.
So it's interesting to see solid economic analysis showing that access network shareholders would make more money if management was willing to open up their access networks, i.e. become "dumb pipes."
The first such argument I encountered was by Craig Moffett and Amelia Wong of Bernstein Research who wrote an interesting paper The Dumb Pipe Paradox, early in 2006. The original paper is not on line but I have some quotes here and there are some other comments here. Craig and Amelia were looking at Cable TV's hybrid fiber-coax networks and concluded that cable companies could make more return on investment if they were in the pure dumb pipes business.
More recently, I reported on a speech given by Benoît Felten of Yankee Group and Fiberevolution in which he argued that new fiber to the home (FTTH) investments could be paid back more rapidly if the FTTH network were open, i.e. offered to competitors at attractive wholesale rates.
Now Benoît has written a detailed report describing his findings. Although the report is for Yankee Group subscribers only, Benoît is also giving a webinar on the subject next Tuesday and that's open to all. Register here.
I particularly liked the polite suggestion near the end of Benoît's report:
• Re-examine your economic fundamentals in light of the FTTH business model. It’s irrational to cling to antiquated business practices if new approaches, no matter how disruptive, deliver better shareholder value.
