FTTP: The Battle for the Future

crtc legislation and policy lawyerThe CRTC has spent the past week in the first of two weeks of hearings on wholesale access by third parties to incumbent telco and cablecos facilities in order to compete for customers of retail services (internet, telephony, television).

This is the last of the big three hearings to which I have alluded in previous postings (Let’s Talk TV, and Wireless Services being the other major proceedings). The week has been incredibly rich in both the presentation of both facts (history, technology, capacity, business realities) and opinion (where technology is going, the risks to investment, the future needs of consumers). As the live hearings are carried by CPAC (on CPAC 2), I invite anyone seeking a crash course on telecom policy to look in on the proceedings (9 AM to 3:30 PM daily). If you can’t watch live, the proceedings are available in the CPAC video archives.

While the subject matter may seem dry and full of jargon, the presenters are articulate, passionate, and billions of dollars and a panoply of consumer choices are at stake.

At issue is the ability of third party telecommunications service providers (small telcos, resellers and independent ISPs) to access the transmission facilities of incumbent telcos and cablecos to provide services to end-users. The fundamental asks of this community is mandated access to fibre to the home (FTTP) on fair and reasonable terms, and establishment of a equality of inputs (EOI) regime (which essentially means that these third party service providers and their customers would be given access to incumbent facilities and services on the same basis as the incumbents provide services to their retail divisions and their retail customers), and mandated access to any future broadband services offered by the incumbents.

The incumbents, not surprisingly, resist all three propositions – sometimes in the most derogatory terms. The incumbents and the Commissioner of Competition have trotted out economic analyses based on Chicago School antitrust doctrine: regulation is only valid where there is market failure – which can only be concluded by historical research. Thus, both the Commissioner and the incumbents argue that waiting five or more years in order to come up with evidence of market failure is the correct way of proceeding. The incumbents further argue that only by denying third party access can the small players be incented to become facilities based competitors (sometimes characterised as “climbing the ladder of investment”).

The battle over access to FTTP is heated. The prime difficulty facing those seeking wholesale access is the present lack of demand for FTTP. At present, most consumers are satisfied with speeds under 25mbps – which is good enough for HDTV streaming services. The incumbents argue that the lack of consumer uptake of FTTP in urban residential areas means that access to FTTP is largely an academic issue.

The access seekers insist that there is demand today, and there will be much more demand within the very near future, such that the risk to incumbents in building out their facilities is less than advertised, and that third party access will actually increase demand for FTTP and curtail investment risk.

The incumbents see a necessity of keeping retail customers to themselves in order to ensure their investments in fibre are recouped in a timely manner. Incumbents are asking the CRTC to refrain mandating access to FTTP for now, and to review the necessity for mandating access in 5 years time.

Third party service providers are seeking access now (and to all new transmission services in the future), arguing that further delays in giving access to services will hinder competition in the near future, as new applications and services drive increasing demand for bandwidth.

There are two ways in which the CRTC can address this issue. The first would be a simple principled one – that where there is a monopoly or duopoly in the delivery of a transmission service, then to avoid market power being exercised, there should be mandated access on reasonable terms. The second would be to wait, as suggested by the Commissioner of Competition, until there is sufficient evidence of market failure.

To my mind, no one who understands either the technology or the economics of network deployment could doubt that the delivery of fibre to the home will be monopolistic – at least for the next generation. This being so, there is a real opportunity for the CRTC to reach a principled decision and grant wholesale access to FTTP.

 

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