Infrastructure vs carrier investments

April 20th, 2014 by · 5 Comments

This article was authored by Jouko Ahvenainen, and was originally posted on

A few decades ago telephone lines and backbone networks were typically built by national telephone monopolies. The coming of the 1990’s and mobile networks changed this. Most countries have telecom competition and a few carriers. Consumers would still like to see more competition and real alternatives, but at the same time it is very expensive for carriers to build and maintain state-of-the-art infrastructure.

Many other parties have also got interested in network infrastructure. Cities, states, regional development organizations and even companies like Google and Facebook have their own network projects. The main purpose for them is to support their own core business and local competitiveness. Good network connections are a fundamental part of local infrastructure, usability of online services, and an enabler to build business.

Developing countries have their own challenges to build nation-wide networks. But many developed countries also have their own challenges, e.g. in rural areas. You can still have very slow internet (mobile and broadband) connections even in big European cities or even in California. Places like Hong Kong or Singapore mainly with superfast connections are more the exceptions in the world. It is expensive to move from old network equipment and cables to the new generation.

It is hard to specify any exact limits, but something like 2Mbits is quite a minimum speed to have proper capability to perform working functions on the internet. And this limit goes up all the time. It means all businesses; even farms need internet nowadays in many countries, to handle payments, accounting, contacting clients and suppliers.

Then we have many businesses that require really high capacity and fast connections, like hosting services, financial services (e.g. trading), game servers and most media services. In the US there have been recent discussions about an expensive fiber connection between New York stock exchanges and the Chicago futures market that saves 3 milliseconds in connection time, but it is important for high-frequency trading. People (including celebrity Nobel prize winner Paul Krugman) argued that it doesn’t make sense to put this money into fiber optics to endorse finance market speculation, when it could be invested e.g. in better roads and rail networks.

I don’t know if the Chicago – New York connection was a good investment or better than a new railway. But for me it is a good example of the ways infrastructure requirements are changing. Internet infrastructure is becoming as important or even more important than some physical connections. And, for example, faster connections for information have enabled many businesses also outside main cities. We can criticize high frequency trading and if it as a whole is good for the economy, but at the same time it has made the financial market more effective and e.g. eliminated some arbitrage opportunities. The Internet is one lifeline of most of business nowadays and how our economy works.

This puts also governments, cities and politicians to rethink network investments. Carriers must make their investment decisions based on estimated costs and expected demand. I believe more and more countries and regions will see that this is not enough, they want invest in the latest and fastest solutions to get competitive advance to attract businesses that can utilize them. At the same time local communities and even villages fund and build their own network connections for places where carriers haven’t seen it as a profitable investment.

The public sector has traditionally built roads. We now also have roads that are based on toll charges or also some privately funded roads where investors are paid based on use. I believe we will see more questions about information infrastructure investments in many countries. Who should participate in the funding and take risks, and how? How much are network connections just carriers’ business, and how much are they a fundamental national infrastructure and part of public service? Could we get a real broadband and mobile competition to work better by isolating network infrastructure and service providers more fundamentally from one other?

Competition has been a fundamental element for fast mobile and broadband development during the last 25 years. We cannot even understand the time when people even in Central Europe waited for their phone for months. At the same time a part of the old infrastructure is becoming obsolete, even maintain connections in rural area is hard business, and better and faster technology is needed to be enable business. This probably means we must rethink the fundamentals of network investment, funding and maintenance models, and what are the best ways to guarantee good competition.

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5 Comments So Far

  • Dan says:

    It was Bill McGowan of MCI and Judge Greene that started the expansion of the industry, in the early 80s. The rest of the world followed the US in opening up the long distance and commercial telecommunications businesses.

    • Paul says:

      A large part of the credit for opening the US market to viable competition in broadband should go to the cable TV industry and companies such as MetroMedia Fiber Networks and Fibertech Networks. Cable pushed for pole and conduit access throughout the period between the 50’s and 90’s. During this time the ILEC’s were opposing access, because they recognized the potential that cable companies could compete for phone customers. MFN showed that a third participant in the broadband market could thrive. And Fibertech showed that a competitor without a relationship with an electric utility still could successfully make a business in numerous markets. The common denominator of successful telecom competitors is ownership of fiber-optic facilities or access to those facilities that are owned by companies other than the ILEC.

    • infostack says:

      Dan, definitely credit McGowan! Unfortunately few celebrated both the 100th and 30th year anniversaries of the birth and death of the monopoly this past December.

  • Anonymous says:

    Yes, thanks posthumously to both “Uncle” Bill and Judge Greene. I have often wondered if someone else would have had the vision to take on Ma Bell if McGowan had not, and is not, how different this industry would be today.

  • infostack says:

    Dial-1 equal access and pole attachment are but one of several important interconnect policies that fostered competition in the 1980s-90s. Add to that A/B cellular interconnect extended to PCS. As well, Wifi open access. And lastly, of course Computer II. All had a hand in scaling the new, digital, horizontal data stack against the vertical-integrated incumbent (monopoly) model. The market has yet to fully understand the ramifications, to wit the author’s own inability to understand how the high-volume low marginal cost user’s requirements at the end of the day drive the cost down for everyone; including the low-volume user.

    As the FCC debates NN, interconnection and IP transition it would do well to study these past open/equal access architectures and the resulting market pricing and generativity that in large part has fueled much of the economic growth beyond expectations over the past 30 years. Importantly they should understand that Steve Jobs’ forcing AT&T to accept iOS offload in the smartphone fueled the most recent app ecosystem and device revolution that has stimulated growth dramatically in the face of the global recession over the past 6 years.

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