-By Scott Cleland
A new coalition of some struggling broadband competitors, NoChokePoints.org, is making claims that the “special access” market is being “choked” by lack of competition and is urging the FCC to reverse course and regulate lower prices for these competitors.
“Special access” is basically the business-to-business leasing market of the copper wire connections that link many buildings and cell towers to the Internet backbone at DS1 (1.5 Mbs) and DS3 (44.7 Mbs) speeds.
To solve this controversy and determine who is actually “choking,” or holding up whom, I thought it would be instructive and interesting to consider how the beloved TV detective Columbo would apply his common sense questioning to get to the bottom of this whodunit.
Now let me try and understand the venue here… We are talking about the old CLEC and colocation hotel business, the business segment which attracted tens of billions of dollars in investment capital during the late 1990’s after passage of the 1996 Telecom Act. And most all of these CLECs went bankrupt when the tech bubble burst because too many CLECs and ISP companies overbuilt much of the special access market. And while the CLECs went bankrupt, many of these special access facilities were recycled for pennies on the dollar and are now being used by successful competitors that are not part of the NoChokePoints coalition… right? And those more facilities-based CLECs saw a competitive advantage in acquiring or building their own microwave or fiber facilities to offer a better and faster service to differentiate their competitive offering and win customers… am I getting it?
Now let me see if I understand the technology at issue here in the “special” access market… It’s 1990’s dial-up-era copper wire technology… right? It’s used for transport of multiple users’ data and the DS1 (1.5 Mbs) and DS3 (44.7 Mbs) speeds are pretty pedestrian by todays standards… are they not? And since Clearwire has committed to use microwave backhaul for its national 4G WiMax network and not special access copper wire, it must be feasible and a better mousetrap… right? And if I understand this microwave backhaul technology, it’s basically the same technology that MCI used to compete with AT&T 37 years ago when MCI was known as Microwave Communications Inc. So the technology to bypass special access copper wire has been around for a long long time… has it not?
And isn’t the fiber (FIOS) or coax (DOCSIS 3.0) technology that last mile broadband providers often provide to a single residential customer actually faster than the DS1 or DS3 copper wire special access technology the NoChokePoint competitors want to use for multiple users?
And if my memory serves me right, wasn’t Internet technology designed to survive a nuclear war so it inherently re-routes traffic if it ever encounters what used to be a network “chokepoint”?
So am I missing anything on the technology at issue here?
Now let me see if I understand the economics at issue… The apparent accusation by NoChokePoints is that 1990’s dial-up copper wire technology is too expensive to provide today’s broadband services. Am I missing something here or wouldn’t it make more sense to build more efficient and competitive broadband facilities to provide faster broadband than to distort the market by artificially lowering the price of dial-up era copper-wire technology below the market price of competitive microwave/fiber broadband technology? Wouldn’t artificially driving down the price of old facilities discourage investment in the faster broadband facilities needed to meet the nation’s ever-increasing bandwidth demands of the future?
Excuse me, I must not be that bright, because I can’t get my head around the NoChokePoints notion that the economics of facilities-based competition can’t work for the special access, so-called “middle mile,” part of the network that aggregates traffic of many customers, but the much more challenging economics of facilities-based broadband competition in the last mile can support 6-7 competitors in most of the country (cable modem, DSL, four wireless broadband providers: Verizon, AT&T, Sprint, T-Mobile/Deutsche-Telecom — and increasingly ClearWire).
There must be something I am missing if it is somehow more economical and a better return on investment to have only one customer pay for more fragmented last mile facilities than many customers paying for more efficient, concentrated and larger scale special access facilities. Frankly that one makes my brain kinda hurt.
Now let me see if I fully understand the relevant circumstances… There have been no formal complaints to the FCC that special access pricing was anti-competitive. And the NoChokePoints members have not availed themselves of the FCC’s expedited enforcement process called the “rocket docket” where issues like this could be resolved in roughly five months. And NoChokePoints is not alleging that there is a rights of way problem or a barriers to entry problem, only that the prices are too high. But what is really puzzling here is that NoChokePoints is discouraging the FCC from collecting more data on this market. If the data and evidence supported the allegation that there is no special access competition, why doesn’t NoChokePoints lead with that evidence? Strange, doesn’t make sense to me, but then I must not be that bright.
Just one more thing…. In any investigation of this sort I have to explore potential motives. Well NoChokePoints is basically charging that their competitors have the motive of making money… and that seems accurate to me. But what about NoChokePoints’ motives? The evidence suggests that these struggling competitors would like to lower their costs and offload to their competitors their capital expenditure budget for investing in, and deploying, broadband facilities for the future. I guess that would be a great gig if one could pull it off…
So what have we learned from this common sense investigation? Well it seems to me that there is nothing special about this market, nor the technology or economics. Seems more like special pleading for special treatment in a competitive marketplace. At no point have they made the case that they have been “choked.” It seems to me that the real offense here would be if the FCC didn’t promote competition and went down the slippery slope of price regulating competitive broadband markets, which would surely “choke” broadband investment.
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Scott Cleland is one of nation’s foremost techcom analysts and experts at the nexus of: capital markets, public policy and techcom industry change. He is widely-respected in industry, government, media and capital markets as a forward thinker, free market proponent, and leading authority on the future of communications. Precursor LLC is an industry research and consulting firm, specializing in the techcom sector, whose mission is to help companies anticipate change for competitive advantage. Cleland is also Chairman of NetCompetition.org, a wholly-owned subsidiary of Precursor LLC and an e-forum on Net Neutrality funded by a wide range of broadband telecom, cable and wireless companies. He previously founded The Precursor Group Inc., which Institutional Investor magazine ranked as the #1 “Best Independent” research firm in communications for two years in a row. His latest op eds can be seen at www.precursorblog.com.
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