DSL Prime: Competition's Everywhere But Here (and China)

The triple play in France is one-third to one-half the price in the U.S., and for a single reason. Meanwhile, China follows the U.S. re-monopolization pattern.

by Dave Burstein of DSL Prime and Future of TV and the Web Video Summit [March 9, 2007]

"Access to this site has been denied by court order"
—YouTube home page when viewed from Turkey, blocked for political reasons. (London Times via TechCrunch)

Xavier Niel has just been offered five billion euros by Cinven and Morgan Stanley, a deserved reward for creating the most exciting company in Western telecom. Iliad/Free will begin installing a million fiber connections starting in a few months. They intend to charge 30 euro for 50+ Mbps data, unlimited phone calls across France and thirty other countries, and 60+ channels of television. Jennie's friends in Denver were amazed she called them from Paris and talked as long as she liked. Head of German RegTP Matthias Kurth a few years ago found it hard to believe that French prices were 30 to 70 percent cheaper than in Germany when that data came up at a Columbia seminar. It may just be coincidence that soon after Kurth became much tougher on unbundling and pricing. A year or two later, German consumers reaped the benefit.

French triple play is now $40 to $60; the U.S. comparable is $100 to $130. Time for the FCC to realize something is profoundly wrong.

Xavier's success has produced incredible excitement about the internet in France, with Iliad/Free, Cegetel/Neuf, France Telecom, and Noos Cable (owned by Cinven) rushing to deliver 100 Mbps. I wrote of joy seeing the first test of the fiber FreeBox, and a CTO wrote me to come see how they were doing similar.

Noos, Videotron in Canada, NTL/Virgin in the U.K. and J:COM in Japan are in large trials of 160 Mbps down shared cable. The early results from these pre-DOCSIS 3.0 cablers are exciting. With current loads, 50 and 100 Mbps download speeds are regularly achieved, and 50 Mbps+ is likely to be achieved most of the time. Brian Roberts a while back told me Comcast expects to start deploying full DOCSIS 3.0 (160/120 Mbps shared, going to 1 gigabit) in 2007, although the equipment makers may push that to 2008.

China instead has decided a well-regulated monopoly will serve them better. This is heresy in the West since 1995, but was textbook economics a decade before. I like solving problems with competition, but whether competition or good regulation is better is a tough question. Fewer than 5 to 8 networks are typically not enough to de-regulate. 2 or 3 certainly aren't. Going from 6 to 4 U.S. wireless networks has resulted in clearly higher mobile prices than expected, and even some increases. That's the main reason AT&T profits and stock price are up, along with price hikes now extending to long distance as well as local service. Ugly.

Ivan Seidenberg remains a hero for bringing Verizon fiber to a fifth of the U.S. He knows what's coming from cable, and decided not to risk his company by limping along a second rate network and cutting investment to less than depreciation. On the other hand, Seidenberg's a bum for the 60 percent broadband coverage in Maine, Vermont, and New Hampshire, one of the lowest rates in the developed world. Verizon in those states can best be described as similar to the early Roman treatment of the Sabine women.

The fundamental dogma for U.S. wireline is simple from 2007 to 2011. Verizon FIOS is clearly the best, which will be answered in territory by (not quite as good) DOCSIS 3.0 160/120+ between 2008 and 2010. If the cablecos bring DOCSIS 3.0 to AT&T and Qwest and price aggressively, AT&T and Qwest are in extreme trouble. If cable doesn't invest, or both sides wink and nod to keep prices high, AT&T Lightspeed may do better than it should. That suggests the single most effective thing Kevin Martin can do on the wireline side is advance the digital transition and DOCSIS 3.0. He hinted at that in the details of the Comcast cable card ruling.

North Monopoly to China Netcom, South Monopoly to China Telecom
Competition too wasteful?
"China Telecom Co and China Netcom Co, the country's two giant fixed-line operators, have agreed to stop competing against each other in areas dominated by the other company," Sina.com reports. The deal was signed secretly on February 16 in Beijing. Xinhua's source quoted an expert from the Ministry of Information Industry saying, "the agreement is good for the operators, who may be able to avoid duplicate investments." China Telecom asserts "Competition brings no profits at all nowadays, as there is little room for growth in the almost saturated fixed-line market. The agreement aims to restrain negative competition and wasted investment."

The two companies have already exchanged the IP address ranges of their broadband users, Shanghai Daily claims. They will also share information about their big clients under the principle that each will be exclusive serving company to clients on its turf. They stopped all promotion across territories, and are not accepting new customers for fixed lines or semi-mobile "personal handyphones" out of territory.

This calm acceptance of a "natural monopoly" would be shocking anywhere else in the world, where I'm one of the few willing to openly talk of the possible legitimacy of a well-regulated monopoly. The Chinese competition has been so weak (and cable crippled) that China already has close to a landline monopoly. Despite that, they long ago passed the U.S. in DSL and will soon lead the world in broadband.

Behind the truce between China Telecom and China Netcom is the rationale that expansion hardly enables an operator to challenge its rival and investment on the rival's turf could casue "losses of State-owned assets". The awful truth is that the reshuffle in 2002 truly broke a national monopoly but created regional monopolies. And when a cease-fire deal is inked, it seems the national monopoly is coming back to life. The only difference is that the new national monopoly is a collaborative act. I much prefer solving problems through competition, but the 5 to 8 networks that would require are very rare.

Copyright 2007 Dave Burstein.
The DSL Prime Newsletter is reprinted with permission.

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