[July 26, 2004]

[RL riposted] "If you read further in the blog, I posted my view that:

I have felt all along that the concept of unbundled local loops, interconnection and UNE-P et. al. was a terrible way to introduce competition into the marketplace. Firstly, it penalizes the company who made the initial capital investment and then still provides a lopsided competitive environment, look at the BOCs rates for their own DSL services versus the wholesale rate for the same service.

In my mind their are two types of competitors in this market.

The Infrastructure companies who own the access to the customer. This is the ILEC, the CableCo, Cellular, Power, WiFi companies. These companies, or these portions of companies, should be forced to compete against one another based on the merits of their infrastructure. They should be stand-alone entities and provide their infrastructure to all comers with no preferential treatment. They would compete and the company with the most efficient use of investment capital who can still provide a high quality infrastructure will win.

The second type of company will be the Service company. These companies would compete based on the type of service offered; video, voice, cellular, Internet et. al.; the features of their offering; their price; and their quality. They would all need to use the infrastructure from one or more of the infrastructure companies.

In this way we have competition and innovation on two planes with requisite reward for the winners on each plane. Where the two companies reside under a single corporate umbrella, as many do today, those companies will need to be regulated to insure they offer equal access to all companies looking to use their infrastructure and there is no cross-subsidation of the service business from the infrastructure business. The long term goal should be complete seperation of these businesses much the same way it has taken place in the oil and gas business or the electricty business.

I believe this gives us a workable, sustainable infocom infrastructure driven by competition and rewarding innovation, both on the infrastructure and the services side of the table.

Also, having listened and understood where he is coming from, and having worked for an ILEC for 7 years before I got smart, I believe the ILECs are the last place you would ever find him going to."

RB expanded on previous assertions in a follow up post:

"You certainly do not want to base public policy on flimsy conjectures that Wi-Fi, power, wireless broadband, and narrowband wireless communications is going to provide significant competition against landline broadband infrastructure.

Indeed, if the last 5 years are any indication, wireless cannot compete against landline broadband.

Nor is there any evidence to think that the industry is going to bifurcate into infrastructure and service planes. The RBOCs are excellent examples. They own infrastructure and they want and do own to a large extent the services.

The idea that this is simply a technology battle similar to a couple of computer companies competing against each other is highly misleading.

A better characterization is an industry of sunk costs and huge fixed operating costs that make it very difficult for entrants to succeed."

[RL replied] "I believe the major competitor to twisted pair companies will come from the coaxial access providers. I have believed all along that telling a company that just spent billions to build this to "give" to your competitors is a model that will fail financially and ultimately competitively because it eliminates the incentive to invest.

Separating all the access from all the service infrastructure will allow competition and therefore innovation on both those fronts. The current UNE regulation only incents the ILEC to undercut its' mandatory obligation for access which is cross-subsidized by all of its other operations.

Today the CLEC community is nothing more than a nuisance to the ILECs, but they are concerned because of the momentum and the potential of reforms like this to create a more equal playing field."

1. The bottom line is competition

2. Vertical integration will not happen

>3. The elusive goal of a truly competitive industry