Regulation and Broadband investment

Just finished reading a rather interesting paper from Telecommunication Policy: Regulation, Public Policy, and investment in communications infrastructure: Johannes M. Bauer.

This paper deals with the different regulatory frameworks that relate to Next Generation Networks for telecommunication. There are two major implications for implication. First, looking at opening up the network to additional services will have a short term impact, but may hamper innovation in future networks. Second, investment and innovation at the market platform can lead to higher prices and in some cases slower penetration where there is minimal return on investment on the infrastructure (think middle of no where US).

This is important as in the US we hear about how prices are cheaper for services in Europe. This is very true and some countries have significantly better broadband infrastructures than the US. Such as the Scandinavian countries, South Korea and Japan. Many of these countries have had very active partnerships between public institutions and the private firms rolling out the new network.

We all can remember what it was like on dial up back in the mid to late 90s, and how after some time we started to see a huge increase in the number of service providers. This is because the regulators did something called "unbundling" which forced the telecoms to open up their network to any service providers. This caused a drop in price, but it reduced any sort of infrastructure investment at the dial-up level. With broad band we are starting to see this to some extent, but not nearly at the level we saw it with dial-up. This has to do with the fact that these networks are still being deployed. If these networks are opened up to just any old service provider the incentive to continue to invest drops off as a firm like Verizon will make less money off of their large investment to lay down fiber.

However, we should concern ourselves with the medium of the broadband. Cable services are much more prevalent than fiber networks, dynamic regulations are required to account for the differences in the network. Opening up the cable networks at this point may be desirable as the infrastructure for the network is well established with high prices for these services. Perhaps it is time to unbundle the network from the services.

In the picture above are the different types of regulations and the short term impacts on innovation and investment. From this table, it's clear that depending on the situation of the network different regulations need to be in place.

So, my take on this: we need to have extremely flexible regulations that work to drive incentives for investment and innovation. In the US there needs to be different regulations than in Europe as there has been a different history of regulations. However, to drive down costs while pushing for innovation into the next generation of networks, I think a fair method would be to allow for something similar to patents for these networks. A given time period after a large portion of the network has been installed where the telcom that laid down the network has exclusive access. Then after a given period, 5 years or so, the network has to be opened up and no preference to the data can be allowed. This will allow the firm to recoup investment as well as plan for the next generation of networks. So possibly faster fiber switches, or all wireless or whatever.

I still think that the networks need to be data neutral because there can be consequences on unregulated markets if the networks aren't open. For instance gaming and video streaming would be the first to take a hit. This would have repercussions in a network completely unrelated to the broadband company, yet still have potential for financial impact. In other words, gamers may get pissed and stop gaming.