In the “Incumbents in Wonderland” up is down, black is white world of the opponents of the LUS fiber project, multi-billion dollar companies are imperiled by the actions of a municipally-owned utility in a community of about 115,000.
In that world, the entry of that municipally-owned utility into the information business of voice, video and data services will put those incumbents at a competitive disadvantage. Well, the superior infrastructure will give LUS an advantage because, over that network, it will be able to deliver services that the incumbents can only talk about but not deliver.
What really has the incumbents worried is the presences of any true competition in the market at all.
To appreciate this, one need look no further than the dockets of the courts and the Federal Communications Commission since the Telecommunications Act of 1996 became law. Incumbent phone and telephone carriers have spent hundreds of millions of dollars in attorneys fees fighting to make sure that they did not have any competition.
The cable companies have been fighting since the late 1990s to keep competitive Internet Service Providers from having access to their networks. That is, when you buy high-speed Internet service from a cable provider, you are paying for more than just bandwidth. You’re also paying for their role as an Internet Service Provider. The cable companies don’t want providers like Earthlink, or Yahoo! others to get a piece of your business. There is a case in the U.S. Supreme Court now that will render a final decision on whether the cable companies can, in fact, exclude other ISPs from their networks.
The phone companies have spent even more money on attorneys fees, congressional campaign contributions (even hiring the children of key congressmen) in a mostly successful effort to keep competitors off their networks as well.
Now, members of both the phone and cable camps will tell you that they really just want “a level playing field.” This is code for “incredibly high barriers to entry” in to their respective fields. That is, by closing their networks (which were built when they were regulated monopolies) to competitors, the phone and cable companies have relied on the high cost of network building to protect them from genuine competition while mouthing platitudes to the virtues of the competition which they actually detest.
The anti-competitive nature of phone and cable companies is also being driven home by the recent spate of merger activity which has surged in on the telephone side of the business, but which is continuing apace on the cable side as well. This Washington Post article details the players in the recent telecom mergers, but makes no mention of the cable consolidation which is also taking place.
The consolidation in the industry has loaded the remaining incumbents with debt incurred to buy others in the field or, as in the case with Cox, to buy out all other shareholders and take the company private. Is it just a coincidence that this consolidation and the accompanying accumulation of debt have occurred during a time frame when the U.S. has fallen to the rank of 14th among countries in broadband access even as defined by the diluted status of the phone companies?
Think of it this way: as large as these companies are, they do not have unlimited resources to draw upon. Committing billions to mergers and buyouts consumes resources that otherwise might have been used on more essential tasks like, say, modern network infrastructure like fiber to the home.
So, the top priority of the incumbents has been to eliminate competition at the same time that many companies and communities recognized that new network infrastructure and affordable bandwidth were essential for their ability to compete successfully in an information-driven, global economy.
This misalignment of the priorities of the incumbents with the priorities of their customers (and the communities where those customers reside) has real economic consequences. American companies are finding themselves at competitive advantages to their better-connected foreign competitors. Another impact is that companies are choosing to locate more operations in those areas where bandwidth is more abundant and more affordable.
At Wednesday’s TechSouth luncheon, Mark Marcin of George Lucas’ Industrial Light & Magic noted that is building a new animation campus in Singapore. One of the drivers in that process was the fact that Singapore has a robust network infrastructure including fiber to the home.
What so galls the incumbents about LUS and other municipally-owned network builders (yes, even those settling for ‘better than the incumbents’ WiFi or WiMAX wireless) is that they have the resources to build those networks. The munis (short for municipals) also have the element that the incumbents don’t interests that are aligned with the businesses and consumers in the communities that own them.
So, in the next few weeks when you hear opponents of the LUS project criticize it name of protecting ‘competition,’ point to the long and well-documented history of the incumbents in fighting competition. Then demand that those folks to come up with an honest reason for opposing this project!
UPDATE: Consolidation Accelerates as Time Warner and Comcast Gobble up Adelphia
Cable company Adelphia, the victim of corrupt corporate leadership, is being bought out of bankruptcy by cable giants Time Warner and Comcast. $12 billion would have bought a LOT of network upgrades, particularly when one considers that SBC’s fiber to the home investments are going to total $8 billion in the next decade.