Back to the Future on Unbundling
11:50 AM -- After decades in telecom, Keith Willetts isn't pulling his punches. In his new book, Unzipping the Digital World, the chairman of the TM Forum takes square aim at two groups whom he views as obstacles to the success of telecom service providers in the digital era: regulators and financial analysts. (See Willetts Unzips Telecom Future.)
Dig a little deeper into Willetts's ideas on regulation, however, and it's apparent he's not championing any ideas that U.S. carriers, such as AT&T, Verizon and Comcast, can use to shake their fists at the Federal Communications Commission (FCC) .
Willetts does believe that, in general, regulators are living in the past, remaining too fixated on breaking up the old monopolies. But in an interview in Dublin last week, during Management World 2012, he made it clear he principally is railing against those regulators who advocate building multiple physical networks. In our LRTV video interview with Willetts, he got talking a lot about enabling new services, in fact:
Anyway, building multiple physical networks makes no economic sense, Willetts says, given the overall costs and the time required to earn a return on that investment. But Willetts does see value in competition at the services level. He favors a concept that has been kicked around -- unsuccessfully -- for years now: forced unbundling of the existing physical networks.
The U.K. attempted such a thing with BT, forcing the company to wholesale its local loop, but failed to require ubiquitous broadband services, leaving those who live in less populated areas -- including Willetts himself -- bandwidth starved. His best connection is 768 Kbit/s.
"We screwed up unbundling in the U.K. because OpenReach has no universal service obligation," he says.
Let's be more like ... Malaysia?
By contrast, in places such as Malaysia, a public-private partnership built an FTTH network in a way that enabled government funding of the basic infrastructure that private service providers now pay to use, Willetts says.
"From a comms perspective, Western Europe and the U.S. are seriously disadvantaged -- not having a broadband comms infrastructure is like not having airports or roads," he says. "Seventy-five percent of the world's FTTH is in southeast Asia."
In the U.S., the very notion of unbundling a wholesale network has run afoul of Willetts's other main punching bag: Wall Street. Since the network builders in the U.S. are publicly traded companies, they have investors to satisfy and those pesky financial analysts to impress. The U.S investment community was less than impressed back in the early 2000s when Verizon started talking about building fiber to the home in the densely populated portions of its service footprint.
If the idea had been to immediately allow others to sell their services over that network -- say, the local cable companies and some CLECs -- the investment community would have been even less impressed and FiOS might not have happened. Even the FCC, which under the 1996 Telecom Act was instructed to force unbundling of the local loop, drew the line at including new broadband networks, believing that would stifle investment.
And that, says Willetts, may be where everyone is making a mistake.
He has a point -- Netflix Inc. (Nasdaq: NFLX) could hardly be in Washington complaining about unfair treatment if it was simply allowed to buy access to an open local loop. Ironically, having to pay for that access might destroy its business plan and force it to increase prices. Netflix counts on having free access to broadband pipes in order to stream its content at low cost, and thus attract a large volume of consumers.
But the more solid point that Willetts makes is that the investment community, with its rock-hard fixation on next quarter's earnings, is doing big telecom no favor. And he also takes off after regulators for using spectrum as a means of raising incredible sums of cash for financially strapped governments, even though that process immediately puts the spectrum owner in a deep hole financially, as Europe learned the hard way with 3G.
These and other points in the book are well-taken, but it's hard to see anything changing. Neither Wall Street nor regulators have much sympathy or concern for large telecom operators, and are unlikely to re-order their worlds to match the needs telecom's needs. It is likely to remain the other way around for some time to come.
— Carol Wilson, Chief Editor, Events, Light Reading