Andy Kessler of the Wall Street Journal has a very interesting bit on his blog about the lack of competitive pressure on the pricing for last-mile telecommunications services. The piece is also referenced over at Techdirt.
Overall Andy has written a good piece of analysis on how the cost for last mile access has failed to come under the same competitive pressure in the same way long-haul telecommunications services have since the breakup of the AT&T monopoly in 1983. While I enjoyed the analysis and agreed with the conclusion, I take huge issue with one specific element of the piece:
A phone call is just 16K of data bandwidth. The math is easy. Based on current gigabit fiber line monthly fees, the value of phone service is a meager 1.6 cents per month.
The methodology here is extremely questionable. This $0.016 per month cost is arrived at in a highly circumspect manner. There are a number of different ways to measure “monthly costs” of a gigabit fibre: are we buying it wholesale, leasing it retail? Is it a long-haul or local circuit? Also, the reason gigabit circuits cost so little per Kilobit is simply because of volume. In order to get the benefits of the economies of scale gigabit fibre delivers, we’re going to have to have gigabit fibre delivered to each home. That’s going to cost one whole hell of a lot more than $0.016 a month. It’s not a big element of Andy’s argument, but I take issue with it because it’s a number some might latch on to justify insanely low costs for RBOC line sharing. Also, the cost of the copper itself doesn’t even begin to touch on the cost of maintaining central offices, equipment, back-end billing and maintenance. As annoying as local phone companies may be, a lot more goes into delivering a PSTN dial tone than simply the copper coming into your house.
One element I keep hopping someone will touch on is the complicity of local jurisdictions and rights of way holders in the high cost of both telephone and cable television services. Local jurisdictions do not make it easy (some outright prohibit it) for infrastructure overbuilds. This closes off the possibility of facilities-based competition in most places, and creates an effective duopoly on terminating the flow of digital information into our homes and businesses.
The complexity of terminating facilities into the home is one of the reasons I’m excited and hopeful for Wi-Max and other ultra-wideband wireless technologies. Once this family of technologies starts to pose a real threat to cable and telephone companies we can expect to see a big push to heavily regulate the spectrum the signals will occupy and control the deployment of masts which will transmit and receive the information in local jurisdictions through zoning laws and the like.
OK, I guess that’s my conspiracy theory for the day.
