Wow! Chris has really nailed it. I agree this *is* a case for regulations. We do, however, need to address that a company decides to build fiber based on current assumptions. Mike
p.s. Thank you Steve. ----- Original Message ----- From: "Stephen Ronan" <[EMAIL PROTECTED]> To: <[EMAIL PROTECTED]> Sent: Friday, November 07, 2003 10:01 AM Subject: [BAWUG] [CYBERTEL] Building Entrances, Dark Fiber & Monopoly Power (fwd) > I thought the analysis below might perhaps be of interest to some > list subscribers in regard to regulatory issues related to the > price of wireline Internet backhaul in fiber to the neighborhood > + wireless community networking... I asked Chris if I could pass > it on and he said it'd be fine for it to be redistributed. > - Steve Ronan > > ---------- Forwarded message ---------- > Date: Fri, 7 Nov 2003 07:59:59 -0500 > From: Chris Savage <[EMAIL PROTECTED]> > Reply-To: Telecom Regulation & the Internet > To: [EMAIL PROTECTED] > Subject: [CYBERTEL] Building Entrances, Dark Fiber & Monopoly Power > > Hello all, > > Please tell me what's wrong about my analysis below. The basic > conclusion is that regulators are making a terrible mistake, > demonstrably bad in raw economic policy terms, by not requiring > ILECs to construct and sell dark fiber to end users. > > Back in the Stone Age when I first took economics, there was a > simple little proof you could do that showed what monopolists do > to maximize profits: facing a downward-sloping demand curve, they > maximize profits by restricting output, which pushes up price. > They sell less than would be delivered in a competitive market > (where price=marginal cost) but they make up for the lower volume > with proportionally higher prices. Monopolist gets more profits; > consumers pay more, for less stuff. Clearly, unequivocally, a > welfare loss. > > Back in Medieval Times when I first learned about utility > ratemaking, I learned all about how the normal > set-price-to-marginal-cost rule can't really work in high-fixed > cost, large-economies-of-scale industries, like telecom. Since > cost declines over the entire output of the market, and since > lots of costs are fixed, setting price equal to marginal cost > leads to negative returns for the otherwise-efficient firm. So > you have to price some or all output above marginal cost, leading > to cost allocation nightmares, debates about ECPMs and Ramsey > prices, etc., etc. In other words in these weird industries the > monopolist *has* to be able to price above marginal cost; as the > joke goes, the only question is how much? > > I submit that our fascination with trying to figure out how to > price shared network facilities in declining cost, > high-fixed-cost industries has obscured a plain and simple > exercise of raw monopoly power that is right in front of our > noses. > > I'm talking about the refusal of the ILECs to sell dark fiber > and, instead, to insist on selling bandwidth in pre-measured, > expensive increments (DS0, DS1, DS3, OC-3, etc.). > > The basic product of a communications network is bandwidth. > What goes *over* the bandwidth provided is up to the customer. > The more bandwidth provided for less price, the more the > "surplus" is transferred to the consumer. The more the provider > can restrict output of bandwidth and charge more for it, the more > monopoly profits it makes. > > Technology being what it is, a clean run of fiber between any two > points within any metropolitan area can be "lit" entirely by > customer-supplied gear at either end. There is no need for any > intervening telco "facilities" or "services" or "enhancements." > With dark fiber the customer can decide whether to deploy on the > ends (a) cheap gear that doesn't give much bandwidth or (b) more > expensive gear that gives a lot. The customer can decide whether > the bandwidth ought to be formatted as OC-n or as gig-E or > whatever. The fiber provides the telecommunications service, > i.e., the simple transmission from A to B of the customer's data. > > Now, lots and lots of customers (residence customers) will choose > not to buy a point-to-point fiber run (or series of > point-to-point runs). (That raises the issue of dry copper > private lines, which is, basically, analogous, but that's an > exercise for the reader.) But some larger business customers > will; and aggregators could buy some runs and fill up the > bandwidth on their own. > > Why don't ILECs offer dark fiber? > > Because they don't have to. If they did they would sell a lot > fewer bandwidth-impaired services (and, note: an OC-48 is a > "bandwidth impaired" service as compared to what fiber can > carry). This would be true even if they were compensated for the > full cost of the fiber. > > Why don't they have to? > > Two reasons: (1) the regulators don't make them; and (2) > competition doesn't force them to. > > As to reason (2), there's no competition because once a building > is built and has an entrance from a conduit in the street, that > conduit and entrance, particularly in large urban areas but > really in a lot of places, probably is the last bastion of > natural monopoly/essential facilities. You don't want a separate > physical road into your neighborhood for each of the postman and > the milkman and the dry cleaning service and the kids' soccer > carpool. You want one physical road that everybody shares. > Same with conduit runs and building entrances, basically. > > As to reason (1)... > > Anybody have any good reasons? I sure can't think of any. > > Other than the fact that the ILECs' profits would fall, would > *anything* bad for *anyone* else happen by instituting a > requirement that ILECs sell dark fiber connections at retail to > anyone willing to pay a fair (yes, it would have to be regulated, > since it is a monopolized function) price for it? > > This seems to me to be a classic case of public v. private > interest, and, therefore, a classic case for direct regulatory > intervention. > > Comments? Criticism? > > Chris S. > > *************************************************************************** > This electronic mail transmission may contain confidential or > privileged information. If you believe that you have received the > message in error, please notify the sender by reply transmission > and delete the message without copying or disclosing it. > *************************************************************************** > -- > general wireless list, a bawug thing <http://www.bawug.org/> > [un]subscribe: http://lists.bawug.org/mailman/listinfo/wireless -- general wireless list, a bawug thing <http://www.bawug.org/> [un]subscribe: http://lists.bawug.org/mailman/listinfo/wireless
