Two Topics, One Conclusion

In my last appearance as a guest blogger, I wrote about the fiber glut myth and how we’re falling behind globally in connectivity. Folks who read my commentary at telecomstraightshooter.com also know how I feel about forbearance. What do those two topics have in common?

Forbearance is the right tool to increase investment into local fiber optic infrastructure. This local fiber infrastructure is much needed to surpass today’s basic copper broadband to make the U.S. globally competitive in an array of industries.

As a result of being granted forbearance, ILECs will likely raise wholesale prices, as they should. This will generate profits for some, and for others, grant a timely death or consolidation. But as profits rise and regulatory certainty of forbearance manifests itself, then and only then will investment groups have an interest in entering the highly fixed cost business of local market competition on a fiber access platform. The worry that the ILECs will price everyone out of business is just a worry. Even the craziest of ILECs will recognize that if they get out of line, soon they would face regulatory scrutiny again. If anyone knows the touch point for monopolistic behavior, it is the ILEC. The last thing they want is more regulation when they have the control to avoid it. Control – understand that is what the ILEC is all about – from there, design your execution strategy.

Forbearance can also be a managed process. It does not necessarily represent a light switch. There can be safeguards and indices built into the process. But clearly, we need a sunset provision whereby all gloves are off the ILEC within five years. A five year sunset provision would mean that CLECs will have been given 17 years since CA 1996 to figure things out for themselves. Having such a sunset provision would clearly signal to investors that making high-cost investments in local fiber optic infrastructure is a value proposition and a long term advantage. Imagine if we had an eight-year sunset provision at the outset in 1996 – we would not be in the current mess. However, no one back then asked the non-celebrity types about regulatory policy – what could they possibly know? After all, they are from outside the beltway.

Do I think that a sunset provision of ILEC pieces/parts and floating wholesale prices will result in an oligopoly in the long run in a market? Yes and no. Much will depend upon how government protects the existing owners of competitive fiber infrastructure and provides the appropriate incentives to those that extend or build anew not to have a closed fiber optic network. The ILEC and cable company fiber networks are 100 percent closed to others. Some CLECs that own fiber do not lease dark fiber (which is their choice) resulting in a closed network. I wrote about “pole attachments” a few months back, and you will see what I am saying. The government is ass backwards on pole attachments in stimulating competition and open network incentives.

At a Metro Connect Conference earlier this year, I did proffer an idea to the audience on how to stimulate investment into local infrastructure by non-ILECs and non-cable companies. It involved tax-free treatment of capital returned rates after a certain threshold of re-investment has been made by a competitive carrier. My design included how to rationalize fiber deployments whereby the incentive is to build open wholesale access networks. For those who have closed networks, they would not be allowed to have access to this new breed of carrier unless they were to make their closed infrastructure open by fiber-based wholesale packages. This would work, as it is estimated that it would take $125 billion to deploy fiber access to every business, home and chicken coop across America.

Those that maintain closed networks would be faced with this level of funding if they wish to continue a closed access network approach. Moreover, over something like a decade, as these open networks get built in direct competition to the ILECs and cable companies, there will be competitive pressure to “open up” as neither the ILEC nor the cable company has 100 percent national coverage and never will. I will write a white paper on this someday; I’ve just been busy. But be forewarned, as much as my thoughts and approach may equate to common sense, remember 1999 – I was told back then where I had my head up by Wall Street experts! The Beltway is no different from Wall Street when it comes to non-self-serving ideas and a rational approach to deregulated competition reflecting common sense ─ the odds are against it.

I hope this helps in understanding why forbearance needs to be granted with a wholesale sunset provision against the backdrop of economic incentives to stimulate local infrastructure open access investment. The next 10 years are about delivering bandwidth ... no optical pipe ... no rich applications ... no quality of user experience ... local fiber optic infrastructure should be a national policy without tax payers paying for it.

Dave Rusin heads up American Fiber Systems, a leading metro fiber provider in 10 markets around the U.S. Before he started AFS, Dave was president of Frontier Communications, the country's first CLEC. He said that experience taught him that phone companies didn't have what it takes to provide exceptional network services. It also inspired him to start a company that would do things right. In addition to Dave’s blog for xchange, Dave writes a blog called Telecom Straight Shooter.

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