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Applying “Open Access” to Competitive Broadband Service in Maine

Posted on April 25, 2012 by Trevor Jones

In recent years, government and business leaders have recognized that legacy telecommunications and cable TV networks will eventually be unable to meet the needs of a broadband Internet consumer with an ever-increasing hunger for bandwidth. Reliance on adapting these older networks to broadband access has allowed the US to fall from first to 25th in overall broadband access speed while foreign countries have invested public money in purpose-built, all fiber broadband networks. Although today’s economic and political climates do not allow for such projects to be built as purely public projects here, there have been a number of public-private partnerships aimed at expanding and enhancing broadband access, including Maine’s Three Ring Binder and similar projects across the country.

As a condition of funding a portion of these projects, the government typically requires that the business building the network offers “open access” to the network being built. This open access provision is intended to ensure that government funding does not favor one competitor in a marketplace over another, and essentially requires that the business building the network make it available to its competitors on fair, reasonable and non-discriminatory terms. The ultimate goal of such a provision is to ensure a vibrant, competitive marketplace for broadband access in the hope that competition will drive down prices and increase bandwidth for all.

The problem with this open access provision is that its interpretation has been uneven nationwide and, for the most part, grant recipients have been able to define the provision of open access in a the way that suits them. As a result, we see open access delivered in three different ways by network operators:

Offering “lit services” at discounted wholesale rates. Many carriers have determined that they will meet their open access requirements by offering wholesale versions of their retail offerings to competitors, enabling them to compete by reselling directly to customers or by using the services as a component of a bundled offering. This offers the highest potential revenue and return for the network operator since they provide a greater percentage of the network’s value. It can also be advantageous to small competitors who lack the capital resources to invest in a network of their own. However, competitors are forced to work within the network operator’s product structure and pricing, which severely limits their flexibility in creating service offerings and limits their gross margins. As a result, this model is fairly restrictive for competitors and precludes the creation of really innovative product offerings.
Offering dark fiber at wholesale rates. One way to offer open access that is more supportive of real competition is for the network operator to lease its fiber to competitors without adding any services. This reduces the overall investment required by the company building the network and puts more of the cost of providing service to the end user on the competitor. It also allows the competing provider to define its own product definitions and pricing, creating truly innovative services. Where this model is not chosen, it is usually because it reduces the margins of the company building the network and deprives them of an opportunity to vertically integrate their business. Where it is employed, it’s effectiveness at fostering competition can be limited where the network operator also serves end users because there is an incentive to maintain relatively high costs for dark fiber.
Structural separation. This model is also predicated on the provision of dark fiber to competing carriers that serve end users. However, structural separation differs in that the network operator that built and owns the fiber network and the carriers providing services to end users are separate entities. In this model, the fiber provider, who does not sell services to end users, is not competing directly in the market, so it has no incentive to inflate its wholesale rates for fiber to inhibit competition. As a result, this model is widely considered to be the best for creating a truly competitive market for broadband services. In Maine, the Maine Fiber Company, the operator of the Three Ring Binder, is such a company. Its network assets are being leased by GWI and at least three competitors to provide service to end users.

Categories: Broadband Expansion, Public Policy, Three Ring Binder
Tags: broadband, Maine Fiber Company, NTIA, Rural broadband, Three Ring Binder

1 Comment for Applying “Open Access” to Competitive Broadband Service in Maine

Michael Elling says:

A 3 dimenstional horizontal framework using service provising, geographicy/traffic density and application/market dispersions is the best way to model supply and demand and all layers and boundary points. This ensures greatest scaling of investment, countering the rapid technological obsolescence everyone faces today.

The above “classes” of service can then be properly modeled and understood by investors, regulators, trade and academicians alike. This industry needs a common lingua franca and understanding to progress. Vertically integrated incumbents need to rethink their business models in the same way IBM rethought its in the early 1990s.