Timothy M. Denton

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We are governed by ideas, many of them bad

Posted by on in Industry News
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In the field of telecommunications, there are very few ideas. Such ideas about how the industry works are defended because they produce economic advantage for those who currently have legal privileges and the profits generated by them. These ideas are seldom challenged. They are relied upon to defend economic interests.  They lumber along for decades, and are trotted out whenever economic interests are at stake. Who knows? People may even believe them.

Is that too cynical? Not at all.

"Facilities-based competition" is one such. It comprehends the same set of dubious assumptions as the "ladder of investment" idea, which is described as:

The approach entails providing entrants, successively, with different levels of access—the “rungs” of the investment ladder, while inducing them to climb the ladder by setting an access charge that increases over time or by withdrawing access obligations after some pre-determined date (i.e., by setting sunset clauses). Proponents of the ladder of investment approach claim that such regulatory measures would make service-based entry and facility-based entry complements—albeit they have been traditionally viewed as substitutes—in promoting competition.

The idea seems to be that we should encourage investment in networks. It seems obviously good to do so, axiomatic really. Hence in matters related to mobile telephony, the argument has consistently been made by incumbents that forcing resale of the mobile networks that currently exist would decrease "incentives to invest".

One is forced to argue either that incentives to invest in infrastructure are not decreased, and consequently regulated access causes no harm to the public interest,  or that the question of incentives to invest is not being asked accurately enough. Investment in what, exactly?

My approach is to question the accuracy of the notion. I think we are obsessed with physical apparatus and have not paid enough attention to the software. It is the software that is defining the networks. It is software (instructions to machines, indeed, instructions that constitute machines) that is the place where competition occurs. The physical apparatus (towers, huts, backhaul, power supplies) can be shared.

The idea we are forced to adopt if we accept every part of the "incentives to invest" argument is that three networks, or four networks, should exist, and that, to a large extent, every customer should be bound to use one network and that when he passes off that network he is "roaming". The idea results in three or four antenna towers, with steel huts, high fences, independent power supplies, and all attendant electronics, sitting on hills side by side. Does this make sense? It does if your goal is to maximize investment. It does not make sense if you think, as I do, that the multiplication of physical assets is a largely irrelevant aspect of competition, in a software-defined business.

In my way of thinking, we conflate "networks" with the physical apparatus which subtends them. The doctrine of "facilities based competition" instantiates a highly physicalist (atoms) idea rather than a software-driven (bits, instructions to machines) idea of competition.

At its dumbest, the idea of facilities based competition is that the more we invest in a particular line of business, the better. This cannot be so. Investment takes place against a multitude of other potential investments, each with its own profile of risk and reward.

The question is how to get the most out of the investments that we make. (Forgive the obviousness of this). If the result of resale and sharing of mobile facilities leads to less investment in the field, that could mean at least two things:

a) profits derived from market power are eroding, and/or

b) we are deriving a bigger bang for the buck.

Supposing that either of these are true, what would be the arguments against resale and sharing of cellular facilities?

a) the regulator has not the wit to devise appropriate boundaries and interfaces between what the facilities-operator and the MVNO (the person using the facilities) should own.

Reply: the existence of successfully negotiated arrangements between facilities owners and the MVNOs shows that such boundaries and interfaces can be and have been devised by negotiation. The regulator may bot be able to do it but the participants in the industry have.

b) investment might decline (relative to what?).


1. Have the parties negotiate interconnection terms and then impose terms if the parties cannot reach agreement.

2. Refer to beginning of argument: How much investment is needed in a software-driven business?

All this has been done before in the United States.

"Facilities-based competition" joins "ladders of investment" as big dumb ideas grazing on consumer surplus on the lush plains  of the Regulatorium.





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Timothy Denton is a lawyer by training who practices principally in telecommunications and Internet policy and domain name issues, with a strong concentration on explaining what the technology is and what it means.


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Guest Thursday, 02 July 2020
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