| Abstract: |
Fibre broadband networks are widely presumed to become the dominant form of
fixed-line broadband access. However, the spectre of fibre firms gaining
market power, such has been evidenced in legacy copper-based
telecommunications networks, has led some policy-makers to suggest imposing
separation mandates (either functional or structural) on the owners of fibre
networks yet to be built, in order to militate against the creation of a new
set of firms with market power. Whilst conceptually separation of the „dark
fibre? data transportation core from network intelligence and retail functions
echoes the computer technology-centric view of the internet as a „dumb core?
and an „intelligent fringe?, and replicates the separation mandates currently
proposed as a means of preventing integrated legacy copper-based providers
from foreclosing retail competition, the ensuing structures likely exacerbate
the chilling effect of access regulation on network investment observed in
most markets where it has been applied. The chilling effects arise because of
an investment horizon mismatch (hold-up) between infrastructure operators with
large fixed and sunk costs, and retailers (and arguably even end consumers)
with freedom to switch between retailers and network infrastructures. The
usual resolution to such problems requires customers to make a credible
commitment to purchase services via relationship-specific investments or
contractual commitments. Whereas access regulation precludes the contractual
resolution of the hold-up problem, separation mandates preclude their
resolution by consumer-owners vertically integrating upsteam into elements of
infrastructure ownership. Consequently, it appears unlikely that the level of
investment in separated fibre networks providing dark fibre connections will
be optimal. Indeed, under competitive circumstances and high levels of demand
uncertainty, there may be no private sector investment forthcoming for dark
fibre infrastructures. By examining the business model of CityLink, a firm
that since 1995 has been successfully supplying dark fibre in a highly
competitive broadband market segment, it is confirmed that long-term financial
viability of dark fibre-producing firms is feasible when utilising a mix of
both contractual and asset ownership mechanisms that bind end consumers into
credible commitments sufficient to justify the firm?s deployment of new
network infrastructure capacity. The institutional arrangements that led to
the development of this firm?s successful business model draw their
inspiration more from the flexible and collaborative commercial interaction of
the information technology community rather than the adversarial and
prescriptive regulatory environment of the telecommunications industry. It is
concluded that if policy-makers wish to encourage the creation of a truly
„dark fibre-based? fixed line broadband environment, then in the initial
stages of network deployment at least, arrangements similar to those of
CityLink are more likely to induce sufficient and timely private sector
investments than the rigid and rigorous separation and access regulation
arrangements common in the recent history of the telecommunications industry. |