The Internet is a complex series of networks, applications and connected devices and I’ve talked a lot about its evolution over the last couple of years. Various facilities make up the Internet’s physical networks including the backbone, local facilities and high capacity lines connecting businesses, web sites and large companies to each other and the backbone. A variety of technologies – wired and wireless – make up the high capacity networks including what are sometimes called private lines of various kinds. They are provided by a range of companies including cable companies, telcos and wireless carriers. Some of the providers are regulated providing what is known as “special access services” and others who have entered the market more recently are not.
USTelecom today released a comprehensive and up to date report on the state of competition in the high-capacity services market. In a phrase, the report finds that “there is growing competition, investment and innovation in these high-capacity services.” Here are some of its key findings according to a press overview of the report released by USTelecom:
· Newer competitive entrants, including cable and fixed wireless, are being drawn to the growth opportunity in high-capacity services. In addition to growing fiber-based competing carriers, the top five cable operators have announced plans to invest several billion dollars to expand high capacity services for business customers. They already report annual revenues from these services of approximately $3 billion, with at least 15-20% annual growth. There also are more than a dozen fixed wireless companies providing high-capacity services throughout the country.
· There is an average of almost 10 fiber competitors in each of the top 10 metropolitan areas and an average of six fiber competitors in each of the top 50 metropolitan areas. This year, Time Warner Telecom told investors that 1 million target business customers are within a mile of its fiber. Level 3 similarly told investors that there are “over 100,000 enterprise buildings within 500 feet of its U.S. network.” Competing carriers are able to extend their networks as demand warrants, and many are doing so despite the state of the economy.
· Wireless backhaul is fast emerging as a competitive growth opportunity. With increased wireless data usage, analysts estimate the wireless backhaul market will triple in the next three to five years. Substantial new investment will be required to deploy the technology necessary to meet this demand. Dozens of competitive fiber suppliers, cable operators and fixed wireless providers either already serve this market or are actively targeting this opportunity. Wireless companies also have expanding self-supply options. For example, Clearwire, which is majority-owned by Sprint Nextel, states that its WiMAX network will reach up to 120 million people by the end of 2010, has over 18,000 cell sites under development and plans to rely “almost exclusively on microwave backhaul” instead of traditional wired services. Previously, Sprint’s former Chief Technology Officer noted that fixed wireless backhaul is not as prevalent in the U.S. as it is in Europe where it dominates high-capacity service at cell sites because “relatively abundant and inexpensive T-1 [traditional wired] lines” have provided an attractive alternative here.
· Special access prices have continued to fall since pricing flexibility was granted by the FCC in competitive markets. Previous independent studies (GAO, 2006 and NRRI, 2009) confirm that prices for special access declined from 2001 to 2007. More recent data supplied by participants in this study show that special access channel termination prices for major ILECs declined by 11% to 23% in inflation-adjusted terms from 2005 to 2008.
· High-capacity deployment and innovative offerings continue to proliferate. More offerings continue to come online from diverse competitors even as prices decline. Suppliers are deploying innovative solutions, such as carrier Ethernet and wireless broadband, to efficiently transport exploding volumes of traffic. Intense competition in retail areas that use high-capacity services—from corporate enterprise communications to consumer wireless services—further illustrate the competitiveness of high-capacity services.
I know some will look at these results with some skepticism given reports released by Free Press and others about the competitiveness of high capacity markets including special access links. I think the available evidence shows they are wrong. But the study released by USTelecom does not pretend to have all the answers because there simply is not enough data that is on the record at the FCC or readily available from other sources. In fact, many of the competitors in the market have refused to provide data to the FCC, I suspect in large part because they want to see the special access services of the incumbent telcos like Verizon more heavily regulated than they already are. Evidence of competition undermines the calls for regulation that are often made by the competitors.
Julius Genachowski responded to questions submitted during his nomination hearings repeatedly saying that the FCC would use a “transparent, fair, and data-driven process that is open to, and seeks the best ideas from, all stakeholders.” That is welcome news. The FCC needs to develop a full record of evidence provided by all players in the market so it becomes even more clear that regulation in the high capacity networks market is not needed and would only undermine an already healthy, competitive market.