Digging Is The Expensive Part – Not The Fiber

Back in the early 1980s, telecommunication was a state monopoly in pretty much all countries all over the world. Privatization in the 1990's and the resulting competition gave an incredible boost to the industry. Today we enjoy incredibly fast networks in many places, both fixed and wireless, and there is no sign that the increase in bandwidth requirements is slowing down anytime soon. We have come to a point, however, where the last mile infrastructure we have used in the last 25 years has come to its limits. Further evolution, both fixed and wireless, requires fiber links that do not only reach up to the buildings but right into the homes. The problem is, who's going to pay for it and what impact does it have on competition?

As I've ranted previously, the company that puts a fiber into peoples homes will become the telecom monopolist of the future. So while in some countries such as France, telecom companies are rushing to put fiber into the ground to be the first, companies in other countries like Germany are lacking behind. And even in France, fiber lines are mostly installed in densely populated areas, leaving more rural areas again at a disadvantage. The reason obviously is that it is expensive to put new fiber cables into homes. The point however, is, that it's not the fiber that is expensive, it's digging the trenches and the in-house installation that is required for the new connection. But why should the telecoms companies actually have to pay for the digging?

Let's have a look at roads (for cars) for example. These are built by the state, the country or the city with taxpayer money. It's critical infrastructure and so it makes sense. Telecommunication networks are also a critical infrastructure used by everyone and I guess we all agree we don't want to go back to state monopolies in this area. But how about using taxpayer's money to do the digging and put in empty tubes through which telecoms companies can then lay their fiber cables? This would give a huge boost to the digital economy and at the same time it would restore a degree of competition as it would perhaps suddenly make economical sense again to lay several fibers to a building and give people a choice again which infrastructure they want to use.

I know, I'm dreaming as this is a political decision that has not been made so far and I don't see any indication of something like that happening in the future. But one can still dream…



2 thoughts on “Digging Is The Expensive Part – Not The Fiber”

  1. Your argument is shaky.

    First: the network originally built by state monopolies was transferred to private operators. It is an asset for them. If, nowadays, they are incapable of upgrading that asset to provide the same coverage as before in a way that makes economic sense, then it means that a universal, modern datacom service is not possible as profit-oriented endeavour, hence that it does not belong to the private sector of the economy, and that telecom must be renationalized. See also below.

    Second: your proposal whereas the taxpayer finances the infrastructure that is then put at the disposal of the telecom operators will lead to what is technically called rent extraction by those operators, i.e. they will benefit fully from the advantages of the new “pipes” and capture all profits derived from freely setting up their price plans, but the state is left with the bill for building it and maintaining it. The proposal only makes sense if the operators must pay usage fees covering the amortization of the construction and its yearly maintenance — possibly over a very long period (50 years or so) — or alternatively if there is a price control for end-user telecom price plans at least in “uneconomic” deployment regions.

    In conclusion: when it comes to the wireline network, you wish the following attributes:
    1) it is modern;
    2) it is universal;
    3) it is profitable.

    You have to pick 2 characteristics and leave the third away. Yes, it is a dilemma (trilemma?), and yes, it means a society must and can choose which way to go:

    a) (1) + (2) was essentially the old monopoly situation.

    b) (2) and (3) is very frequent in the USA, so that an increasing number of municipalities are going for (1) and (2) again with their own non-profit optical fibre networks. In Japan, Korea, Sweden, etc, the same happened — universal fiber venture is not profitable, so the state subsidizes its deployment, telecom accept lower margins, etc.

    c) (1) and (3) is probably what took place in numerous European countries — great FTTx and xDSL in large cities and economic centers, with people left with old copper cables and relatively slow ADSL (or expensive wireless) connections outside those places.

    There is no silver bullet.

  2. Hi, thanks for the detailed comment! Yes, I agree my argument is shaky but the current situation is not ideal either…

    I think the last thing that should happen is a re-nationalisation of telecommunication. Those who lived in the 1980s and 90s still remember how that was and have no desire to go back. I like your tri-lema separation because it actually fits my thinking.

    Instead of a country re-nationalizing telecommunication, I was suggesting laying the empty pipes because the groundwork is the expensive thing. No need for network operators to pay for that, this could be done with taxes like other infrastructure is paid for we use today (e.g. roads).

    This isnt a silver bullet but would perhaps help to ensure 1) we are not returning to a monopoly 2) make prices consumers have to pay beyond their taxes that goes into the pipe infrastructure reasonable and 3) help to deploy fiber to the countryside as well.


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