How "last mile" providers, telcos and cablecos, could improve the entire industry

There has been a lot of controversy in the past few years over how last mile providers are operating with regards to consumers in general and wholesale ISPs in specific.

Charges of monopolism, restriction of trade, unfair trade practices are rife, to name but a few.

Just to be clear, a "last mile" provider is someone to whom a consumer pust pay, directly or indirectly, to get from their home or business, out to the rest of the world; This is through the physical copper (or fibre) connection from their home or business, out to the poles or conduits, to a switching station, then to the rest of the Internet.

Obviously, you cannot have multiple last mile providers for each home; No one would want to see a solid wall of telephone poles lining streets or having their roads dug up once every three months when someone new enters the market to provide service.

Someone has to provide this service. Nine times out of ten, this is your local telephone or cable company. This has been accomplished over the past century and more by grants of right-of-way by local, provincial/state and federal governments to ensure communications were available to all.

The problem

A monopoly made a lot of sense thirty years ago and more: As mentioned above, you don't want five poles in front of each house and frankly, POTS was such a simple service that having one (or very few) carriers simply made it easier for all to ensure thorough communications reach to citizens.

In todays world, however, communications is a lot more - a VERY large amount more - than simply converting a voice to electrical impulses and re-converting them on the other end to create a conversation circuit; We have email, web, VoIP, video conferencing, VPNs, and many, many more forms of multiple-way (note: A LOT more than simple "two way") communication.

To state the obvious, some companies do things better than others. Some companies are so specialized that ALL they do is one form of the myriad of communications options we have today. It would be the very height of hubris to state, or even vaguely suggest, that one company can do all of this better than all the rest. This includes the last mile providers.

The harm

So why is it that governments in North America, specifically in Canada and the United States, are allowing a BACKWARDS slide in this competitive world ? One does not need to be radical, left-wing, ultra liberal or a conspiracy theorist to know - and cite many examples of - the fact that monopolies, duopolies (any form of genuinely limited competition) in critical infrastructure in a capitalist society does not work. In fact, they cause harm to large segments of society, ALWAYS.

A look at the real estate bubble and it's root cause: The banking and financial corruption that caused not only millions of people to lose their homes, but the massive impact to the global economy that we are still feeling, today. A look at the rare earths market and Chinas' decision to cut back 30% of exports and the sudden panic on the effect this will have if Canadian and US mines don't start up because so much of the worlds' supply came from one place. WalMart, though a huge success for stockholders and consumers looking for the lowest price, has created entire 'business ghost towns' where there is literally nothing but a WalMart and residences - nothing else.

Without reasonable competition in an industry, the desire for greater and greater profits causes greater and greater harm to those around them; Choices are removed from not only consumers, but from businesses that provide jobs and contribute to the GDP and tax base, as well as the diversity of a community, be that on a local or provincial/state wide basis to weather downturns in a particular sector or unforeseen force majeures.

Obviously, calling for the end to all telcos and cablecos would be utterly foolish: They provide an infrastructure that both businesses and the consumers need to access the rest of the world at large. Where I think they are falling afoul of the "desire for greater and greater profits and causing greater and greater harm to those around them" is that they are looking towards the fact that entertainment content is moving entirely over to the Internet and they want a solely captive audience with zero competition. By entertainment content, I refer to television and movie content moving at an increasingly rapid pace to being delivered over IP, rather than over the air (By broadcast or satellite).

In my view, they see the profits in this not only from subscription-based content, but in bandwidth used for such content. At present, the global average for content usage is 11 gb/month ( "Cisco Visual Networking Index Study Finds Today's Average Global Broadband Connection Generates 11.4 Gigabytes of Internet Traffic per Month" newsroom.cisco.com/dlls/2009/prod_102109.html ) - This is up from only a year ago where the average content used was between five and six gigabytes per month. This number is, obviously, going up and an exponential rate, year over year and will continue to do so for the foreseeable future.

A solution

So, what is the solution ? The average price for DSL in Canada, for example, is $47.55 per month (Source: CanadianISP.ca pricing data) - This works out to roughly 43 cents per megabyte, per month, on average. What I believe the telcos and cablecos SHOULD be doing is encouraging MORE isps to get MORE customers to engage in MORE transfer. In other words: The telcos and cablecos could not only be the "White Knights" of the ISP industry by encouraging competition, they can PROFIT from it, as well as the ISPs. How do they do that ?

Right now, the average ISP pays a wholesale cost between $16 - $20 / month / loop to the telco for a DSL line. Given the average, bare bones DSL contact tends to hover around $24 / month for the consumer, that does not leave a lot of room at all for the ISP to profit not only to pay its bills, but to expand, invest or innovate. Telco and Cablecos could encourage - and profit - from this with the following model:

Change the loop access price to $5.00 / loop / month

Bill $0.0012 per megabyte, starting at meg 0 - With an average of 11 gigs / month used, the telco will see $13.20 / month plus the $5.00 access fee plus any overages. This not only encourages ISPs to aggressively recruit new clients, but for the public to consume more in terms of bandwidth, for which both the ISP and the local loop provider will profit from. It also encourages new entrants to the ISP market, with all of the related benefits of job creation, equipment purchases, taxes collected and so on.

Edit - January, 2011: After speaking with many people using the 'net more and more for TV, movies and other, high volume content, a better UBB model presents itself:

At the rate this is going, the current model will not hold out; There will be a consumer backlash to the point where the current system will be overhauled. The worse case scenario is that foreign competition would enter the scene with even more money that the Canadian telco and cablecos, throwing a lot of the industry out on its tail, not to mention the massive fallout in stocks and bonds. The least worst (and it's still bad) is they'll be legislated into a scenario described above, but that will not rectify the intervening years of massive profit gouging, harm to the market and the dismal 36th place Canada currently sits at, in terms of broadband speed and availability.

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