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Special Access Is Proving Markets Work

4/20/2015 8:00 AM Eastern

Remember special access? Last year, there was a big kerfu e over the question of whether network operators could be forced to pay for maintaining two separate networks, one operating at higher speeds that consumers and businesses wanted to use, and one at much slower speeds using old copper-based technology that few wanted.

 

One of the rationales for asking broadband providers to pay twice was that it supposedly helped competition by making the competitive local-exchange carriers (CLECs) better able to compete with the large network operators by leasing lines from incumbent telephone operators at wholesale rates.

 

There were (and are) many reasons to oppose special-access rules. For one thing, it slows deployment of faster technologies to everyone as the network operators have to devote limited resources to building out and maintaining two systems. Second, it delays the transition to an all Internet protocol (IP)-based communications system. This makes bad policy sense.

 

But the best reason of all to oppose special-access regulation is that it interferes with the normal workings of the vibrant market and innovation in telecommunications. If there is demand for a product, the market will address that demand; if there is no demand, the market will move on. Horse carriage parts, like TDM (special-access) equipment, are hard to find in a world of cars and broadband connections. Put it another way: Once the tin can was invented, there would be a market for can openers — innovation begets innovation. See iPhone and App Economy. Cut off innovation in one area, and it suffers in others.

 

The best proof that telecom markets can work if we will just let them is what’s happening in the special-access market right now. A recent article in FierceTelecom observed that cable is entering the special-access market, claiming “[t]he presence of cable operators could potentially shake up the wholesale special-access space where incumbent telcos … have enjoyed a monopoly position for decades.”

 

Why cable? Many cable operators are building out fiber and/or hybrid fiber-coax (HFC) systems to serve existing customers, particularly businesses, and so entry into the special-access market is a natural extension of their current business model. They probably won’t be able to compete for the largest customers at first. But for small and midsized businesses, cable could be a good choice.

 

This raises another point: In a smooth-functioning market, there will be many providers offering a variety of options, including different options based on speed. Not everyone wants to pay for the fastest speeds available. Though inconsistent with the Washington narrative of regulate-to-prevent- “inequality,” as we’re seeing with health care and some tax proposals, in the real world consumers and businesses prefer to choose what’s best for them.

 

So with cable joining the fray, incumbent telcos are now facing greater competition in special access, just as one would predict in a market that is working well — something for regulators to remember the next time competitors come knocking on their door seeking government intervention and stricter regulations as a means to help subsidize their business model. Markets work if we will just let them.

 

Bruce Mehlman is a founding co-chairman of the Internet Innovation Alliance.

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