Timothy M. Denton

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Competition does not happen at the cell tower

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George Serentschy wrote an interesting piece in Terence Corcoran's Financial Post today, which I think is comprehensively mistaken. Mr. Serentschy, a former telecom regulator in Austria, became dismayed with the state of investment in European mobile networks, and has been testifying effectively against the idea of MVNOs (mobile virtual network operators) ever since.

I have had the pleasure of talking with Mr. Serentschy at breakfast in Ottawa last year, and his views are sincerely held and not without foundation. In his experience and opinion, European regulators set the price of interconnection too low, with the result that European incumbents do not have sufficient incentives to invest in new infrastructure.

I have maintained that the price at which MVNOs would gain access to incumbent networks is crucial. If set too low, the effects that Mr. Serentschy decries will follow, and if set too high, then one does not get the competition one desires. (I take no position on his assertions about European investment levels in this posting).

And having seen the quasi-voodoo processes called costing -at least to these eyes- one can never be sure that one has set the price right.

This is in my opinion the single greatest vulnerability in the practical argument for MVNOs. But I leave the price setting to people better at pricing and negotiation than I am, and turn to an essential fallacy of Mr. Serentschy's argument.

He writes:

"The rationale for alternative network operators like MVNOs that sell the right to use the incumbents' networks through regulated access is the belief that these access seekers will eventually graduate from simply reselling wholesale products to investing in their own network infrastructure."

How can I make this plainer? No it is not. No one holds this belief except maybe some regulators.

Since telecommunications policy is a zone almost uniquely bereft of competition in ideas, the lumbering dinosaur called "facilities based competition" grazes undisturbed on the plains of consumer surplus on the continent called Regulatoria. It pretends to be disturbed by the little ladders of investment (LOIs) that are supposed to want to grow up into dinosaur facilities-based incumbents. Which is like thinking that the little mammals want to become brontosauri.

No they do not. Am I clear enough?

They do not want, nor ought they to want, to get into the facilities business. They do not want nor do they need another army of outside plant workers with toolbelts, hard hats, union contracts,  and service trucks. They do not want to be in that business. Nor should policy try to compel them to do anything so stupid.

If MVNOs could operate by hitching minds directly to networks, and charging a fee, they would. At the moment they need computers, interfaces to the incumbents, service people, telephones and desks. Maybe some heat in winter and cooling in summer.

The kind of competition MVNOs bring to the market is not entirely like Uber competing with taxis, or house rental apps competing with hotels. They are more like apps that fill the hotels and take a fee for doing so.

If a Canadian MVNO can deliver customers to American cellular incumbents for less than the incumbents can do so on their own, then the opposition to MVNOs must come from some other motive. And the motive, as we all know, is protecting incumbents from effective competition. In the incumbent protection racket of telecom policy,  the "ladder of investment" is a bad idea that keeps on serving its purpose, which is to obfuscate the issue, delay the implementation of effective competition, and confuse the minds of otherwise quite intelligent people. Hence the ladder of investment is a very good idea, because it does all these things, decade in, decade out.

More facilities! More steel! More towers! The idea is so primitively materialist, it is nearly Marxist.

 

 

 

 

 

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Timothy Denton is a lawyer by training who practices principally in telecommunications and Internet policy and domain name issues, with a strong concentration on explaining what the technology is and what it means.

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Guest Thursday, 26 April 2018
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