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The
recent Federal Communication Commission (FCC) ruling provides a
rational basis for evolving the telephone network infrastructure
for future communication needs. The ruling has retracted the earlier
position that deregulation could be the engine for promoting next
generation network (NGN) capabilities.
The FCC ruling contains three clear positions:
(a) The ruling provides a freehand to the Incumbent Local Exchange
Carriers (ILEC) to build new network capabilities, without having
to share the new capabilities with Competitive Local Exchange Carriers
(CLEC).
(b) The ruling maintains and promotes competition for voice services,
even after network upgrades.
(c) The FCC wants to bring in additional "regulatory-horsepower"
with help of the states.
Taken together, this means that the FCC wants to use current market
dynamics to move the ILECs towards upgrading their network infrastructure.
Currently the major portion of the ILEC revenue is from wireline
voice services. However, wireline voice revenue base is eroding
rapidly due to wireless and alternate voice services. By continuing
the deregulation for voice services and promoting competition, the
FCC is attempting to induce the ILECs to change their revenue dependence
on landline voice services, as well as provide a competitive marketplace.
While promoting competition for wireline voice services, the FCC
also is giving a freehand for the ILECs to build new service capabilities,
for example, broadband, packet, fiber networks. The ILECs are not
required to "unbundle" these capabilities -- that is,
enabling the CLECs to pick and choose most advantageous service
combinations at the ILEC's expense.
This two-prong policy is an incentive for ILECs to upgrade their
networks in ways that prevent "unbundling" of new services,
including broadband. There is now an opportunity for the ILECs to
shift their revenue base from voice services to become "full-service"
network providers of first-choice.
The FCC also realizes that left to themselves, the ILECs are not
likely to address the market needs adequately, or take market-leading
proactive steps. The ruling tries to use deregulation and competition
to promote market variety for network services. The FCC plan is
to promote a competitive marketplace for network services by allowing
the states to set and control "impairment standards" based
on service-territory specific considerations.
One underlying assumption in the FCC ruling is that networks are
now, like the utilities, a natural monopoly. This is because there
are no economic advantages to duplicating infrastructures that are
universally needed, like electricity, water, etc. Networks have
now joined this class of needs. When you have monopolies, normal
market forces do not work -- necessitating the need for state regulation.
However, regulation by itself will not solve the inherent conflicts.
What is needed is sound, clear and well-accepted public interest
policy with respect to network services. A clear public interest
policy for network services is needed to make the regulatory framework
effective, especially since the states now have a larger role. Otherwise,
the potentially conflicting directions from different state regulators
could create a gridlock by making it impossible for the service
providers to resolve underlying causes, resulting in network stagnation
-- but feed the litigation pipeline.
The ruling removes part of the support available for CLECs. The
CLEC s can longer depend on regulatory-mandated "opportunities",
subsidized by the ILECs. The real CLEC opportunities will be those
that exist due to gaps in the market demand, ILEC inertia and regulatory
slowness. The real challenge for CLECs is how to convert those often
transitory opportunities into sustainable business operations.
The ruling is not a clear victory for the ILECs -- their current
core business is being threatened directly by wireless services
and other providers through line-sharing. However, they do have
an opportunity for taking a lead role to build the networks of the
future. The ILECs could use this ruling to develop and promote a
vision for the future of networking that include all interested
and involved parties -- consumers, regulators, competitors, suppliers,
investors. Such an approach would remove regulation from being restraining
impediments, but a supportive structural instrument.
George Mattathil (george@strategygroup.net),
Strategic Advisor and CEO, Strategic Advisory Group (www.strategygroup.net),
has led research on strategic technology and industry trends, developed
dependable high-impact insights into the future of communication
infrastructure for both carriers and enterprises. Mr. Mattathil's
US and international accomplishments in telecom and data networking
are complemented by his in-depth knowledge using information technology
across different industry segments -- carrier, enterprise, and user
environments.
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