Is Making Telco Monopolies Wholesale To Their Competitors Harmful?

It looks like big telco is trying to break up wholesale subsidies, according to an article in ArsTechnica.

I’m split in my opinion on the one.  On one hand we need competition and smaller providers. Smaller providers often offer a variety of services that SMB’s can leverage as they expand and grow for a better price than competitors. They often will work directly with customers who have a few big customer needs without the ability to pay big customer prices.  These lower wholesale prices help small providers punch well above their weight class, which still compensating large providers for the use of the infrastructure investment.

On the other hand, I’ve seen what happens when regulated monopolies are forced to open their infrastructure to their competitors and barely be able to recover costs.  Eventually, the infrastructure lags as the incumbent is unable/unwilling to reinvest in infrastructure upgrades.  This leaves the smaller of the “big” incumbents ripe for takeover, which in turn leads to the new owner simply milking the investment and ditching it later. This is bad for all customers, but worse for residential who bear the brunt of the costs for ‘service of last resort’ in rural areas.

Fairpoint (ME/NH/VT) is a great example of this.  When Verizon made the choice to get out of the wires business, they stopped investing in their people and infrastructure in preparation for sale.  Along come Fairpoint, a small conglomerate of municipal level telcos who somehow scraped together the money for this.  The three PUC’s stepped in an strong-armed terms into the deal which required investment in broadband to rural areas, adding to the already debt-heavy deal.  Somewhere along the lines, a VC firm steps in to bail out Fairpoint which had been bleeding money.  The writing was on the wall at this point – Fairpoint is up for sale.  Eventually, Consolidated Communications picked up Fairpoint for likely less than Verizon sold it for.  Who lost out in the end?  Most of rural New England who during Fairpoint’s reign lost their provider of last resort, only recently received even moderate high speed bandwidth, and now suffer during service calls bungled by low cost contract workers.

At the end of the day, the best solution is to maintain the wholesale structure but negotiate a fair price for both sides.  The incumbent should be able to offer the same price service provided across their network as the small guy does reselling their service.  This would force the smaller company to be creative and offer value-adds not found at the incumbent.  Even with this approach, I’m not sure what the end result would be or if this would even be ‘fair’ in today’s environment.  Maybe we should all just get fiber to the home and transition to IP services?

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