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Logic of shared telecom networks now inescapable

20 Jun

Lady and Tramp spaghettiAnybody who says Canada’s wireless market is uncompetitive is out to lunch. The country’s big three carriers are obviously competing hard amongst themselves – at least to see which of them can save the most money in building networks.

Last week, Rogers announced it had struck a new agreement with MTS to share an LTE network build-out in Manitoba. The news came just weeks after Rogers announced a similar deal in Quebec with fellow cable company Videotron. In both cases, efficiency and cost savings were cited as the reasons.

“With this agreement we will deliver capital and operating savings to our business allowing us to re-invest in our customers and our network, particularly in Western Canada which is a priority market for us,” said Rogers’ president of communications Rob Bruce, in a release.

Canaccord Genuity analyst Dvai Ghose put the regional deals in the proper perspective by pointing out that Rogers will still have to pay more for network upgrades than its two big competitors, Bell and Telus, who share a national network.

“While the deal should lower Rogers’ LTE deployment costs in Manitoba significantly and the LTE sharing deal with Videotron in Quebec may also save capital, Rogers still faces a significant disadvantage when competing with Bell Mobility and Telus Mobility,” he wrote in a note to clients.

In other words, while it’s debatable how much the Big Three are competing for Canadians’ wallets, there’s no doubt they’re fighting over who can spend the least on network upgrades.

That’s certainly smart – shared networks are efficient and cost effective, which benefits everybody. But it sure does drive a stake into the long-held North American ideal of infrastructure-based telecommunications competition, and indeed makes a very strong case for structural or operational separation of those companies’ network units. Shared networks are great in practice, but they can also easily lead to less competition and investment if not carefully overseen and managed by authorities.

Canadian companies have unequivocally seen the benefits and logic of shared networks. How long before governments and regulators do the same?

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2 Comments

Posted by on June 20, 2013 in rogers, telecommunications

 

2 responses to “Logic of shared telecom networks now inescapable

  1. Marc Venot

    June 20, 2013 at 12:54 am

    Authorities can only show their teeth using standards, not going into the kitchen.

     
  2. Infostack

    June 20, 2013 at 8:20 am

    Vertical silos based on networks, market segments or geographic boundaries are the single biggest flaw in the “natural monopoly” fallacy foisted on us 100 years ago with the Kingsbury commitment. We have 3 clear examples of open/equal access (which promotes sharing) that were highly generative both from a demand (revenue growth) and supply (investment and applications) perspective in the 1980s-90s in voice, data and wireless. In all 3 instances digitization led to 99% price drops over 10 years. Not only do they impede moore’s law from efficiently scaling, but metcalfe’s as well. As a result the markets are deprived of 30-50% on average performance/price improvements annually.

    The policy answer is quite simple and will hold up in court. Apply equal/open access uniformly to layer 1 (and possibly some mandated layer 2 access) for any provider that is granted a RoW or frequency channel. The problem with the 96 Act in the final analysis is that open access was not applied uniformly to incumbent telco, cable and new entrant alike. The government tried to play favorites and failed. At the same time, trying to establish arbitrary cost structures based on monopoly average costs were a failure. All pricing is driven by marginal cost derived a priori from a series of supply demand clearing assumptions.

    As a quid pro quo and way to get rapid investment, forget all auctions, license fees and subsidies. The market will be rapidly generative, as new entrants can quickly interconnect new network elements and uncover demand which no one imagined existed. Yes, we only have to point to the above 3 waves to substantiate this.

    Lastly, we need to foster the notion of balanced settlement exchanges (whose transaction costs reflect competitive marginal cost and scale into the trillions of sessions/hour) in the middle layers as they rapidly clear supply and demand across all layers and boundary points.

     
 
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