The New Paradigm:
End-User Ownership of
Advanced Fiber Networks
Alan K. McAdams, Ph. D.
Senior Member, Institute for Electrical and Electronics Engineers
Professor, Managerial Economics, Johnson Graduate School of Management
342 Sage Hall, Cornell University, Ithaca, NY 14853-6201
607-255-6443
akm3@cornell.edu
www.communicationplanning.org
http://afn.johnson.cornell.edu/
Advanced Fiber Network (AFN) technology
• AFNs are:
 Ethernet networks
 capable of gigabit speeds
 over fiber infrastructures.
• technology:
 simple
 flat
 well understood
 inexpensive
 provides an abundance of bandwidth
 is the next generation telecommunications infrastructure
• economics:
• marginal cost of uncongested bandwidth approaches zero
supporting costless transport, but also
• results in incipient natural monopoly,
which can be either
• exploited
 monopolized
e.g. by ILECs
• or kept dormant  end-user ownership
e.g. Telecottages
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consequences dictated by technology and economics
• End-User ownership of AFN
• asymmetric pricing (CAPEX, outsourced ; OPEX~zero)
• separate provisioning and operation
• with no fee for transport over the network
because there is “bandwidth to spare”
and
• incipient natural monopoly is controlled (kept dormant)
since end-users do not exploit themselves
• Expected, desired result:
• provisioning of network through competitive bidding
• open network
• not vertically tied to Content, Applications and Services
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consequences of ILEC (regional) monopoly
• ILEC monopoly ownership of AFN
• embraces the Incipient Natural Monopoly
and maximizes revenues from end-users,
as compelled by fiduciary duty
• charges monopoly-fee for transport over network,
even though there is “bandwidth to spare”
and
• follows monopolistic strategies throughout network by
permitting transport only of Content, Applications and
Services that can be:
 controlled  vertically-tied  limited  censored
• expected result:
• closed, monopolized networks
• a “Digital Grand Canyon” of unserved regions
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consequences of ILEC (regional) monopoly – endgame
• expected result:
• price wars with prices approaching zero
• reconsolidation to form larger (national) monopoly
• “Googin’s Law”
(Roxanne Googin is a leading Telecom investment analyst)
“Consider Googin’s Law: the network transport mechanism
can be operated either as a valuable monopoly, or a valueless
commodity… Googin states that ‘ownership is indeed all or
nothing. Either you own a very valuable [monopoly] conduit,
or you compete in a total [competitive] quagmire.’ ”
– The Cook Report, page 98, April-June 2003
• IEEE-USA Workshop Report
http://www.ieeeusa.org/committees/CCIP/Broadband03report.pdf
• telecommunications sector instability warnings have materialized
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i.e., AFN can be either controlled… or exploited…
End-User ownership
ILEC regional monopoly
• natural monopoly controlled
• natural monopoly exploited
• costless transport
encourages peering
• costless transport,
but with monopoly pricing
• requires only basic monitoring and
congestion control
• requires additional sophistication for
billing and profit maximization
• smaller CAPEX
• OPEX approaches zero
• end-user seeks open network, to
foster “competition on the merits”
among content, application and
service (CAS) providers
• encourages innovation
• likely to require “customerenhancing” participation by
municipalities (telecottages) to
prevent or overcome “Digital Grand
Canyon” of the unserved
End-User Ownership of Advanced Fiber Networks
• increases CAPEX
• increases OPEX
• ILEC seeks “CAS over network only
with its permission”, to control
network and vertically tie transport
to content, applications and services
• stifles innovation
• deployment follows market-based
business model: 3-yr payback;
maximizing return implies “cherry
picking” network deployment sites
leaving large, unserved areas
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implications of proposed U.S. government regulation
• FCC Triennial Review and Proposed 03-36 Ruling:
The proposed FCC ruling following its Triennial Review
essentially would let existing telecommunications regulations
for narrow band technologies stand; set few if any rules for
broadband “fiber” technologies.
• These rulings would effectively require ILECs to follow regional
AFN monopoly incentives to match regional cable monopolies of
multi-systems operators (MSOs).
• ILEC decision-makers, as stewards to their investors, would have
no choice but to exploit the incentives of their regional monopolies
• Regional monopolies would result in a “Digital Grand Canyon” for
citizens residing in areas that are not economically attractive
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achieving fiber to the home
Question:
• How, then, do we achieve Fiber To The Home or to
the telecottage and “leave no child behind”?
Answer:
• Leave no town behind!
• begin with enterprises, private sector and public
• creates proliferation of network junction points
• reduces the barrier to entry for FTTH (next slide)
• deploy “micro-conduit” (slide 10)
• facilitates end-users owning infrastructures for FTTH-step
• or, municipalities emulate telecottages, awaken and act as
implicit enterprises: deploy AFNs as customer-empowering
networks and “take credit” for benefits to residents
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reduce the barrier to entry for FTTH
• create a plethora of network junction points
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reduce the barrier to entry for FTTH
• provide micro-conduit, “blow” fiber
from the home to junction point at low cost
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conclusion
• Quick case studies
• Korea and Japan are experiencing price wars
among competing ILECs (predicted, unstable)
• can result in reconsolidation into full monopolies
of communications infrastructure (undesirable, unstable)
• Instead: neutralize the monopoly with
end-user ownership of communication infrastructure
• Facilitated by: Telecottages, municipalities, etc.
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