I had breakfast yesterday with Benoît Felten, a.k.a.@fiberguy. Benoît follows fiber-to-the home for Yankee Group and knows more about the subject than anyone I've met, including people implementing the services he writes about.
I asked him the question that's on the every geek's mind: do the Koreans (Japanese, australians, etc.) really have much faster Internet access than we do in the USA? The short answer is yes, but Benoît started with an anecdote about a group of French Telecom executives who visited Korea to find out the same thing. Before the French could ask the Koreans how they managed to provide fast access for a low price, the Koreans surprised the French by asking them how they managed to sell so many high-margin services on top of their network. The Koreans did, indeed, offer their residential subscribers a level of bandwidth that is the envy of the world, but they weren't happy about the commodity price they were getting for it. The Korean government prohibited the network operators from offering services (the "structural separation that has often been proposed in the US) with the result that they had to compete on bandwidth and price. The consumers won, but the network operators envied the ability of the French to sell more profitable services.
Of course it is perfectly possible to make money selling commodities (just ask Archer Daniels Midland or any oil company) but after a century of subsidies and government-enforced monopolies, the incumbent telephone companies have a mindset and cost structure that pushes them in the opposite direction, e.g. charging $0.20 to send a 140 character SMS, a profitable $178 per megabit. It doesn't need to be this way. There are companies such as Free in France that have very lean organizations and can make money on low-priced services.
Another problem is a mismatch of time horizons in building out a network. While telcos have traditionally planned on 50 year amortizations of their outside plant, they continue to put in copper instead of fiber, which will become obsolete very quickly as consumers come to expect higher bandwidth. Even fiber deployments such as Verizon FIOS suffer from such short-term planning. The reason Verizon can't offer gigabit connectivity such as is common in Asia is that the fiber from each home does not run all the way back to the central office but is connected to concentrators that feed around 30 homes and are, in turn, fed by 2.5 gigabit connections.
In the end it comes down to which of three visions a network operator subscribes to:
- kill net neutrality and go back to a walled garden of high-priced services
- resign themselves to being in a low-margin, commodity business
- become an aggregator of services from third parties
Given their core competency in lobbying, the incumbent operators are not likely to give up easily on option #1, especially when they have mountains of debt and large, unionized workforces, but if they put all their eggs in that basket they are likely to end up at path #2. Benoît argues strongly for the third option, which would give consumers the confidence to purchase through a trusted party. We'll have to wait and see if the telcos and cable companies have the vision and skill to take that path.