More Discussion of UBB and Caps

Blog, Disruption, Les Routledge

Following are two quotes from two different “Bell” companies

“At Verizon, we don’t have bandwidth usage caps,” Kevin Laverty, a spokesman for the U.S. telecom giant says. The company is not experiencing capacity issues, “therefore, usage caps aren’t required at this time.” Financial Post

“It’s network congestion and the need to properly manage traffic,” he says in defence of Bell’s practices. “We needed to tackle the issue through pricing.” Financial Post

Perhaps what is more interesting is the different competitive dynamic that exists in the USA market.  What have they done differently in the structure of the sector and the market than we have in Canada?

Since late 2008, companies like AT&T Inc. and Time Warner Cable have swept into cities like Reno, Nev., and Beaumont, Tex., with new capped plans and their corollary overage fees only to backpedal out of town.  “People get upset then they end up shutting them down,” Sean Buckley, editor of FierceTelecom, a widely followed industry newsletter, says.

Unlimited plans pervade the U.S. marketplace. Despite this, AT&T, Time Warner Cable and Verizon Communications, which has aggressively pushed costly fibre out across their footprint in recent years, all operate profitable broadband businesses.  Nor does it appear congestion is a problem.

In concept, usage based pricing and bandwidth caps make intellectual sense provided that the market is characterized by vigorous competition.  Providers and investors require price signals to figure out when and where to upgrade or install competing network capacity.  Consumers require price signals as part of their selection of a preferred service provider.

More competition in the market is the safety valve that will defuse the tension that has been unleashed by the UBB ruling.  As I indicated in a previous post, steps need to be taken to alter the underlying economic structure of the market to:

  • increase the consumer’s ability to switch to a competing network or service offering or even use their own transmission capacity;
  • enable swift moving independent companies to find and satisfy an unmet consumer need so that vigorous competition arbitrages away excessive profiteering; and,
  • encourage creative organization to figure out how to use alternative technologies to provide more bandwidth capacity at lower cost or greater value to the consumer.

As part of this evolution in the market, the government needs to proceed with its stated intention to reduce restrictions on foreign investment and ownership of network services in Canada.  Ideally, this new policy framework should be formulated with an over-riding principle that new investment leads to more competition over both the short and medium term instead of leading us to return at some point to excessive concentration of market control by a limited number of competitors.