Local Loop Not a Natural Monopoly?

Fiber to the customer networks are not a natural monopoly, even though industry participants often think of it in those terms, says Vianney Hennes, permanent representative to European Institutions for Orange France Telecom Group.

So the ideal competitive environment in the age of fiber rollouts should be similar to the way mobile competition now occurs, says Hennes, according to CommsDay reporter Luke Coleman. Presumably that means multiple, facilities-based networks. 

It may not mean a call for complete duplication of all physical infrastructure in the local loop. Hennes probably is referring to shared access to ducts and other rights of way, primarily. It seems unlikely an employee of France Telecom would be calling for construction of multiple fully-duplicative local fiber networks by multiple contestants, if only because the economics are prohibitive on the face of it. 

Since most recent studies of fiber-to-customer infrastructure suggest a provider must get something on the order of 30 percent penetration of every high-penetration service to make a financial return, and if penetration of video, voice and broadband is assumed to be in the range of 60 to 80 percent of every household, it seems fairly clear that three head-to-head contestants will have a tough time getting to break even. If there are more than three contestants, most of the providers might fail. 

He said it was a “self-fulfilling prophecy” when operators say fiber-to-customer upgrades inherently are

monopolistic. “If you think there will be a monopoly somewhere, in the end, you will end up with a

monopoly," he says. 

Hennes said that regulatory conditions should be set to allow maximum infrastructure competition,

such as allowing for duct sharing and taking pains to reduce traditional bottlenecks. The industry can move to something that looks like a mobile model, he argues. 

How does that work to France Telecom's advantage? If duct sharing and rights of way are widely available, competitors must build their own active fiber networks, while France Telecom does not have to share access to its fiber network, it likely gains some strategic leverage. Not many contestants actually will conclude that building their own networks makes sense, of it if makes sense, it will occur only in some regions and locales, not all. 

Oddly enough, opening up more access to rights of way, but requiring contestants to lay their own fiber and active opto-electronics, might create almost as much of an entry barrier as not opening the ducts and rights of way. More openness on the physical layer front seems likely in Europe. But so does mandatory wholesale access to new optical fiber facilities. It is an interesting thought, the local loop not being an actual monopoly.

To some extent, it clearly isn't, as evidenced by the flourishing businesses already run by cable companies and telcos. We know there is room for at least two rival physical networks. What remains unclear is the long-term sustainability of three or more physically-diverse networks. We'll have to watch the overbuilder and municipal networks business to collect more data points. There remain few widescale instances where three broadband networks are widely available to customers.