New Report Confirms: Investment or Competition is a Real Issue for Access Networks

The latest Ofcom report on U.K. broadband infrastructure illustrates the inherent tension between promoting investment in next generation networks and fostering robust competition between suppliers of such services.

Put simply, there often, if not always, is a tension between policies that promote competition and policies that create incentives for investment.

In addition, different nations have historical differences on the supply side that create different outcomes on the demand side.

For reasons having to do with widespread facilities-based cable TV networks being deployed, competition in the United States, for example, is inter-platform (between cable and telco networks), where in Europe, because of less-prevalent cable TV deployment, competition has been intra-platform, based on competitor wholesale access to the telephone network.

Ofcom notes that infrastructure-based competition between local incumbent telcos and local cable companies lead to early investment in faster access networks.

By way of contrast, in Europe fixed-infrastructure competition is less common, so regulators have required that incumbent telcos provide wholesale access to their networks, fostering competition but also creating negative incentives for investment in faster networks.

Ofcom also argues that retail pricing policies have differing impact on demand, though some might attribute much of the difference to supply constraints, in particular the longer average loop length in the United States, compared to Europe.

Ofcom argues that speed-tiered pricing in the U.S. market accounts for the much-larger proportion of fixed broadband connections are at speeds of 2Mbps or less, compared to Europe. In other words, supply shapes demand. Because higher speed tiers cost more, people buy more of the slower tiers of service.

Others might argue demand is limited by supply, in the sense that longer loops limit maximum speed, so speed tiers do not limit demand, physical limitations of the network limit uptake of services faster than 2 Mbps.

IDATE, for example, says 21 percent of fixed broadband connections in the United States at the end of 2012 were at a headline speed of 2Mbps or less, compared to just eight percent of connections across the UK, France, Italy, Germany and Spain.

Generally speaking, 2 Mbps is a hard limit on speed at about 5.1 kilofeet. The "average" loop length in the United States is about 4.25 kfeet, meaning half are longer than 4.25 kfeet. Lots of long loops mean lots of lines that are not capable of speeds much faster than a few megabits per second, on all-copper loops.

That will start to fade, as a limitation, as more networks are reinforced with optical fiber. Newer versions of digital subscriber line technology really do help, but loop length has to be controlled.