Are Access Networks Still So Valuable?

A deregulation of fixed network voice prices in some European Union countries, a possible decision by Verizon to sell its tower networks and objections to AT&T’s purchase of DirecTV all have one common thread, namely an estimation of the value of access networks, to whom.

Where national regulators agree, fixed network service providers will be able to set prices for retail and wholesale voice services dictated only by an estimation of demand and value, and will not be price capped.

Of the customer segments, it arguably will be more significant that wholesale rates can be set at market rates, since in many European markets, competitors buying wholesale services from incumbents represent half or more of all accounts on the incumbent networks.

The potential shift to higher rates, particularly the wholesale rates, could essentially raise the value of the incumbent access networks, since wholesale revenue will rise.

In the U.S, market, a lifting of mandatory pricing rules essentially doomed most competitive voice providers relying on mandatory wholesale access at significant price discounts (of as much as 40 percent).

At least partially as a result, facilities-based cable TV operators quickly became the dominant class of competitors to telcos in the fixed network voice services business.

But aren’t higher wholesale or retail prices bad for consumers in the near term? It depends. It is conceivable that some marginally profitable suppliers will find their business models squeezed, and retreat from the market.

But facilities based cable TV operators will have so such problems. What could happen is that market share formerly held by wholesale-based providers is taken by facilities-based cable operators.

Regarding the potential sale of Verizon cell sites, possibly 12,000 to 15,000 discrete sites, one might initially argue such a move would suggest ownership of access facilities is not so important in the mobile business.

Actually, ownership of “facilities” remains of high strategic value in the U.S. mobile business. But the relevant facilities consists of rights to use spectrum exclusively, not the ownership of towers.

And access facilities nearly universally is deemed valuable, even in a business context where wholesale-based competition is possible.

No U.S. cable TV operator, for example, ever has proposed giving up its network and providing services over a leased network.

Most tier one fixed network telcos have resisted older common carrier rules that would grant widespread mandatory access to any new fiber access network they might build, as well. That is one way of suggesting such networks have important scarcity value.

Mobile service providers, one might say, have more nuanced views of the value of mobile tower assets, simply because the truly strategic asset is the exclusive right to use spectrum.

That is why in some markets, competitors share the cost of a single tower network, and might or might not share radio resources.

Sprint and AT&T have sold off their tower networks and lease access. Now Verizon might be willing to consider doing so as well. The point is that mobile executives do not see the same scarcity value in mobile networks as do fixed service providers.

A third angle is that some who object to AT&T doing any number of things often suggest that AT&T needs to keep sinking capital into copper networks to support voice.

That might seem odd, since many who criticize AT&T for not upgrading to optical fiber fast enough also say they want AT&T to spend more capital maintaining a copper network.

AT&T would prefer to make a faster transition to new that are either all fiber or fiber-reinforced in ways similar to cable hybrid fiber coax networks.

That likewise speaks to the perception of value. AT&T believes its vast fixed network consumer and business access networks have scarcity  value, but the copper networks arguably have less value than optical networks, in no small measure because wholesale obligations for optical access have fewer mandatory wholesale obligations.

Competitors, on the other hand, would prefer that AT&T be forced to maintain its copper facilities, since the competitors have wholesale access beneficial to their business models.

Paradoxically, in many quarters there is pressure on AT&T to keep investing in aging copper plant at the same time AT&T is asked to invest faster in the next generation optical and optical-reinforced networks. But one goal (keep investing in copper plant) drains capital from achieving the other goal (invest faster in optical-backed facilities).

So though it might occasionally seem as though access networks do not represent high business value because such facilities are scarce, the reverse is true.

Access networks still confer high business value because they remain truly scarce assets.
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