What if Nobody Wants to be the "Carrier of Last Resort?"

AT&T has about 17 percent share of the U.S. Internet access market, assuming none of its lines now fail the new definition of 25 Mbps. Most consumers buying satellite Internet, and probably most customers buying fixed wireless services likewise now are purchasing Internet access, but not, strictly speaking, what the Federal Communications Commission calls “broadband” or “high speed access.”

Beyond the issue of FCC regulatory fiat redefining a few industries out of business (most satellite and fixed wireless access services), causing a statistical, overnight decline in “broadband” adoption in the United States, and rendering multi-year tracking of Internet access more difficult, there are other perhaps perplexing issues in the U.S. Internet access business.

In a competitive market, some of us would argue, the low cost provider wins. In the fixed network Internet access market, that is cable TV.

So it is noteworthy that Verizon has been shifting capital investment into mobile, and generally away from its fixed networks.

And even allowing for its use in a lobbying capacity, AT&T now says its own fixed network is more costly than that of the cable operators that now are the market leaders in high speed access, in the U.S. market. AT&T's fiber to the neighborhood network cannot keep pace with the bandwidth offered by cable and other competitors, AT&T has told the FCC.

So AT&T increasingly will have to shift to fiber to the home to keep pace, as Verizon already has done with FiOS.

The problem is that the new investment will occur in the context of declining profit margins in the fixed networks business overall. Voice revenue is declining, linear video is expected to decline, and cable has the more efficient, and faster, Internet access services.

Put bluntly, the ability of a telco--even a tier one telco--to compete against a well-capitalized cable TV company is doubtful, long term, in the fixed network business.

That might be a shocking conclusion. But evidence points in that direction. It is fashionable, perhaps even directionally correct, to say that the fundamental strategic importance of a fixed network is mobile backhaul.

But that statement also suggests the revenue potential of a fixed network is shrinking. Special access might have been a high-margin service that drove profits for networks that recovered their costs substantially from consumer services.

But such business-focused services (backhaul) were not huge gross revenue drivers.

It is too easy to argue that telcos will discover huge new revenue sources to revive the fixed networks business, so there is no strategic issue. It is possible such revenues will never be found, leaving cost reduction or exiting the business the options.

That does raise issues for regulators. What if no single service provider wishes to, or can afford to be, the “carrier of last resort?”

And if the intent is to create and sustain incentives for any service provider to take on that role, what has to change? We don’t have clear answers, yet.