Competition and Investment Frequently are Rival Goods

There normally is a tension in the telecom business between policies that promote investment and policies that promote competition. The reason is simple enough. Competition leads to lower prices, lower profit margins and often lower gross revenues.

Those, however, are just the conditions that depress appetite to invest more in the business.

That is one reason why the U.S. NCTA opposes proposed new special access rate regulation.

“Excessive regulation will hamper new investment,” says Comcast.

The NCTA argues that rate regulation would only be appropriate for legacy business data services (special acces)  rates in census tracts that meet the following criteria:

• only a single provider has BDS-capable facilities in the tract and therefore there currently is no choice of BDS provider;  
• The tract has fewer than 10 BDS customers and therefore may not have sufficient demand to attract additional BDS providers;
• and no customer purchases fiber-based Ethernet access in the tract,  suggesting that investment in modern packet-based networks may not be occurring.

In fact, Comcast argues, the reason there is not more investment in special access is that the markets are quite small. “More than 80 percent of census blocks have fewer than four customers and more than half have only one customer, says Comcast.

“Even if this regulation were limited to incumbent LEC TDM and Ethernet services, mandating sharp reductions in incumbent LECs’ rates on such an enormous scale would distort the overall market, leading to inappropriate pricing signals and hampering investment across all providers,” said Comcast.

Policymakers in the United Kingdom also are grappling with how to promote facilities investment as well. The specific issue is whether Openreach, the wholesale arm of BT, should be fully separated from BT.

Perhaps unusually, Virgin Media supports Openreach remaining integrated with BT, even while other customers of Openreach want the business completely separated.

There is a straightforward reason why Virgin Media, which operates on it own infrastructure, might support BT keeping Openreach, the unit of BT that supplies wholesale Internet access to other Internet service providers.

And that reason tends to support the arguments for full separation of Openreach from BT. Simply, Virgin Media apparently believes BT keeping Openreach will limit the wholesale unit’s investments in faster speeds, which benefits Virgin Media.

Already the leader in consumer access speeds, Virgin Media apparently believes a separated Openreach will invest faster in access speeds used by virtually all other ISPs in the United Kingdom.

And that would allow all those competitors to better position their offers in relationship to Virgin Media, which has been the market leader in terms of speed for several years.

Oddly enough, Virgin Media’s support of keeping BT Openreach part of BT supports the notion that full separation would lead to more investment in faster speeds by the access wholesaler.

The point is that investment incentives matter. And often, that means refraining from imposing rate regulations. In other cases, wholesale rules are perceived as making a difference.