I’ve given some thought lately to the changing telecommunications and media landscape. Largely due to several BusinessWeek articles, Susan Crawford’s blog, and a stake in the stock of Verizon due in large part to Briefing.com analysis, I’ve tried to come up with a rational way for how companies in the telecom/media space can compete effectively.
This led me to think back to my college course on networks and the OSI model, which breaks networking down to seven layers. These are, in order from most fundamental to most diverse, the physical layer, the data link layer, the network layer, the transport layer, the session layer, the presentation layer, and the application layer.
Currently traditional cable and phone service have unique implementations in all seven layers of the network and complete accordingly. However, the upcoming conversion to fiber, combined with technologies such as IPTV and VOIP, to enabled all existing telecommunications services, from cable to telephone service to the Internet, to function over the same physical, data link, and network layers. This revolution leads to a fundamentally different operating and regulatory model than currently exists today.
Consider for a moment the cost of connecting fiber lines to every home in the country (trust me, very expensive). Then think about how every company today that comes in to your home (cable, telephone service) has to connect each house serviced to their own network. Given the cost and the infrastructure required to connect each house and business, does it make sense for every competitor to try to physically reach each house?
Then think about the ease of competition at the application layer of the network, where we have such time consumers as e-mail, web browsing, streaming video, television, and phone conversations. The potential for competition at this higher level is far greather, as is the opportunity for new applications and services to be developed that don’t even exist yet. Why should money be siphoned off to support expensive, redundant infrastructure investments that lock consumers in to monopoly services when the competition is at the higher network levels?
Instead of viewing the telecommunications landscape through traditional eyes, regulators, investors, industry, and consumers should instead take a page from recent energy deregulation initiatives, such as New Jersey’s. Under this model, the physical layers responsible for transportation are separated out from the application layers. A de facto, regulated monopoly or franchise would have ownership only over the physical layers. There would be agreements with appropriate regulators that would ensure a steady investment in the underlying infrastructure while rates would be set that ensure a stable return on investment. A sexy business it would not be, but like any utility it would prove steady and regular.
This move would free up all the remaining companies interested in competing in video, telephony, and other services to compete on their own merits. Consumers anywhere could select the TV, telephone, and Internet options that best meet their needs and demands. Consumers could choose whatever options they want at whatever price points exist in the marketplace. No one would be tied to using Verizon or SBC, or Cablevision or Comcast. If another company offers a lower price or better selection, you’re free to switch. Consumers would have the choice that has so often been promised yet not realized.