Wednesday, June 24, 2009

Open networks benefit both ISPs and the public

We have spoken of the economic inefficiency of the service-oriented business model of the US telephone and cable companies. They see themselves as selling video, telephone, and Internet service -- the so-called "triple play."

We see the social cost of this business model when we compare the US with other nations, where access network operators open their networks to competing service providers. We pay a lot for inferior broadband connectivity.

It is not surprising that the telephone and cable companies are trying to increase their profit at public expense, but there is ironic evidence that this service-oriented business model may also be hurting them. In a nutshell, the argument is that the owner of an access network can make more money by opening it up to all service providers. True, they would forsake the monopoly profits of being the sole supplier of telephony, movies or television on their network, but they would make it up in wholesale and retail sales volume as many companies compete to sell these and other services.

If this is the case, open networks are a win-win proposition. Both the public and the cable and telephone companies win.

Yankee Group analyst Benoit Felten will present a one-hour webinar on this topic on June 30. The presentation will be archived, so you can listen later if you miss it.

For further discussion of this "dumb pipe paradox" see Brough Turner's blog.