This article is a rehash of something I wrote 6-years ago – which perhaps says everything about the speed at which the telecoms market moves. I’m representing it as the need to find a sensible market which brings together service providers and network operators is becoming critical.

The broadband market is fragmenting so this we have to accept this. As this continues it will become unreasonable for service providers create multiple bilateral agreements with every network operator simply to customers wherever they are.

Something must exist which brings all these islands of connectivity together as a single, unified patchwork quilt

Market conditions

When I first wrote this paper it framed broadband as just another item sold in a marketplace. At the time, I remember thinking it looked very odd, so I replaced all the telecoms terms with widgets and suddenly it made sense – it’s the shape of the telecoms market that’s out of kilter, we’re just not used to thinking of telecoms in a free market sense.

This, to me, underlined the need to create a fluid efficient market for broadband with contracts of sale just like those for many other fundamental assets – stock and shares, commodities, anything really.

As the telecoms market fragments there will be many more wholesale network owners who need to sell their base products at a fair market price to service providers in way that quality can be fairly judged and the assets can be turned into useful retail offerings.

BUT service providers be expected to visit every local network in the country in search of suitable first mile access, creating unique bilateral agreements at every turn. There needs to be some kind of coming together where business can be contracted more easily – one or more marketplaces.

The shape of a market

How might a broadband market function? For example:

  • What does the marketplace look like?
  • Who are the players?
  • Who owns the market?
  • What gets traded?
  • How are settlements managed?
  • How is the market regulated?

These questions pose fundamental issues of the fungibility and liquidity of telecoms assets, and how a market price can be settled on.

Attempts in the past to create telecoms markets have largely ignored these issues to their peril by trying to trade complex items which can’t be easily compared, like bandwidth, or by creating a secondary futures market without a primary spot market; being led by Enron of course didn’t help.

The process of moving to next generation networks creates a unique opportunity to solve this issue – duct, dark fibre, wavelengths of light and VLANs can all be made both liquid and fungible but only with conscious effort.

Fungible    adj         (law) of goods or commodities; freely exchangeable for or replaceable by another of like nature or kind in the satisfaction of an obligation.

Liquid         adj         (finance) fluid: in cash or easily convertible to cash; “liquid (or fluid) assets”

If the definition is too narrow then it will lead to little differentiation and few opportunities to innovate. Make it too broad and the market can’t compare apples with apples.

And this brings us to market price.

Savvy service providers may naturally consider paying a low price to access a highly contended network built using white label equipment kit by an unknown operator.

And as they be prepared to offer a premium to access a dedicated Gigabit network using well known, branded network equipment operated by a company with a solid reputation, for example.

If we, as an industry, don’t grapple with this, and Ofcom feels obliged to set regulated pricing, we will have failed.

Regulating a market

Making progress along this path fundamentally changes the role of the regulator with an opportunity to audit the fairness of a market designed by its stakeholders to be open.

This needs Ofcom to engage in a very new direction – and actually one which will demonstrate the UK is still able to lead the world in regulatory reform.

For example, if a network operator fully engages with a suitably open and fair marketplace, where trades are open and auditable, do they need to be regulated in the way Openreach is today? Does scale matter if we are talking about natural monopolies?

Flowing from this, if BT Openreach and Retail exclusively traded suing an open marketplace, does functional separation really mean the same thing anymore? Could this allow BT more freedom in return for greater transparency?

And would it mean that a small scale, new entrant operator that opts to be vertically integrated should be regulated as Openreach is today?

This may well lead to a two-tier regulatory regime with ex ante and ex post rules co-existing depending on the nature of the organisation and how they choose to compete but should be a positive sign that valid market choices available.

Rising to the challenge

There is no hiding from the fact there are very real challenges in this process for everyone – and there are many more questions than answers at the moment – but in not addressing the higher-order issues we aren’t making them go away.

The background to this article is now over 6 years old – let make sure we have an answer soon!

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