May 2009

[Commentary] Whenever the talk of a competitive high-speed Internet market comes up, defenders of the Bells are quick to point to fiber deployment as the great savior. Now it's clear that fiber deployments will be much more limited than previously thought. The debate should end about fiber being a ubiquitous, robust competitor in the market. The nonsense about "platform competition," with fiber as the poster child, is over. As part of its strategy to concentrate on wireless, and, for the lucky ones, fiber-based FIOS, Verizon is prepared to leave 10 million customers it currently serves out in the non-fiber cold. By the end of 2010, when the company's fiber build-out will largely be complete, about 17 million homes will have FIOS, Verizon Exec. Vice President John Killian said on an analyst call Wednesday. With the fire sale to Frontier, Verizon will be left with about 27 million lines, give or take. That's not the end of the story. Verizon is cutting loose another 750,000 customers who Killian said would have been eligible to receive FIOS, but are now part of the Frontier transaction. If nothing else, this deal opens the way for more acceptance of alternative fiber providers to step up, particularly in the soon-to-be former Verizon territories now being cut loose. The argument against municipalities and others getting into the business as competitors to the phone company creeps quietly away as the phone company abdicates.

[Commentary] A specter is haunting European telecommunications companies: the prospect of being forcibly reorganized by governments through 'functional separations.' Brussels and several countries want the national telecom incumbents to separate their infrastructure network from the service riding on it, which would be open to competitors on equal terms. BT in the UK was an early example, and the idea has caught on. The basic concept would be like requiring railroad companies to separate their tracks from their train service, to permit rival transportation companies to use these tracks at a low and non-discriminatory rate, and to lease to rivals selected parts of the track infrastructure. All this sounds sensible. It is promoted by competitors and Internet companies. I advocated it myself for many years. But more recently I have come to have doubts, not from indulging in laissez-faire but from counting the transaction costs of such an approach, and from studying the historical record. The problem with discussing all this is that the debate has come to take on some aspects of a religious war, with true believers on each side issuing fatwahs on anyone who strays from their path to redemption. The truth, as often, is more complex. Today is a good time for policy makers and companies to shape alternative futures, and the American history can provide both positive and discouraging lessons. It suggests that structural solutions, while intellectually appealing, create major transaction costs and retard network evolution. There are better ways to protect users and competitors.

AT&T, the exclusive US iPhone service provider, is considering cutting the price of its monthly service package or offering a range of lower-priced plans. One plan that could be introduced as early as late May would include limited data access at a $10 monthly reduction. The possible price cut likely reflects the back-and-forth between AT&T and Apple as they work out whether and under what terms AT&T would remain the sole US iPhone carrier. Apple may want flexibility in pricing as a condition. Lower-priced data plans would probably lure a lot of fence-sitters, including students and consumers with lower incomes. A reduction could boost AT&T's iPhone subscriber additions by 20% to 25%, estimates wireless industry consultant Chetan Sharma.

Filmmakers wonder how long Disney will stay committed to its specialty label, especially as its media rivals pull out of the independent movie business. Specialty divisions, which make offbeat movies aimed at sophisticated adult audiences and critics, do not typically generate the big returns that studios demand from their blockbuster-oriented priorities. That's more important than ever as Hollywood looks to make fewer but more reliable bets with broad comedies and easily marketable sequels and prequels. Films such as "Paul Blart: Mall Cop" and "Star Trek" are driving ticket sales and theater attendance to record levels this year.