Eli M. Noam Columbia Institute for Tele-Information IDATE, Montpellier November 2005

1. The Divergence of Transatlantic Telecom Eli M. Noam Columbia Institute for Tele-Information IDATE, Montpellier November 2005

2. Phases of American Telecommunications • 10-year phases in US telecom • 1970s: Emergence of long distance competition • 1980s: Breakup of AT&T monopoly and clean-up; emergence of mobile wireless • 1990s: Re-write of telecommunications law; emergence of Internet as mass medium; boom and bust • 2005: Broadband

3. Broadband is not just a faster way to do email or web-surf • It is arguably the most important enabling force, and agent of change, for almost every aspect of society and economy.

4. We are in the midst of a historical move • From the kilobit stage of individualized communications to • The megabit stage • And within the reasonable future to the gigabit stage

5. Platform 1: Telco DSL • The platform used around the • world • Based on traditional copper • loop infrastructure • But in North America, move beyond DSL

6. Broadband Adoption Rates Broadband Adoption – U.S. Number of Households (in millions) Total Subscribers Among Leading Broadband Providers (in millions) 59.8 54.7 7 48.2 41.1 5.1 • Still narrowband UNEs 34.2 3.9 3.6 2.4 2.1 1.8 Comcast SBC Time Warner Verizon Cox BellSouth Charter 2004 2005 2006 2007 2008 Source: Yankee Group, 2004 Broadband Subscriber Forecast, Jan. 2005 Source: Companies

7. DSL and Cable Modem Broadband Deployment 199 Source: Company Press releases, Leichtman Research Group, Press Release, March 2, 2005

8. US is developing two other major infrastructure platforms

9. Platform 2: Telco Fiber

10. 3 Major Bell Strategies on Fiber Infrastructure • 1. Verizon: FTTH • 2. SBC: aggressive DSL+, Fiber to the neighborhood • 3. Bell South: cautious FTTC

11. Plans to pass • 12 millions homes within 4 years, pass 1/3 of its subs • $20 bil investment • Wall Street nervous Verizon /

12. Fios Array of Content

13. SBC (“AT&T” since Friday) Project Lightspeed Pass 18 million HH by end of 2007 But: “Fiber to the neighborhood” (not FTTH) then DSL2+ (12 Mbs), x2 through bonding to 24 Mbps, HDTV quality IPTV approach Technical problems with Microsoft, delays But: cheaper. SBC capex/yr $9 bil, vs. $14 bil for Verizon

14. Platform 4: Cable

15. Wireless Platforms

16. B. Mobile Wireless • Data upgrades by all • mobile carriers • But speed limited, • price/bit high

17. C. Satellite-BB • High price ($70), slow speed (400 Kbps in busts only), high latency • DirectPC • News Corp acquires Hughes’ DirecTV from GM, scales back next broadband data satellite generation • DirecWay service, $60-$100/month

18. Emerging BB Market Structure: “2.5” • Cable (in metro areas) • Telecom (DSL/fiber) • Frequently with wireless tail • O.S: Wireless for specialized circumstances, such as mobile, or nomadic, or remote rural • Wi-Fi, Wi-Max, 3G, satellite

19. Emerging in US: at least 2 powerful infrastructure platforms • Cable: DOCSIS 3.0, 100 Mbps • Telecom: fiber to 100 Mbps unshared

20. Differences Among Countries • “2.5 platform” countries: US, Canada, smaller European countries, Korea(?) • “1.5 platform” countries: Japan, France, Italy, Spain, UK(?), Germany(?) • In EU, only about 6-7 mil cable modem BB subs, slow growth • In US, 28 mil cable modem subs, rapid growth

21. “1.5”: Monopoly Plus “2.5”: Oligopoly Plus

22. Implications of Market Structure • In 1.5 platform countries, more need to regulate and to protect open access • Common carriage

23. Implications for Regulatory Policy • In “2.5 platform countries”, greater volatility, greater dynamism, lower consumer prices, greater investor risk • Less regulation, but “net-neutrality” more difficult • Less need for ex-ante regulation, more ex-post, or “forbearance” • Less ability for gatekeeper power over content and applications

24. 1.5 vs. 2.5: Network Investments • Hard to tell which system generates more investments • 2.5 system is more competitive and responsive • But 1.5 system may generate more profits, be less risky, and easier to finance • 2.5 is oligopolistic enough to possibly combine advantages of rivalry and profitability. Also, likely to have less regulatory restrictions.

25. 2.5 vs. 1.5 • Different media system • 1.5: more likely full separation of confuit and content • 2.5: more vertical integration possible

26. 1.5: Wireless more important • Spectrum • Separation from Wi Competition to Wireline

27. 2.5 Platforms: Deregulation more likely • US: FCC deregulation of Broadband • US: Reduced unbundling

28. U.S. Supreme Court Decision, July 2005: “Brand X vs. FCC” • Court upholds FCC that cable BB is an “information service” and not a “telecommunications service”

29. FCC 2005: new unbundling rules • No broadband unbundling requirement • UNEs still exist for narrowband, and for low-density regions’ high capacity private line and interoffice transport • But no more “UNE-P” (which also included switching and transport) • No line sharing requirement

30. Next: Impact of 2.5 vs. 1.5 on Retail and Wholesale Pricing? By: Jim Alleman

31. Platform Technology is Media Destiny • Platform Infrastructure Divergence means Policy Divergence on the 2 sides of the Atlantic

32. End of Presentation • Thank you for your attention noam@columbia.edu