The economics of open access

For one of the two broadband deployment programs created by last month's stimulus package, the legislation states that "Priority for awarding such funds shall be given to project applications for broadband systems that will deliver end users a choice of more than one service provider." Telecom wonks call this "open access" -- while one entity builds and owns the physical network infrastructure, other competing companies are allowed to use the infrastructure to offer Internet access and other services to consumers.

In Europe and elsewhere in the world, regulations that require incumbent telecom companies to operate on an open access are quite common. By enabling more competition, open access can enhance consumer choice, lower prices, and ultimately drive infrastructure improvements. Open access can also catalyze innovation, because competing providers can develop new broadband data services. For instance, Stockholm's Stokab network is used to provide not only Internet access, but also telemedicine, e-learning, and a multiplicity of other services (link via Tim Poulus).

Regardless of the public policy rationale, are there reasons why infrastructure providers should embrace the open network model? Some certainly think so. British Telecom, for instance, restructured itself in early 2006 to operate its infrastructure on an open access basis, and Swisscomm is building a super high-speed fiber-to-the-home network that will allow multiple competitors to serve each household. The CEO of Dutch telecom company KPN recently stated, "In hindsight, KPN made a mistake back in 1996. We were not too enthusiastic to be forced to allow competitors on our old wireline network. That turned out not to be very wise. If you allow all your competitors on your network, all services will run on your network, and that results in the lowest cost possible per service. Which in turn attracts more customers for those services, so your network grows much faster. An open network is not charity from us, in the long run it simply works best for everybody."

If you want an in-depth discussion of how open access can make good business sense, check out this insightful presentation from Yankee Group analyst Benoit Felten (the first part is embedded below). Felten runs a tremendous telecom blog called Fiberevolution and his thoughts on open access are summarized here.