Real Separation, Not Just Structural

Reader asks that stronger measures be taken to curb telco violations of the law.

[Response to Give Structural Separation A Chance from February 4, 2002.]

[February 7, 2002]

Dear Editors:

I strongly agree that we need restructuring in telecommunications. In my recent essay on the topic, I make this point but I think that simply asking the incumbents to "play nice" is not sufficient:

The simplest point is that if there is true separation then what does it mean to have one company? An employee who is aware that the availability of simple connectivity means that value of other parts of the business is threatened by competition leaves too much room for benign neglect. It also does little to incent the wholesalers (to use your term) to be creative in finding new kinds of markets rather than just more television and telephone sets.

Why is divestiture worse (or even different) from structural separation? If there is no value in keeping the entities tied together then why pretend? At worst divestiture would be equivalent to forcing accounting openness of the kind that Enron rightfully feared. I do expect the transition from a cycle of 40 years per change to "Internet Time" is going to be jarring and one can argue that this should be treated like the S&L bailout. But prolonging the artifice seems far worse.

The real issue has little to do with the legacy businesses of telephony and television (and telegraph). But it has everything to do with Internet access. In fact, by separating the access business (IAP) from the service (ISP), the ISPs would be able to just assume connectivity and focus on the business of providing services.

The concept of "connectivity" would remove much of the complexity that allows telcos to hide their activities from local regulators. Hauling bits is no more mysterious than hauling garbage. Communities can simply provide fiber everywhere just like they provide water pipes (or could provide Coca-Cola and OJ pipes). While we shouldn't confuse this with the OJ (court TV) channel that was popular a few years ago, it does offer a contrast between the current world in which cable companies choose what we can watch and a world in which a video server in the courtroom is all the infrastructure necessary for viewing, though one might pay for the moderated version as a valuable service.

Regards,

Bob Frankston, Principal
www.Frankston.com