Sunday, April 10, 2005

The deadly spiral of competition by price 

In Austria the incumbent operator (Telekom Austria) has to provide both access to the local loop (unbundling) and bit-stream unbundling for the competive operators with regulated prices. This is nothing special. It is also nothing special that Telekom Austria considers this prices too low, the competive operators too high, and that the prices are compared within Europe just on average.

Now the two leading proponents of the lobbying club of the competitive operators (VAT) made a very interesting statement: Because of the tremendous competition [in Austria] one can make only real money with the monthly access fee for voice and in the area of broadband, so they want the regulated wholesale prices for local loop unbundling reduced by 50%.

How true - the first half of this statement is the first true statement I have heard from these guys. I am trying to sell this conclusion since years: the only money left is in the access.

Ok, so we have
a tremendous competition in Austria - so the regulator did his job well.

But what are these guys really proposing: - After we have killed large parts of the telecom market in Austria, most of the competitive operators and nearly the incumbent operator by tremendous competition by carrier selection and pre-selection (Note: Austria introduced as one of the first countries in Europe carrier selection also for local calls), by having too many mobile operators for the size of the country, number portability and by bit-stream unbundling, now lets kill the rest of the market where you may still make money.

So after the smoke has cleared, all remaining competitive operators maybe save one and the incumbent will be dead.

So what is the benefit for the consumer if all (competive) telecom providers are finally bankrupt?

Perhaps we need to take the hint that access is a utility, and can't be produced by standard market mechanisms. You fix the end point - a stated level of connectivity - and then bid out its construction and operation. Normal markets need to explore the range of possible outcomes; in the stupid network "less is more", so we know what we want in 20 years from now, just not how to get it.
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