Taking the fiber challenge

A couple of days back, I asked for some feedback from any fiber geeks as to their views on the OFCOM copper valuation exercise. I have received a lengthy reply from one such geek, who wishes to remain anonymous. It is eloquent and pointed, and I present it in its entirety:

I could not resist your call for reactions on the Analysys/Ofcom report (costing of copper) because the report first of all demonstrates the perverse symbiosis between regulator and incumbent, and secondly demonstrates that sight without vision is worse than being blind.

There are questions that are worthy of research because they extend our knowledge. On the other hand, there are questions that should be rejected violently because they actually are statements, cunningly hiding essential assumptions under an innocuous question mark. Leading questions with a predictable predetermined outcome.

Such is the case in this study.

Fiber to the home is not costed because it needs a CPE, and it does not give a lifeline solution for voice (in the day and age where mobile is replacing fixed voice and most homes have a DECT phone or PABX which would not work anyway if there is no power). The limitations of copper are a given limiting the services and the network model to existing paradigms.

An equivalent study in the 1800's would be to try to cost the service of transporting goods and people by stagecoach or horsedrawn boat in a canal by comparing it to the cost of a steam train transporting the same amount of goods and people over the same trajectory. As coal supply and water supply would be needed to fuel the train, it would not be considered because horses do not need this. The speeds and distances covered would not exceed an average of 20 km/h and a days travel, and the purpose considered would not exceed the existing use. Of course, it would be rejected.

Quite ridiculous as we very well know that the economic impact of the steam train, and the new services made affordable to the general public and the economy, have had such a major impact on society.

Why does OFCOM do not compare the cost of a unit of service between different solutions? If one would take the cost per month of 100Kbps of bandwidth (be it for voice (VOIP) or data, who cares) as a benchmark, one would very quickly see that a fiber solution would push down the price per100 kbps from Euro 4 per month to Euro 0,04 per month, a factor of 100 !!

Lets look at other hard facts.

A passive infrastructure for a POP based fiber network, with two fibers per home (supporting analog TV, digital TV, IP TV, voice, abundant Internet etc.) will cost (with conservative assumptions) only EUR7 a month per household in an urban environment.

The cost of electronics is dropping very fast with volume, and at the same time you get the ever-increasing performance of hardware, therefore hardware is not a big issue. We estimate that the integral costs plus profit margin for network operations including HW and SW for the active network will be around Euro 10 - 12 per month per connection. Meaning that you get for less than Euro 20 a month network with abundant capacity to be used by service providers for TV, telephone, Internet, Intranet, IP-TV, TV-Ondemand, DelayTV, Videotelephony etc.

It really makes me angry to see how these regulators in a very perverse way are becoming the protector of the status quo and the biggest barrier to a normal development of the market, meaning Schumpeters process of creative destruction.