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6/2/2011
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Global CIO: What North Carolina's Broadband Battlefield Means To You

Those of us who approve telecom budgets, whether in North Carolina or other states, know there really isn't a broadband marketplace.

A North Carolina business owner emailed me a link about a government-run gigabit broadband and smart grid initiative in Chattanooga, Tenn. The email's subject line said it all: "This is the kind of thing we need here."

Problem is, Chattanooga's encouraging results probably won't be replicated in North Carolina, thanks to a law recently passed by the state's general assembly. If similar laws pass in other states, here's what they mean to enterprise IT.

The legislation essentially created barriers to entry for municipal broadband providers. Without getting into the politics of the situation, the law's stated intention is to create a "level playing field." The law's sponsors asserted that municipalities (such as Wilson, N.C., and Salisbury, N.C.) have been "competing with the private sector" by establishing next-generation broadband networks of their own.

That's a serious charge. It conjures images of cities selling goods such as clothing at cut rates to put department stores out of business. It implies that cities would be unfairly competing in the marketplace--implying that there's an actual broadband marketplace in the first place.

Those of us who approve telecom budgets, whether in North Carolina or other states, know there really isn't a broadband marketplace. In contrast, we can choose among 50 providers of Web hosting services, and they're all trying to differentiate themselves based on quality and features. THAT'S a marketplace. What exists today in broadband telecom is essentially a choice between the telco and the region's cable operator.

If broadband were a real marketplace, there would be a commons (the fiber backbone) and multiple providers in every region competing to offer last mile service. That kind of competition doesn't exist today in most of the United States. The carriers have access to the substantial middle mile fiber optic infrastructure that has been built in an area, which in some cases was paid for by taxpayers, or built by the main provider during a period of monopoly protection.

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Regulations governing existing competitive local exchange carriers (CLECs) are supposed to allow for broadband competition, but without unbundling the middle mile ownership from the last mile, it's the fox guarding the henhouse. That is, the same organization that's supposed to allow fair access to the middle mile is also competing with the CLEC to provide service to homes and businesses. A more effective model, where middle mile carriers aren't allowed to offer end-user services, would create more serious competition. Point is, if CLEC regs are so effective, how come the only ISP market growth is outside of the wireline sector, in wireless?

The lack of a real marketplace creates two situations: The broadband that does exist tends to be expensive, and the duopoly carriers don't have much incentive to invest in and improve their networks. I'm not implying price fixing; I'm saying that if you're one of two broadband service providers, you're not under a lot of pressure to compete on price or features.

Without the type of disruptive innovation created in real marketplaces, such as the one for enterprise applications (witness what Salesforce.com has done for that sector), enterprises can expect broadband price/performance to continue at high levels. In contrast, regions with municipal broadband, such as Wilson with its Greenlight service and Salisbury with its Fibrant service, both of which established service before the recent law, experience lower price/performance levels.

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