Infrastructure vs carrier investments

16 Apr 2014

A few decades ago telephone lines and backbone networks were typically built by national telephone monopolies. The coming of the 1990’s and mobile networks changed this. Most countries have telecom competition and a few carriers. Consumers would still like to see more competition and real alternatives, but at the same time it is very expensive for carriers to build and maintain state-of-the-art infrastructure.

Many other parties have also got interested in network infrastructure. Cities, states, regional development organizations and even companies like Google and Facebook have their own network projects. The main purpose for them is to support their own core business and local competitiveness. Good network connections are a fundamental part of local infrastructure, usability of online services, and an enabler to build business.

Developing countries have their own challenges to build nation-wide networks. But many developed countries also have their own challenges, e.g. in rural areas. You can still have very slow internet (mobile and broadband) connections even in big European cities or even in California. Places like Hong Kong or Singapore mainly with superfast connections are more the exceptions in the world. It is expensive to move from old network equipment and cables to the new generation.

It is hard to specify any exact limits, but something like 2Mbits is quite a minimum speed to have proper capability to perform working functions on the internet. And this limit goes up all the time. It means all businesses; even farms need internet nowadays in many countries, to handle payments, accounting, contacting clients and suppliers.

Then we have many businesses that require really high capacity and fast connections, like hosting services, financial services (e.g. trading), game servers and most media services. In the US there have been recent discussions about an expensive fiber connection between New York stock exchanges and the Chicago futures market that saves 3 milliseconds in connection time, but it is important for high-frequency trading. People (including celebrity Nobel prize winner Paul Krugman) argued that it doesn’t make sense to put this money into fiber optics to endorse finance market speculation, when it could be invested e.g. in better roads and rail networks.

I don’t know if the Chicago – New York connection was a good investment or better than a new railway. But for me it is a good example of the ways infrastructure requirements are changing. Internet infrastructure is becoming as important or even more important than some physical connections. And, for example, faster connections for information have enabled many businesses also outside main cities. We can criticize high frequency trading and if it as a whole is good for the economy, but at the same time it has made the financial market more effective and e.g. eliminated some arbitrage opportunities. The Internet is one lifeline of most of business nowadays and how our economy works.

This puts also governments, cities and politicians to rethink network investments. Carriers must make their investment decisions based on estimated costs and expected demand. I believe more and more countries and regions will see that this is not enough, they want invest in the latest and fastest solutions to get competitive advance to attract businesses that can utilize them. At the same time local communities and even villages fund and build their own network connections for places where carriers haven’t seen it as a profitable investment.

The public sector has traditionally built roads. We now also have roads that are based on toll charges or also some privately funded roads where investors are paid based on use. I believe we will see more questions about information infrastructure investments in many countries. Who should participate in the funding and take risks, and how? How much are network connections just carriers’ business, and how much are they a fundamental national infrastructure and part of public service? Could we get a real broadband and mobile competition to work better by isolating network infrastructure and service providers more fundamentally from one other?

Competition has been a fundamental element for fast mobile and broadband development during the last 25 years. We cannot even understand the time when people even in Central Europe waited for their phone for months. At the same time a part of the old infrastructure is becoming obsolete, even maintain connections in rural area is hard business, and better and faster technology is needed to be enable business. This probably means we must rethink the fundamentals of network investment, funding and maintenance models, and what are the best ways to guarantee good competition.

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