TELECOM Digest OnLine - Sorted: Re: Broadband Competition Must Surely be Working

Re: Broadband Competition Must Surely be Working

Neal McLain (
Fri, 26 Aug 2005 23:33:47 -0500

Garrett Wollman wrote:

> Because the market for residential communications services cannot
> support what economists call "effective competition". The barriers
> to entry in "local loop" services are so high that allowing bundling
> stifles competition on the services built on top. responded:

> I don't agree about the barriers. As I mentioned, our local cable
> company, while still a small independent outfit, managed to go through
> and wire us with coax and then come back and use fibre optic.

I agree with Garrett. Your local cable company HAD to build a
separate network in order to carry NTSC television signals. A cable
network is vastly different from the telephone network: it has to
carry much higher frequencies (by about 14 octaves), and it serves an
entirely different market.

The barriers that Garrett describes have largely prevented
construction of competitive networks of either type.

> Granted, their work methods were far cheaper than other utilities ...

Huh? That's news to me. CATV plant uses essentially the same "work
methods" as telcos: same poles, same pole hardware, same type of
supporting strand, same trenches, same pedestals, same rights-of-way,
same easements, same construction methods. Often the same conduits
and manholes. Of course, the topology is very different (tree-and-
branch rather than star); the signal-carrying cable is different
(coax rather than multipair copper); and the electronic devices are
different. But these differences don't make CATV networks "far

In fact, CATV constructions cost were often higher. Because most CATV
networks were built half-a-century after telco networks, construction
costs in existing neighborhoods were often substantially higher than new
construction would have been. But these differences resulted from
having to work around existing facilities, not from different "work

On the other hand, CATV labor costs were often lower than telco's
because CATV companies were usually non-union. Furthermore, a CATV
headend costs less than a telephone central office, but that doesn't
affect the construction cost of the outside-plant network. continued:

> but they managed to build a network. Today they offer competition
> for both telephone and broadband computer connections.

Telephone service over CATV networks wasn't realistically possible
until VOIP came along (some would say it still isn't).

> Somehow the cable TV industry managed to break through those
> "barriers" and build itself up from little cooperatives to major
> corporations.

The cable TV industry built networks to carry NTSC television signals,
not local-loop services. The "barriers to entry in 'local loop'
services" that Garrett describes don't apply to networks that aren't
designed to provide local loops.

Garrett Wollman:

> The barriers to entry in "local loop" services are so high ...

> If that is true -- local loop is so hard to build -- why wasn't the
> Bell System assigned the task of providing CATV service? After all, it
> already had the natural monopoly local loop plant already in place.

Because local loop plant won't carry NTSC television signals. The only
way a telco could/can provide CATV is by building a coax (or, nowadays,
HFC or all-fiber) network.

And because, under federal law, the telcos' "natural monopoly" didn't
apply to CATV service. Any telco that wanted to offer CATV still had to
get a franchise from every LFA.

As it happens, a few Bell companies did just that. SNET obtained a
state-wide franchise for Connecticut, and Ameritech built several cable
systems in its territory, mostly in Ohio. But SBC shut them all down
after it bought the companies.

Bell Canada built numerous CATV systems in its territory. In most
cases, it overlashed the coax cable onto its existing telco strand
(cheaper construction, but a real maintenance headache).

In the early days of the CATV industry, GTE built many CATV networks on
a "leaseback" basis: GTE financed, built, and owned the network, and
leased it to a franchised cable operator.

> The answer is that the barrier isn't so high and cable companies were
> able to surmount it.

Cable companies surmounted it by building an entirely different kind
of network.

> John Levine wrote:

> Because the telecom provider is a monopoly, or now maybe a duopoly.
> The only companies with wires into everyone's house are the phone
> company and the cable company, and that is as true now as it was 20
> years ago. The first mover advantage is insurmountable, and although
> it would be legal for someone to raise $100 billion and overbuild a
> new phone infrastructure alongside the one we have, it'll never
> happen.

> I don't agree at all. See my other post about cable construction; they
> were able to do it.

I agree with John. See my post about new-plant construction costs at .

Neal McLain

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