Home - Key Questions - Fixed Networks: Section 1 - Question 5

Section 1: Questions regarding the incumbent telecoms companies and the new facilities-based operators

Question 5: Are new telecoms operators backing the right technologies?

One of the most remarkable features of the new telecoms industry is the strong degree of competition that exists between alternative technologies and the networks in which they are embodied. For example, in the local access market – the market for connecting homes and businesses to the local telecommunications switch – competition exists between:

(1) A technology called digital subscriber line that allows the sending of digital broadband signals – thereby facilitating video and fast internet access - over the copper cables that the incumbents have traditionally used to connect the ‘last mile’ between homes and businesses and the local switch.

The problem is that through competition these diverse technologies are continually improving thus creating uncertainty regarding which technology (or technologies) will be efficient in the future. The incumbents, backed up in many cases by substantial in-house R&D, can, technologically speaking ‘ride many horses’ simultaneously and therefore, by pursuing a variety of options, guard against the uncertainty of technical change. The new operators, however, being so much smaller, are unable to do the same, thus exposing themselves to a greater degree of technological uncertainty.

For example, even MCI WorldCom, the most successful of the new operators, only entered the mobile cellular field in 1999 with its acquisition of Sprint and it does not have a substantial presence in either the cable or the satellite fields. Qwest, another hugely successful new US operator, covers only the optical fibre, XDSL and fixed radio access options, omitting mobile cellular, cable and satellite. COLT and Energis in the UK are based primarily on optical fibre networks and are therefore possibly vulnerable to competition from rivals using mobile cellular, XDSL, cable, fixed radio access and satellite technologies.

While optical fibre is the technology of choice due to the substantial bandwidth that it can provide, the selection of this technology is contingent on the amount of traffic that will be carried on a network. For many purposes, however, the other competing technologies may be able to provide a cost and quality effective alternative, thus eating into the market for optical fibre traffic. And, as already noted, the performance of these alternatives to optical fibre is being constantly improved.

Of course, it is possible for a company with sufficient resources to buy into a new technology that looks as if it is becoming superior. It can do this directly or indirectly via acquisition or partnership but may prove an expensive process. The question of whether a new operator is backing the right technologies is therefore important.

If you wish to express your views on questions such as these go to the Workshop (Area 1). To compare your visions with those of others go to Vision Check.