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THE FUTURE FOR BROADBAND ACCESS TECHNOLOGIES
Connie Bridges
November 3, 1998
Widespread demand for broadband access, not only to provide quicker access to today's
electronic content, but also to ensure that future application development with even higher
resource demands has a wide enough conduit across which to be delivered to customers, is a
critical issue for the telecommunications industry. Although there is increasing availability of
broadband access today, it is mostly limited to institutions which can afford a T1 or T3 line, or to
people who are fortunate enough to live in residential areas where broadband has been brought
into the neighborhood. This represents a small minority of the people interested in getting
broadband access. What might be the future shape of this market for broadband access and what
are the criteria that we can use to judge the likely winners of this race?
In the past, different segments of the telecommunications industry have been separate and
distinct. Telephone carriers focused on providing either long distance or local connections for
consumers. Cable companies provided access to a range of television channels. Interact Service
providers concentrated on giving clients Intemet access. However, government deregulation in
the form of the Telecommunications Reform Act of 1996 has changed industry dynamics by
permitting these industries to not only compete against organizations within their own sector, but
also to venture outside of their traditional industry segments. This has had dramatic effects on
the dynamics of the telecommunications industry, and is a major contributor to the complexity of
the industry and is leading to confusion about choices available for future access. The current
choices for broadband access include
- hybrid fiber coax systems that replace the existing coaxial cable tnmks with fiber
- proprietary solutions based on xDSL, which uses existing copper wire and new signal
processing techniques to allow simultaneous use of voice and data over the same wire.
- wireless communications
- a national fiber optic network
What are the criteria that can be used to evaluate which of these solutions will survive in
the marketplace? A lot depends upon
- how many suppliers survive the mergers and acquisitions going on in the industry right now,
- the govemment's willingness to help fund any necessary new infrastructure,
- evaluation of economic factors that help to determine which of the systems might end
up being financially viable.
Network effects, or network externalities, exist when the addition of a single user in a
network increases the value of the network to all users. For such a network, there is a turning
point called the critical mass that needs to be reached in the population of the network for the
network to really take off. A classic example is the telephone network, where an additional user
to the network gives added value of the network to both users. However, the added value may
not be enough to justify the cost. As more users join the network, the value of the network
increases for every user, and the critical mass is reached when enough users are on the network
such that the value of the network justifies the cost of joining the network for every user.
However, before critical mass is reached, the users may need additional enticement to join the
network. Such enticements might come in some form of subsidy to the users or network
providers in order to lower the cost of joining the network. As an example, Internet was
subsidized by the government for the first 20 years, via funding to the ARPANET and NSFNET.
Only when critical mass was reached and commercial value became evident, did the government
withdraw funding for the Internet. One concern that could be raised by government subsidies is
whether its support for one particular technology might lock users into a particular solution by
stifling innovation in other areas.
Another issue for consumers is path dependence, i.e., once they consumers have invested
in a particular solution the cost to switch to a different system, even if it is superior may be too
high. The final economic concern I will raise is that of economies of scale. Economies of scale
are fundamental barriers to the commercialization of innovations. Most technology products are
characterized by very high up front development costs and much lower production costs. Profits
are then a function of how many units can be sold to recover the development costs. If the
market is divided amongst a variety of solutions, and no one solution is able to take a
commanding lead, then no one company may be able to recover the development costs. Worse,
the solution that is the cheapest might win out over solutions that could be more technologically
innovative and useful in the long run.
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