Round 6: Three Lessons Americans Can Learn from Japan's Success in Broadband:Discussion Table

Kevin WERBACH

Thanks for letting me know. You didn't quite paraphrase my comment accurately, though. It may be that low wholesale rates are right because network costs have already been amortized, but telecom economics are so thoroughly distorted by decades of regulation that it's simply pointless to argue about the "right" price. This was one fatal flaw of the 1996 Telecom Act in the US -- Congress acted as though there were definitive pricing answers, but left it to the FCC and states to figure them out.

Anyway, my point was more about retail DSL pricing. Either no one can afford to deliver 384 kbps DSL at $40 month, or everyone can. (We won't even talk about faster services like you have in Japan.) The Bells argue the former; I say the latter. If a normally efficient competitor could make money at reasonable DSL rates, but the Bells can't, they are too inefficient to survive a competitive market.

Glad to hear you are getting interest. This trans-Pacific discussion about broadband is useful, because it provides opportunities to compare different models.

IKEDA Nobuo

Thanks, Kevin.
I am sorry to distort your comment. I thought it would be easier to understand, but it is indeed misleading to argue the "right" price, because the Internet is disrupting the regime in which the price is regulated. The negotiation regarding the interconnection fees of NTT's telephones looks like talking about fees of horse carts in the automobile age. The point is to abolish the horse carts as soon as possible.

Now I am in Washington. Yesterday when I talked with a high official at the FCC, I was amazed that he agreed with my article. He criticized the abolishment of unbundling by the Commission last week. It was even more surprising that he agreed to my proposal of "unbundling" of NTT. According to him, the FCC considered such "horizontal" divestiture of AT&T before 1982, but it was difficult politically. Recently an ILEC proposed to divide itself voluntarily, spinning off the service companies as its subsidiaries and ILEC itself would be a small "loop company". Even ILEC wanted to be freed from regulation (believe him), but it was impossible because 1996 Act can't free ILEC's subsidiaries from regulation.

Economic theory(*) teaches us that it is efficient to "de-integrate" a firm into independent firms if their assets are independent. Computer industries experienced such "vertical disintegration", but telecom regulation is preventing such natural evolution of industrial structure. In the long run, however, the market will force incumbent carriers to de-integrate themselves, because they can't survive without doing so.

* Oliver Hart, Firms, Contracts, and Financial Structures, Oxford U.P.