Law 2: “Telecommunications is not a utility”

Last Christmas, before my holiday and subsequent descent into Geek Hell, I started writing what I hope will be a series of Blogs on what I have called the “Technology Laws of Telecommunications Economics”. In the first Law, I discussed the impact of Moore’s Law.

One of the consequences of Moore’s Law is that telecommunications is not a utility. Why do I raise this? Well, because worldwide it has been very tempting for regulators to succumb to the belief that telecoms is a utility and then fall back to their comfort zone and apply thinking developed for water, gas, or electricity.

So that you understand the nature of what constitutes a utility, let me illustrate with a simple anecdote. There was a gas leak outside my home, so I complained to a friend who works for the gas company. His response was that it was hardly surprising as the pipes were probably a hundred years old. When they are repaired or replaced, they will last another hundred years, doing exactly the same thing – transferring gas at a given pressure and flow.

So why is the telecommunications system different? Some of the copper wires are decades old. However, are they doing the same thing that they were doing when they were installed? The answer is very clearly a resounding NO. Will they be doing the same thing in 10 years time? The answer equally clearly is a very definite NO. Why is this so?

When the copper wires were installed they were designed to carry audio signals for the telephone service and nothing else. No one envisaged that decades later computing technology that cost approximately $100 million in 1966 would be available for $1 in 2006. Because of this transformation in computing technology (due to Moore’s Law) things that were unimaginable in 1966 are commonplace by 2006. The ability for consumer electronics to produce and transmit video signals for example is an expected every day occurrence.

If we trace the past 20 years of usage of those copper wires, in the early 1980’s, the first modems appeared. These were expensive and could transmit 300 bits per second. But they led to people connecting up to data networks from their homes, from remote offices and other such places. The result was the rise of the fax machine and bulletin boards. In the early 1990’s, the modem costs had dropped significantly and the speeds had gone up to 14.4kbps. This led to the advent of the World Wide Web, the most transforming event in the information economy since the invention of the computer. Over the 1990’s we saw a steady increase in the speed of access (at a rate of a doubling roughly every 2 years) which triggered the web browsers to become progressively richer in graphics and audio.

Then at the end of the 1990’s we saw the advent of broadband. This resulted in a transformation of the economy as the Web 2.0 took hold. We mistakenly thought that the dot com era was a false start but subsequent events have shown broadband heralded a fundamental transformation in the way we conduct every aspect of our lives. Even I would have been surprised if you had told me in 2000 that 5 years later my son would be studying law at Darwin University but living in Melbourne and listening to lectures and participating in tutorials online.

So how did this happen? Was this a result of a utility system provided by copper wires? Absolutely not. This was a result of a total end-to-end infrastructure of which the copper wires played just one part. Without the overall ecosystem, you have nothing. Which brings me to the present looking forward. There is a worldwide consensus that we need more speed in the future. What drives this need is that we are entering the video era and it is easy to see the importance of network delivered video to consumers and business in the future. This will be the basis of our economy going forward – not just for entertainment, but also health systems, education systems and commerce.

So, if you try and regulate investment in telecommunications in the same way as a utility such as gas, water and electricity, you will end up with a result that will ensure that Australia as a country and us as individuals, are condemned to remain in the dark ages while the rest of the world powers ahead of us.