Emergic: Rajesh Jain's Blog

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Customer-Owned Networks

December 18th, 2003 · No Comments

Lawrence Lessing argues that “when customers own the network, everyone wins.”

Why should government be in the business of providing high-speed networks? Isn’t that what free markets are for? Haven’t we all learned that the market is more efficient at supplying goods and services? Do we really need to rediscover the failings of Karl Marx at 100 megabits per second?

The answer, as Cornell economist Alan McAdams argues, has nothing to do with Karl Marx and everything to do with basic economics. AFNs are natural monopolies. That doesn’t mean that there can be only one, but rather that if there is one, then it is far cheaper to simply add customers to the one than to build another. The electricity grid in a local neighborhood is a good example of a natural monopoly. Sure, we could run four wires to every home, but do we really need four electricity companies serving every home?

Most economists would leap from the premise of a natural monopoly to the conclusion that such a monopoly must be regulated. But regulation is not the end that McAdams seeks. Ownership is. If a traditional network provider owned an advanced fiber network (AFN) in a particular area, that network provider, acting rationally, would charge customers a monopoly price, or restrict service to get its monopoly benefit. But if the customer owned the network, then the customer could get the same access at a much lower price and be free of use restrictions. McAdams is pushing – and Burlington and other cities are actually deploying – customer-owned AFNs.

Tags: Telecom

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