OPINION: Lessons For Americans From Telecom Regulations In Mexico And Abroad

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Having just passed the 20th anniversary of the enactment of the North American Free Trade Agreement, we have seen the benefits to the American people and interests in the development of important neighbors and trading partners like Mexico. The telecommunications sector will continue to be a key factor in spurring innovation and economic growth for North America, and indeed the world. It is in our interest as Americans that our partners in the region continue to develop their telecom sector in ways that serve their populations best.

We are now able to compare the outcomes of various approaches to the last mile debate. While initially lagging, countries that for various reasons bypassed local loop unbundling, are now leading the rest of the world in high-speed Internet access.

— Mario H. Lopez

Unfortunately, Mexico’s recently passed package to overhaul the country’s telecommunications sector entails aggressive regulation that threatens recent gains. While aimed at providers, history shows that in the end consumers are likely to be the most hurt, as more hurdles are placed to expansion of coverage and improved services.

Although the Mexican Congress failed to meet a December deadline to approve secondary legislation to implement said overhaul package, it did not stop the Federal Telecommunications Institute (IFT), Mexico’s new telecoms regulator, from declaring that the country’s telecommunication providers have to open up the so-called “last mile,” or “local loop,” to their competitors. These terms refer to the copper or fiber connection between a home or business and the established broadband provider’s central office. Fortunately, there are a few lessons to be learned from countries that have already addressed the issue.

The “last mile” debate stems from the 1990s, a time when all over the world, the telecommunications sector underwent a major transition against the backdrop of the rise of the Internet. High-speed Internet was still in its infancy, but the writing was on the wall. In an effort to increase competition, local loop unbundling –allowing multiple telecommunications operators to use connections owned by the incumbent local exchange carrier– became the order of the day in countries with existing legacy copper networks.

The competitive approach in the 1990s placed an emphasis on merely increasing the number of players in the field, rather than spurring innovation and development across the board. Rather than fast-tracking high speed broadband Internet, countries that forced incumbent service providers to open up the last mile may have taken a detour, as potentially massive investments in fiber networks on the part of incumbent companies were not made.

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That is why in 2005, after much litigation concerning its original unbundling rules, the U.S. Federal Communications Commission (FCC) made the decision to limit the number and types of unbundled elements that telecommunications carriers were required to offer competitors under the common carrier laws. In particular, the FCC removed the requirement for incumbent local exchange carriers to unbundle Fiber-to-the–Home.

Fast-forward to 2014, and we are now able to compare the outcomes of various approaches to the last mile debate. While initially lagging, countries that for various reasons bypassed local loop unbundling, are now leading the rest of the world in high-speed Internet access. For example, in light of its poor copper cable infrastructure, Lithuania’s providers skipped investments in upgrading the copper legacy network and opted for fiber optics. Sweden may have had the infrastructure, but made a conscious long-term decision in favor of fiber optics. As a result, Lithuania and Sweden are leading Europe in the latest rankings compiled by the Fiber to the Home Council Europe (FTTH Council Europe) measuring fiber to the home/building penetration. Countries with legacy copper networks betting on opening the last mile are trailing the pack in this ranking.

In the wake of the ITF announcement in Mexico, policy makers and industry will not be able to bypass the Last Mile debate. However, there are ways to minimize the harm:

Stakeholders should work to ensure that opening the last mile to competitors does not become a Trojan horse for cumbersome regulation of future projects. One of the main deterrents for incumbent providers to invest in innovative broadband technology such as fiber networks is regulatory uncertainty in this area.  Companies will be more than wary to upfront billions of dollars in investment if they cannot be sure of an adequate returns and future ownership/usage rights.

Only strictly limiting last mile regulations to existing legacy networks will ensure planning security for incumbent service providers and incentivize necessary investments in future technologies. Otherwise, the risk of regulating technologies out of business before they even come into existence looms large.

With innovation being at stake, it is also critical that compensation rates paid to incumbent providers represent fair market value. As one of the countries with an extensive copper legacy network, Germany has required incumbent operators to open the local loop to competitors, however, here, the regulating agency has correctly noted that “prices that are too low would devalue investments already made and inhibit new investment,” and is basing its compensation rates on current replacement costs.

Similarly, a just and reasonable rate is determined on a nondiscriminatory basis, based on the cost of providing the interconnection or unbundled network element. U.S. legislation also allows these pricing structures to include a reasonable profit for the provider.

The deployment of high-speed broadband is increasingly an indispensable tool to foster job creation, investment and economic growth. Many of the 21st century technologies that are already improving our daily lives or hold vast potential to do so in the near or medium term rely on broadband technologies. However, in the long run, 20th century legacy networks will not be able to sustainably provide the speeds necessary for 21st century applications. As such, it is critical that regulators not lose sight of the harm that can come from stifling or delaying development, especially since positive developments in the telecommunications sector have an ever-increasing role in driving economic growth and innovation for all people.