Going off the rails!

April 2003

When British Rail was privatized one could not help but feel that no matter what the theoretical benefits of market forces might be in galvanizing a tired state monopoly, there was a fundamental problem. Specifically it is quite hard to get more than one train on to the same piece of track at the same time. In fact it tends to result in quite a bit of unpleasantness for all concerned. To my mind this has always seemed to be a pretty good reason to run the railways as an integrated business which provides both the infrastructure and the service. At least that way we only have to write one letter of complaint when we miss that all important meeting.

The fact is, some services are so married to their fixed infrastructure, that only a fool (or a politician) would think of parting them. Imagine, for example, privatizing the provision of sewerage treatment so that we had several contenders for the provision of 'effluent treatment services' bidding for our business and a government sponsored regulator, Off????, trying to maintain a fair market etc. etc.

Back in the eighties much the same thing might have been said about Telecommunications, the provision of infrastructure i.e. the wire into your home or business and all the associated switchgear; and the service of connecting a voice call over that infrastructure, were still pretty much married to one another. However, they have been going through a protracted process of separation ever since and now the time has come to accept that in the converging world of telecommunications and IT, our telephone line at home or our PC network connection in the office is just a connection into the global network. And the global network offers a whole host of services including voice communications which can be provided by many suppliers and in many different ways.

Despite the best efforts of some providers to differentiate between different types of circuit and traffic, there is very little difference between a voice call and an internet connection once it is in the network and the type of device, be it 3G mobile or office PC, doesn't make much difference either. Services like ADSL, GPRS (2.5 G) and UMTS (3G) are all based on the principle of an 'always on' connection which can handle voice, data and multimedia traffic.

There is also tremendous interest and activity in the provision of local wireless network access in offices and public places such as airports or even aircraft. These services will make it possible for laptops and pocket organizers to connect to the internet and onto corporate networks and other service providers simply by being in the building. Once connected to the corporate network, one can then use the office phone system, receive calls on ones own extension number, access email and other services all over a single wireless network connection, provided as a service by the owner of the building (or conveyance).

In this exciting new world there is suddenly a real market for the provision of services via the network and a parallel one for the provision of access to the network. And this represents both a huge challenge and a tremendous opportunity for any business involved in this sector. There is no reason for example why a telecoms supplier has to limit its market for telephony services to its own infrastructure customers, it is perfectly possible now to buy telephone calls from suppliers anywhere in the world and 'have them delivered' to ones current location.

There is however a problem in that the development of business models in the industry is lumbering along miles behind what is technically possible. Fixed infrastructure providers have a vested interest in delaying and complicating the spread of fixed cost broad band infrastructure because it threatens their cozy quasi monopoly in the provision of voice services. Meanwhile, they try to use the power their hold on existing infrastructure gives them, to build market share in the market for data oriented services such as internet access and hosting.

Industry regulators also have a huge challenge in managing the transition from a natural monopoly requiring regulation in the public interest to make up for lack of competition, to a highly differentiated market in which there is no justification for linking the provision of a service to the infrastructure over which it is provided. In other words, unlike the rail industry we want to get on with going off the rails...