Open Access: Europe versus the US

When cities build fiber networks in the US, one question they always ask is if they can make their system open access. By this, they mean that they want to build a fiber network, but they prefer not to be in the telecom business and instead would prefer to attract multiple providers to the network to use the fiber and compete for customers. The cities just want big bandwidth for their citizens and most cities would prefer to not compete in the telecom business.

Open Access works well in Europe but has been a failure in the US. Why does it work there and not work here? The main reason it works in Europe is that a number of high-quality service providers are willing to use somebody else’s network, especially a fiber network, to provide service. In Europe ISPs are willing to compete side-by-side with other ISPs even though there is no inherent advantage of one service provider versus another when they are all on the same network.

A perfect example of a European open access network that attracted competition is the one built in Amsterdam. Much of the basic infrastructure has been built by the City, although there have been some private partners recently building some additions to the network. But all parts of the network are fully open access. There are thirteen major service providers offering services on the Amsterdam fiber network – Canal Digitaal, Concepts, KPN, Fype, Online NL, Ligbrandt, Scarlet, Tele2, Telfort, UPC, Vodafone, XS4ALL, and Ziggo. In addition there are around 25 other ISPs who serve smaller niches of customers, often with specialty products such as medical monitoring or small business service.

A few of these service providers are large incumbent providers that had monopolies in their own countries before the formation of the European Union. For example, KPN is the incumbent provider for the Netherlands. Vodafone was an incumbent provider in Germany.

It’s easy to contrast this with the US. There have been a number of cities that have built open access networks in the US and who then tried to lure ISPs to serve in the networks. Some of the open access networks include Tacoma, Provo, Utopia (small towns in Utah), Chelan PUD and a number of other smaller PUDs in Washington state. In none of these cases did a large or incumbent cable provider or telephone company agree to bring service to these fiber networks. In every case the cities that built the networks had to scramble to find local ISPs who were willing to tackle the business. And in almost all cases the Cities had to give a lot of help to these local ISPs in the early days to help them succeed. The ISPs that have operated on US open access networks are generally small, local and under-capitalized. None of the US competitors are of the size or strength of the competitors in Europe.

Why do the big telcos and cable companies in Europe step up and compete against each other while the ones in the US do not? On the European side of the equation, the competitive attitude goes back to the beginning of the European Union. The European Union built slowly since the early 1970’s, but it took on most of its current membership by the early 1990’s. In the mid-90’s there were various treaties signed which opened the borders between European nations, both physically and in terms of commerce. Before that time almost every European country had a monopoly telecom provider. But when the gates were opened to competition, a few of them crossed borders to compete and soon everybody jumped into the competitive fray.

But in the US I can’t find one example of an incumbent cable company competing against another incumbent cable provider. And the large telephone companies barely compete against each other. They fight hard for things like the contract to serve the US government, but overall they barely compete in each other’s territory. And even in most of the US where there are two providers, a telco and cable company, for the most part both parties charge high prices and do not compete heavily with each other. The system in the US is referred to in economic terms as an oligopoly, where a few large providers have divvied up the market to mutual benefit. While there is competition, it is nothing like the real competition seen in Europe.

But I must grant that it probably would be difficult for a large US telephone or cable company to provide service on somebody else’s network. These companies are highly decentralized and it often requires groups from many states to come together to provide service to a new customer. The processes used by the large incumbents are so specific to the way they do things on their network that it might just be too costly for them to modify those processes to serve on a different network.

But whatever the reasons, Europe enjoys tremendous competition for customers, particularly where somebody has built a fiber network. But in the US no such competition exists, other than in metro areas where CLECs still vigorously compete for large business customers in highrises.