Industry

Internet Service Provision
 Wednesday, October 23, 2002

On Sale Now at Bargain Prices!

Wired has an article, featuring Level 3, on the on-going telecom fire sale. Level 3 has a clear focus on providing the infrastructure for the network, without worrying about what's up on top.

Some wonder if Level 3 will also have to bid against its own biggest customers — giant telcos and ISPs like SBC and AOL, which could seize the opportunity to buy data networks on the cheap. Many of these companies already operate their own networks on facilities leased from Level 3 and other carriers: "The economics are so attractive we couldn't afford not to," says EarthLink's Betty. "But we don't own any fiber — that's not our business."

What I find interesting is that the classic model for this industry is vertical integration, or at least the appearance of it, owning both the physical infrastructure and the services that run on that infrastructure — and in many cases the two are hard to untangle. But if the services that run on the infrastructure are not built into the hardware, then vertical integration makes sense in two ways only: as a means of reducing one's network costs, and as a means of increasing the costs of one's competitors. But if someone else can do it cheaper, better, and faster, then why not concentrate on providing the service?

How do you untangle the services from the network?

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