The good guys in telecom

Research shop IDC thinks that Microsoft is shifting away from MSN as an ISP toward providing software and content on third-party broadband networks (see this New York Times article). If true, there are more significant consequences than MSN’s competitive position vs. AOL.

A healthy broadband ecosystem would have companies competing at all layers — physical connections, logical functions like identity and caching, services, and content. At the physical layer, the cable and phone companies are likely to dominate for at least next few years. Recent FCC decisions have reinforced that dominance. That wouldn’t be such a bad thing if other companies could still compete at higher layers. Yet all communications infrastructure companies have long dreamt of vertical integration: leveraging their control of the pipes into applications and content.

Microsoft is the best possible counterweight to such vertical integration. Forget what you think about Microsoft in the operating system or PC application market. In telecom today, they are the good guys. Unlike AOL, they don’t want to become an infrastructure provider themselves (with the fascinating exception of wireless). Consequently, Microsoft seems to be moving towards a strategy of competing aggressively at the logical and application layers, while equally aggressively pushing for neutrality at the physical layer.

Plenty of other companies and public interest groups support openness of broadband infrastructure. None of them has $40 billion in cash and software powering 90% of PCs.