Innovation

Susan Crawford’s flawed argument about broadband competition

Susan Crawford, a professor at Benjamin Cardozo School of Law, argues in her interesting and provocative new book Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age that broadband Internet should be treated more like a traditional public utility such as electricity, water, sewer. She writes, “Truly high-speed wired Internet access is as basic to innovation, economic growth, social communication, and the country’s competitiveness as electricity was a century ago, but a limited number of Americans have access to it, many can’t afford it.”

Crawford, using a variety of anecdotes, says we have allowed only a few companies to dominate the marketplace and profit while consumers are left with few choices, higher prices, and slower speeds for broadband than consumers in other developed countries like in Europe. To remedy the situation, Crawford argues that the government should, among other things, treat broadband as a basic utility and regulate it as such. Further, she argues that Congress must preempt state laws that limit government-owned broadband networks.

Crawford’s book contravenes most of what we now know about the broadband marketplace. Broadband is very different from the monopoly-telephone system from the early 20th century. In the early 20th century, there was only one provider of telephone service. But as of June 2011, according to the Federal Communications Commission,  95% of all Americans had access to broadband Internet from at least one and in most cases two or three providers. By definition, that is not monopoly. However, it could be an oligopoly, which is not always a bad thing. Economist George Stigler has written extensively about oligopolistic competition and scholar Jeff Eisenach has found that “broadband communications services are characterized by rapid innovation, declining costs, product differentiation, competitive price discrimination, network effects, and multisidedness.”

Further, we now know that the broadband market is also fundamentally different from markets for utilities like water and electricity. There are not alternative providers for water and electricity service. However, the broadband market has multiple alternative providers including cable, DSL, satellite, and wireless. Thanks to advances in technology, wireless speeds delivered over the new LTE cellular networks now rival speeds offered by cable-delivered broadband. Moreover, there is fierce competition for the services delivered over broadband in video calling, online video, and music, among others.

We also now know that private broadband providers continue to increase their average broadband speeds even without apparent consumer applications for such speeds. One private provider is also experimenting with a new 1 Gbps service. In the United States, 50 million U.S. households have access to broadband networks that can deliver speeds of 100 Mbps. This is actually in direct contrast to Europe, which reports that only two percent of its population has access to broadband networks with 100 Mbps speeds. In fact, as broadband researcher and engineer Richard Bennett notes, European interests actually floated a proposal during the recent WCIT treaty negotiations to essentially charge fees to recoup losses and raise capital for broadband expansion along the lines of what U.S. providers have done.

We also know that most government-owned broadband networks have been financial failures for the cities and counties that have built them. In response, 19 states have adopted laws designed to protect taxpayers and impose fiscal prudence on municipal governments that wish to develop their own broadband systems despite the apparent risks.

Experts predict that advancement in privately-provided broadband should continue. We can continue to expect that speeds will continue to increase and services will continue to improve. As telecommunications policy analyst Randy May explains:

[B]arring regulatory policies that constrain ongoing investment by cable’s competitors, I expect that technological and innovation advances, along with new business models, will continue to evolve in ways that provide consumers with meaningful competitive alternatives that satisfy evolving consumer demands. If I am wrong about this, there will be time enough then to consider what remedial measures may be appropriate to prevent consumer harm.

Based on this knowledge, we can say that applying utility-type regulations to broadband is unnecessary.


In Depth: Innovation

Whether improving processes, creating products or developing new ideas, the application of technology can enable real changes in how state government works, both in quality of services delivered to constituents, cost savings and quality of life. States have the opportunity in our national balance of government power, to address policy …

+ Innovation In Depth