Myth #3: There is no competition for broadband internet service.

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Myth

Americans are held captive by just two wired broadband providers and just two wireless broadband providers.

Where this notion comes from

Susan Crawford uses this literary trope in her book to create an archetypal dichotomy.  It is a literary invention that makes for a good story but is not grounded in the facts or reality.

Possible Explanations

In common discourse people like to talk about monopoly and duopoly to make a dramatic effect, to express a pre-existing belief.  It’s a shorthand, but an incorrect one.  The reality is that the broadband market is complex, and it may take time to explain it correctly.

Facts

  • The OECD ranks the USA #3 in the world for competition between carriers of different types of technology. Americans can access broadband in many ways:  cable, DSL, fiber, mobile, and satellite.

Analysis

The fact from the OECD demonstrate  that  innovation creates competition better than regulators.  A network can expire just like a gallon of milk.  Providers have to upgrade their network, or they lose customers.

The best thing happening for customers of wired networks is the innovation in wireless LTE.  To keep their customers from flocking to mobile, cable companies are upgrading their networks with the DOCSIS standard.  And DSL providers upgrade their networks to offer TV over copper because they don’t want to lose customers to cable.  There is also a technology called vectored DSL, which may be even faster than fiber.

Here is a way to think about it.  If you want to go from New York to Los Angeles, you have a few options:  you can take a car, bus, train, or plane.  This is called intramodal competition, or competition between types of technologies.    If you choose flying, you have a number of airlines to choose from.  The broadband market has this similarity with the transportation market.

Competition also affects the broadband market in the form of applications, specifically a class called “over the top” or OTT. Consider Skype, a novel application that succeeded in nothing less than forcing the price for long distance to plummet around the world.  Carriers used to make much of their revenue from long distance, but no more.  Skype competes for consumers for communication services by using the very carriers’ wires with whom its competing.

On demand video is another innovation that consumers love. OTT video providers include Netflix, Hulu and Amazon.  Netflix takes up one-third of all downstream wire line traffic in the US today. It is pushing the cable industry to improve its offering.  Cable companies now offer videos for rent as well as different kinds of content and programming to compete with Netflix. Like Skype, Netfix competes with the cable company on the cable company’s own wires, as it were.

WhatsApp and Facebook are other OTT applications.  Instead of buying an SMS package from a carrier, people use these applications.  The revenue carriers used to earn from SMS is all but disappearing because of free message services that are frequently more cool and fun than traditional SMS. With Facebook, you already have your address book on the platform. There’s no need to enter phone numbers.

To be sure, there are important issues about how to divide the spectrum.  Historically regulators wanted to maximize the revenue for the government.  Companies such as Sprint, MetroPCS, and Clearwire paid so much for licenses that they had no money left to run their businesses. On top of that, they made strategic mistakes in choosing the wrong technologies (CDMA, WiMAX). Crawford points out that people are leaving the upstarts to go to the incumbents. But should we should hardly blame the incumbents for their competitors’ missteps.  It is not the role of regulators to compensate for companies that can’t run their businesses well.

In any case, it’s not the number of competitors that matters; it’s the level of technology. The difficulty for many consumers is not in suffering under a monopoly, but rather making sense of new innovations.  They feel overwhelmed by too many choices.  That itself has become a business opportunity solved by clever device companies.   Part of Apple’s success was making beautiful, simple products that people could understand.  Once the iPhone appeared, people finally grasped the meaning of a smartphone. With the iPad, people who never got online before, now send emails and share pictures.  Compared to the early DOS days with grey computers in a lab, the internet today is cool and fun, and getting online is as simple and intuitive as buying a cup of coffee.

Data

  • The National Broadband Map maintained by the FCC and the National Telecommunications and and Information Administration (NTIA.)  In many communities, consumers have four or more choices for broadband access for the same network type.
  • To review the data on intramodal competition, go to the OECD’s broadband portal.

Reality

Americans enjoy robust competition for broadband between different types of carriers.