Regulating Broadband Rates

FCC_New_LogoFCC Chairman Wheeler testified in front of the House Communications Subcommittee recently about the FCC’s authority to set broadband rates. He was testifying about a bill passed out of subcommittee a few weeks ago, introduced by Rep. Adam Kinzinger (R-Ill.) that would prohibit the FCC from regulating broadband rates.

Wheeler cautioned that he was concerned that any law that curtailed the FCC’s right to regulate rates might also inhibit the FCC’s ability to regulate the three basic tenets of network neutrality – preventing blocking, throttling, or paid prioritization of data.

Unless you are an FCC rule junkie it’s probably hard to understand why rates and net neutrality might be tied together. But the Chairman’s concern comes from the reliance of the FCC on using Title II as the basis for regulating net neutrality. Part and parcel with the Title II rules also comes the ability to regulate rates.

Back when the Chairman was talking about using Title II rules he said publicly that the FCC wasn’t intending to get into the rate regulation business for broadband. In these hearings the Chairman repeated this and said that the FCC would be glad to help craft language that limit the FCC’s ability to do traditional rate regulation while making sure not to undo the other aspects of Title II regulations.

As a consumer and one who tracks industry trends I’m not so sure that the FCC should be so quick to give up rate regulation of broadband. I believe that we are at the beginning of the time when we will see continuous annual price increases for broadband. The large cable companies and telcos are under huge pressure from Wall Street to increase earnings every quarter and a lot of their traditional revenue streams like cable TV and telephone service are in a decline. This is going to leave no alternative to the big ISPs but to raise broadband rates.

We’ve already seen the beginning of this. The recent Comcast data caps trials and the recent announcement from AT&T that customers could buy unlimited data for only $30 more than what they are already paying for broadband are both nothing more than big rate increases on the biggest data users of broadband. All of these companies understand how fast consumer use of broadband is growing. We have been a curve since the 1980s where home use of broadband has doubled about every three years and there is no sign of a slowdown. So the big ISPs set data caps knowing that they will get extra revenue today from perhaps 10% to 20% of their customers, but also knowing that each year it’s going to affect more and more people.

And rate caps are only the first place ISPs will raise rates. We’ve seen a number of the large ISPs raise rates a few bucks in the last few years, and as earnings pressure increases one can expect that we are not many years away from a time when data rates are going to be increased each year in the same manner that cable rates have increased. But there is a huge difference. Cable rate increases have been driven in large part by increases in programming costs (although cable companies usually tacked on a little extra to boost bottom line). But it’s already clear today that broadband has a huge margin and that, if anything, the cost of underlying Internet connectivity keeps dropping each year. If ISPs raise data rates it’s due to nothing more than wanting to make more money.

And there is fundamentally nothing wrong with any business wanting to make more money. Except that for most markets in the US there is only one dominant broadband provider in the form of a cable company. And even where there is a second provider, like Verizon FiOS, they will undoubtedly be raising rates in lockstep with the cable companies in a pure demonstration of duopoly competition.

So I hope that the FCC doesn’t give up rate setting abilities because the day is coming within a decade when it’s going to be badly needed. You can be sure that the ISPs understand this completely and that they are the authors of the bill that would stop the FCC from looking at rates. They know that the FCC isn’t likely to do this today, but they know that there is going to be a huge public outcry for the FCC to do this in the future and they are launching a preemptive strike now to win this battle before it starts.

2 thoughts on “Regulating Broadband Rates

  1. It’s only natural legacy incumbent providers will abuse their monopoly market power to extract fees for data, effectively converting Internet use to something like pay per view (cable TV) or calling units (telephone service). It’s also a natural consequence of vertical integration where the ISPs own the delivery infrastructure that connects homes and businesses, leaving consumers no choice to pay for data by the bucket if they want service. Consumers would be better served under a disintegrated model where the infrastructure is public works and ISPs compete to offer services over it.

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