The Industry

Squelching Competition

Bell_logo_1969I doubt that many people outside of the broadband industry understand how good the large incumbent cable companies and telcos are at squelching competition. They have a whole arsenal of strategies to make it hard for somebody small to compete against them.

There is no better example of this than the very successful war that these big companies have waged against municipal broadband. I’m not entirely sure why they have singled out municipalities other than they are somewhat of an easy target. Certainly the actions of the incumbents against cities is far out of proportion to the actual threat. On a nationwide basis the amount of competition from municipalities is miniscule. Following are just a few of the strategies they have used against municipalities:

Creating Laws to Prohibit or Curtail Muni Competition. There are now 23 states that have some kind of prohibition or major restriction against broadband competition. Many of these laws have been written by the incumbents and have been passed due to heavy lobbying and political contributions given by the incumbent providers.

Every year there are attempts to pass new restrictions, often using template language developed by ALEC (American Legislative Exchange Council). This group’s authors suggested statutes that benefit their corporate sponsors and in the broadband area they seem to focus on municipal competition. The FCC recently overturned some restrictive anti-muni state laws in Tennessee and North Carolina. The incumbents urged those states to appeal the FCC order, and even before the appeals have been decided in court those states are trying to pass new laws to replace the ones that were overturned.

Lawsuits or Threats of Lawsuits. I can’t recall a lawsuit where the incumbents have been successful in keeping a city out of the broadband business. But lawsuits are great delaying tactics and can cost a lot of money to defend. Lafayette, Louisiana for example was sued several times before it was able to float bonds to build its broadband network. Lexington, Kentucky was recently sued and they hadn’t even yet found a broadband partner. But lawsuits are a very effective threat and I know cities that have decided not to tackle broadband due to the fear of facing costly suits.

Constant Bad Press. The incumbents sponsor a never-ending barrage of whitepapers and policy research papers that demonstrate that municipal broadband does not work and is a failure. I can think of half a dozen such papers that have attacked Lafayette since they have been in business.

The problem with these papers is that they are full of lies and inaccuracies. While there have been a few municipal failures with broadband networks, most of the operating muni networks are happy with their results and are covering their costs of operations while bringing true competition to their community. The main purpose of these papers is to persuade politicians that muni broadband is a failure – even when it is not.

The anti-competitive tactics aren’t just used against municipalities. Any CLEC that has to interface with a large telco network can recite a long string of stories of how difficult the big companies make it for them to operate. Something as simple as ordering a new circuit or connecting with incumbents can take forever and can cost far more than its worth. The big telcos began almost immediately after the Telecommunications Act of 1996 to make the prescribed processes as non-functional as possible. The intransigence of the large telcos contributed to driving some CLECs out of business.

Even very large competitors are not immune to the delays that the big monopolies can throw at them. The issues that Google is having in California in getting access to poles shows that even big commercial companies are not immune from the tactics of the telcos and the cable companies to keep them out of their markets for as long as possible.

It’s hard and expensive to fight the incumbents. This short blog barely touches the many tactics they use to thwart competition. They have flocks of lobbyists in DC and at the state level. They make big political contributions and have many allies from statehouses down to city councils. And they don’t seem boldly lie if that might convince a politician to vote their way. There is no question that they are a formidable foe and have proven very good at protecting their monopoly and duopoly markets.

6 replies on “Squelching Competition”

In short, the large TelCos and CATV companies choose this sort of overbearing, schoolyard-bully behavior… “because they can.” As large, well-entrenched incumbents, they have the resources — marketing, legal, financial, and otherwise — to squash anyone they feel is going to “cut in” on them.
That’s what makes companies like CCG so pertinent and crucial… you give entrants a chance to incubate and germinate their ideas in the face of daunting competitiveness!!

This situation as well as neighborhood redlining and price gouging are a natural consequence of a lightly regulated natural monopoly market. The U.S. should reset its policy on telecommunications with public ownership of telecom infrastructure as a primary element. Otherwise, this adverse set of circumstances will not change. Public ownership should be part of a crash public works program to modernize the nation’s telecom infrastructure to ensure all Americans have fiber connections no matter where they make their home or business.

Some majority of the land mass of Colorado (communities) have successfully passed ballot initiatives over riding SB152 aka the Qwest bill which forbade municipal networks. The pioneer was City of Longmont against whom Comcast spent $600k fighting. Perhaps that sent a message to corporate types that a) fighting muni broadband isn’t cheap and b) a tipping point was reached in the past year where there were so many communities passing the ballot initiatives that there were just too many to fight at one time and c) the cost of upgrading networks in those communities to 2020 expectations is just too high to justify 1) making the investment and 2) fighting muni broadband just not worth it.
Lesson Learned: Communities should not work alone when planning their muni broadband rather make sure you have enough partner communities that when making your move you present too many mouse holes for one corporate cat to watch.

“Communities should not work alone when planning their muni broadband rather make sure you have enough partner communities that when making your move you present too many mouse holes for one corporate cat to watch.”

They did just that in Western Massachusetts with the WiredWest municipal regional cooperative project. The incumbents apparently managed to kneecap that effort as well by pressuring the state to withhold funding.

Doug, you are so right about this. You would think that conservatives would look at it as more competition in the market place making it better and cheaper. In my town the ambulance service is provided by the fire dept but they have to bid and win it the same as business provider have to and we have a great service.


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