The Lack of Broadband Competition

There is one statistic from the FCC annual report on the state of broadband that I’ve been meaning to write about. There is still a massive lack of broadband competition at speeds that most households are coming to think of as broadband.

Here are the key statistics from that report:

  • 13% of all households can’t get broadband that meets the FCC’s definition of 25/3 Mbps
  • 31% of homes have access to 25/3 Mbps, but not speeds of 100 Mbps
  • 15% have access to 100 Mbps from more than one provider
  • 41% have access to 100 Mbps from only one provider

It’s the last statistic that I find astounding. The current FCC declared with this report that the state of broadband in the country is healthy and that the market is taking care of the country’s broadband needs. I’ve written number blogs about the households in the bottom 13% that have little or no broadband, but I want to look closer at the top two categories.

Households in the 15% category are in markets where there is a fiber provider in addition to the incumbent cable company. The biggest fiber provider is still Verizon FiOS, but there are numerous others building fiber like AT&T, CenturyLink, Google Fiber, smaller telcos, small fiber overbuilders and municipalities.

This means that 41% of households (51 million homes) only have one option for fast broadband – the cable company. I see numerous problems related to this huge monopoly that has been won by the big cable companies. Consider the following:

  • The US already has some of the most expensive broadband in the developed world. The high prices are directly the result of the lack of competition.
  • This lack of competition is likely the driving factor for why most of the big ISPs in the US are rated at the bottom of all US corporations in terms of customer service. We know that customer service improves in markets where is broadband competition, but the big ISPs don’t make the same effort elsewhere.
  • We also know that competition between a cable company and a smaller fiber overbuilder lowers broadband prices. For example, there are markets where competitors like Google have set the price of a gigabit connection at $70, and the cable companies generally come close to matching the lower price. But preliminary pricing from Comcast and Charter for their new gigabit products where there are no competitors will be significantly north of $100 per month.
  • Even where there are competing networks, if both networks are owned by large ISPs we see duopoly competition where the big ISPs don’t push each other on price. For example, Comcast largely is able to offer the same prices when competing against Verizon FiOS as it does in markets where there is no fiber provider.
  • Industry analysts expect the big ISPs to start raising broadband rates for various reasons. The ISPs continue to lose telephone and cable customers and the national penetration rate for broadband is nearing a market saturation point. In order to satisfy Wall Street the big ISPs will have little choice other than raising broadband prices to maintain earnings growth.

I’m sure that the households in the bottom 13% of the market that can’t get good broadband are not sympathetic to those who can only buy fast broadband from one provider. But these statistics say that 41% of the whole market are dealing with a monopoly situation for fast broadband. Telecom is supposed to be a competitive business – but for the majority of the country the competitors have never showed up. For the FCC to declare that we have a healthy broadband market astounds me when so many households are hostage to a broadband monopoly.

There is always the chance that over the next decade that fixed 5G will bring more broadband competition. My guess, however, is that at least for a few years that this is going to be a lot more competition by press release than real competition. Deploying gigabit 5G like the big ISPs are all touting is going to require a lot more fiber than we have in place today. Deploying 5G without fiber backhaul might still result in decent broadband, but it’s not going to be the robust gigabit product that the ISPs are touting. But even poorly deployed 5G networks might bring 100+ Mbps broadband to a lot more homes after the technology gets a little more mature.

Unfortunately there is also the risk that 5G might just result in a lot more duopoly competition instead of real competition. If 5G is mostly deployed by big ISPs like Verizon and AT&T there is no reason to think that they will compete on price. Our only hope for real market competition is to see multiple non-traditional ISPs who will compete on price. However, it’s so tempting for ISPs to ride the coattails of the big ISPs in terms of pricing that 5G might bring more of the same high prices rather than real competition.

2 thoughts on “The Lack of Broadband Competition

  1. The underlying factor in this is capital funding from the commercial marketplace as opposed to the government. Capitalism is a system where opportunity attracts investment. Go-to-market planners are loathe to sign up to deploy broadband to a rural area, where the problem is most acute, with a strong incumbent provider. The planners are held accountable by senior management of their corporations, who have fiduciary responsibilities (where publicly traded) to their stockholders. People point the finger at ‘WALL STREET’, and blame them, except that ‘WALL STREET’ is all of us. Not only individual stockholders but pension funds, mutual funds in 401Ks, IRA’s, ETF’s etc. Whether or not the general public is aware of these institutional investors, we’re all tied to them. This also includes the government in it’s investments in the Social Security funds that everyone bemoans is not well-funded enough. The investment fund managers of the instruments named about are under constant, intense, global scrutiny. If they appear as a low-performer, their investors can flee at the click of a mouse. If anyone thinks an investor in Rio de Janeiro, London, New York or Shanghai cares about broadband access options for rural America, think again. Especially when population densities in rural America continue to thin out at an accelerating rate. Please see a most recent map here: http://www.businessinsider.com/us-census-county-population-change-map-2015-3. Every time Congress redistricts, these rural areas lose more of their voice with fewer representatives in the House covering more square miles. This not only affects government funding for rural broadband, but all other infrastructure projects as well, such as roads, water infrastructure, schools, etc.

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  2. Exactly why we need more municipality backed open access networks, like Click!
    Good work Doug.
    Mitch

    Sent from my iPhone

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