Are There Any Level Playing Fields?

If you follow regulatory filings, one of the most common arguments you will encounter from the big ISPs is the concept of a level playing field. The idea behind the level playing field is that every competitor in the industry should be working from the same set of rules and nobody should have a market advantage due to regulatory rules. AT&T and Verizon have both rolled out the argument many times when arguing to tighten rules against potential competitors.

There are several good examples of the level playing field argument anywhere that the big ISPs fight to keep municipal entities from building fiber networks. They argue, for example, that municipal entities have an unfair market advantage because they don’t pay state and federal income taxes. But this argument falls apart quickly under examination. First, many municipal ventures such as electric or broadband entities pay in lieu of taxes. This is a tax-like fee that the local government charge to a municipal business. While it’s not really a tax, the fees ac like taxes and can be substantial.

Even more importantly, I can remember many years when AT&T or Verizon made the news due to paying no federal income taxes. Big corporations have numerous tax shelters that allow them to shield income from taxes, and the telcos have gotten numerous favorable rules into the tax code to allow them to walk away from most of their expected tax obligations. You can’t really fault a big corporation for legally avoiding taxes (unless you fault them for the lobbying that slanted the tax codes in their favor to begin with). It’s dishonest for these big ISPs to claim that a municipality has an advantage due to their tax-free status when they pay little or no taxes themselves. Under deeper examination, a municipal fiber venture paying 5% of revenues for in lieu of taxes is often paying a larger percentage of taxes than the big ISPs.

The big ISPs also claim that municipalities have an unfair advantage due to being able to finance fiber networks with municipal bonds. While it’s true that bonds often have a lower interest rate, I have compared bond and bank financing side-by-side many times and for various reasons that are too long to discuss in a blog, bond financing is usually more expensive than commercial loans. It’s also incredibly difficult for a municipality to walk away from a bond obligation while we have numerous examples, such as the Charter bankruptcy a few years back that let a big ISP walk away from repaying the debt used to build their networks.

The big ISPs don’t only use this argument against municipal competitors. AT&T is using the argument as a way to justify hanging 5G wireless devices on poles everywhere. They think there should be a level playing field for pole access, although at this early stage they are one of the few companies looking to deploy 5G small cells. Interestingly, while AT&T wants the right to easy and cheap pole access everywhere, in those places where they own the poles they fight vigorously to keep competitors from getting access. They effectively stopped Google Fiber plans to build in Silicon Valley by denying them access to AT&T poles.

Every time I hear the level playing field argument my first thought is that I would love it if we really had a level playing field. I look at the way that the current FCC is handing the big ISPs their wish list of regulatory rule changes and wish that my clients could get the same kind of favorable regulatory treatment.

A good case in point is again the 5G small cell deployment issue. The FCC has already said that they are in favor of making it cheap and easy for wireless carriers to deploy 5G cell sites. It seems likely that the FCC is going to pass rules to promote 5G deployments unless Congress beats them to the punch. Yet these regulatory efforts to make it easier to deploy 5G conveniently are not asking to make it easier to deploy fiber. If things go in favor of the big ISPs they will have a market advantage where it’s easier to deploy last mile 5G instead of last mile fiber. This will give them a speed-to-market advantage that will let them try to squash anybody trying to compete against them with a FTTP network.

The FCC is supposedly pro-competition, and so if we really had a level playing field they would be passing rules to make it easier to deploy all broadband technologies. They have had decades to fix the pole attachment issues for fiber deployment and have not done so. But now they are in a rush to allow for 5G deployments, giving 5G ISPs a market advantage over other technologies. The consequences for this will be less competition, not more, because we’ve already seen how AT&T and Verizon don’t really compete with the cable companies. In markets where we have both Verizon FiOS and Comcast cable networks both companies charge high prices and are happy with high-margin duopoly competition. There is no reason to think these big ISPs won’t do the same with 5G.

I look around and I don’t see any level playing fields – particularly not any that give small competitors any advantages over the big ISPs. I do, however, so scads of regulatory rules that provide unequal protection for the big ISPs, and with the current FCC that list of advantages is expanding quickly. The big ISPs don’t really want a level playing field because they don’t want actual competition. There are many reasons why other countries have far more last-mile fiber deployed than the US – but one of the biggest reasons are regulatory rules here that protect the big ISPs.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s