One of the products my consulting firm offers are statistically valid surveys, and conducting surveys has let us get a close look in many communities at the mix between cable broadband and telco DSL. In the last few years, the percentage of DSL subscribers in towns with a good cable company network has plummeted.
It’s not unusual to see DSL market penetration in bigger towns of 10% or less, meaning in most cases that the cable company has essentially won the competitive battle. In most of these towns, we rarely see many DSL customers getting speeds faster than 15 Mbps on the DSL connection, and often a lot less.
We still occasionally see a town with a higher DSL penetration, often due to a telco like AT&T that upgraded the market to offer 50 Mbps DSL that uses two copper lines. But even in these markets, the cable companies have won most of the customers.
The primary reason we see people keeping DSL is price. We often find people paying $35 to $45 for a DSL connection who can’t or won’t upgrade to a more expensive cable modem connection. Many of these folks will hang on to the low-price connection until the day when the telco inevitably retires the telephone copper.
It’s obvious to me that the cable companies are already monopolies in most markets. Any company in any other sector that captured 85% to 95% market share would be deemed a monopoly. I think the cable companies now meet the simple market share test.
Another way to identify monopolies is by noting examples of monopoly behavior. Economists have created a list of changes that are typical monopoly behavior. For example:
- Price Gouging. Monopolies raise prices over time when there are no competitors to keep them in check. Wall Street has been encouraging the big cable companies to aggressively raise broadband prices. All of the big ISPs have started the process of annually raising rates.
- Poor Service. Customer service tends to worsen from monopolies because they have no incentive to do better. The big ISPs were already rated as being the worst among all industries at customer service, and there is no reason to think it will ever get any better.
- Monopsony Power. This term refers to the tendency of monopolies to exploit their purchasing power by forcing low prices on their supply chain. Perhaps the best example of this is Comcast swallowing up the programmers that supply cable TV content.
The reason it’s important to always refer to the big cable companies as monopolies is that we have laws that can kick-in to curb monopoly abuses. However, it likely takes widespread recognition that the cable companies are monopolies to have any hope of awakening monopoly remedies.
The government has a wide range of possible ways to regulate and/or curb monopoly abuses:
- Governments can fund or support competitors. In this country that likely means having grant programs to support those who would build networks to compete against the cable companies. There are no grants I know of that will fund a competitor to a cable HFC network.
- The remedy that monopolies hate the most is price regulation. We don’t have to harken back very far into the past to a time when the FCC enforced price regulations over cable companies.
- One of the most natural ways to regulate monopolies is to enforce some kind of rate of return regulation. Capping monopoly profits will hold down rates.
- Both the FCC and the Federal Trade Commission have the authority to fine companies for monopoly abuses. These companies are so large that it’s hard to hurt them through penalties, but it is an arrow in the regulatory quiver.
- Another interesting solution is divestiture – like was imposed on AT&T in 1984. Companies like Comcast are now conglomerations of multiple businesses including broadband networks, entertainment and content creation, and side businesses like cellular, smart home, and numerous other sidelines. Breaking these giant companies into pieces has some merit.
The FCC has gone out of its way to declare that it no longer has any authority over broadband, and thus little or no control over the big cable companies. But this could be changed quickly by by changing the law, and a new Telecom Act could push the FCC back into its original role as a broadband regulator. If the monopoly abuses grow too great, this can also end up at the Justice Department, which had a major role in the divestiture of AT&T.