Tag Archives: duopoly competition

What Duopoly?

For the last twenty years, the industry has talked about broadband in cities as a duopoly, meaning there was competition between cable companies and telcos – competition between cable modem broadband and DSL broadband.

Twenty years ago, there was a true duopoly when the speeds on DSL and cable modem were close in capability. The market at that time demonstrated real duopoly behavior. Both telcos and cable companies charged roughly the same prices. Whether coordinated by backroom deals or by listening to smart advisors, both industries gave up trying to compete on price. For the first five years after 2000, there was fierce marketing rhetoric about which technology was best – but price competition never entered the picture.

A few cable companies tried to punish small fiber providers and a few of the first municipal ISPs through price wars, but the public blowback and outcry was loud enough for them to worry about the FCC stepping in, and cable companies abandoned the price war tactic.

By the time cable modem speeds hit 30 Mbps speeds, the market competition was over, and cable clearly won the price war. AT&T made an effort a few years later to reintroduce speed competition when it went to the DSL U-verse product using two copper pairs, but by then, cable modem speeds were already faster than the newer DSL.

I would argue that’s the duopoly died when faster DSL was a flop because telcos stopped raising rates and were content serving the third of the public who cared more about price than speed. Even today, most people who stick with DSL hate the speeds and performance but don’t want to pay the price for cable modem broadband that is approaching twice the price as DSL.

Verizon and AT&T not only stopped trying to sell DSL, but both are now actively deactivating copper. It’s fair to say that real duopoly competition ended about the time when AT&T U-verse did not claw back many cable customers.

There was one example of duopoly competition that survived. Verizon built FiOS fiber throughout portions of the Northeast. Verizon and the cable companies competed on price when fiber first hit the market, but over time this devolved into classic duopoly competition where both companies charged high rates. Verizon and the cable companies still market against each other using special one-year pricing deals, but most consumers have picked one side or the other and stopped switching provides to chase a slightly better price.

What I find most amusing about the state of the broadband market is that the FCC regularly brags about the large percentage of the public that has a choice of multiple ISPs. In the last FCC broadband report for 2020, the agency still acts as if the ability to buy 25 Mbps broadband is a second legitimate broadband option compared to gigabit-capable cable company broadband. The FCC said that at the end of 2020 that 94.4% of all US homes had the option to buy 25/3 Mbps broadband. I think anybody that reads this blog knows that is a joke in rural America, but that FCC also expects that the telcos are telling the truth about 25/3 Mbps capability in cities. I’ve been pouring through speed test data from all across the country, and I rarely see a market where DSL speeds average faster than 15 Mbps in real life. But the 25/3 Mbps argument is a red flag. Even if every urban resident could buy something that fast, the public has rejected DSL technology, and households continue to drop DSL lines by the millions.

The other evidence that duopoly competition died is that the cable companies began acting like monopolies. They have steadily raised prices every year, and they barely acknowledge that DSL even exists.

There are a lot of plans by ISPs to build fiber in the coming few years. But much of this building is by the big telcos. For those who think this that is going to bring new competition, I refer you to the history of Verizon FiOS. It’s more likely that the new fiber builders will piggyback on the already-high rates of the cable companies. If history is our guide, we’ll see three or four years of loud advertising after fiber is introduced into a market. But then, both sides will likely grow comfortable with the adjusted market share, and we’ll have revived the duopoly again.

The High Cost of Using Your Data

eyeballAT&T just announced that they will be introducing an option for U-verse broadband customers to get unlimited broadband from any of their plans for an additional $30 per month. Along with this announcement AT&T is also increasing the data caps on existing products. For example, some plans will be increased from 250 Gb per month in total download to either 400 Gb or 600 Gb. And the current 500 Gb cap will be raised to 1 Tb.

This is very similar to the Comcast data cap plan where customers can pay $30 or $35 to get unlimited data usage for customers that exceed their 300 Gb cap. Comcast also lets customers buy additional 50 Gb blocks for $10.

What I find amazing about both of these concepts is that both companies are marketing this as if they are giving people something. What they are really doing, especially for Comcast, is punishing people who dare to drop their cable TV product and instead get video over the Internet.

For anybody who actually uses the data that they pay for each month both of these plans are nothing more than a $30 rate increase. There is no cost justification for such a gigantic overage charge. Most of my clients (who are very tiny companies compared to Comcast and AT&T) only pay a few bucks per month average for the raw bandwidth to the Internet for their broadband customers. It’s hard to think that the cost for these giant companies isn’t under $1 per month on average. Customers that exceed these caps might, at most, cost these companies an extra dollar – and that is probably too high of an estimate.

I’ve been predicting for several years that data caps were coming and that caps already in place were going to start getting enforced. While the cable companies added 3.3 million new broadband customers for 2015, they don’t have to look at too far into the future to see a time when everybody that can afford broadband will have it. The market is starting to approach the saturation equilibrium point. And they are also seeing a nibbling away of customers by fiber providers like Google, CenturyLink and municipalities.

Meanwhile, just about everybody in the cable business is seeing a drop in revenues as people either cut the cord or else downsize their packages. And that trend is only going to accelerate with skinny bundles from the cable providers and a host of OTT option as an alternative to traditional cable.

If you are a publicly traded company like AT&T or Comcast there is tremendous pressure to always grow revenues quarter over quarter and year over year. But at a time when the broadband customers are going to top out and when cable and telephone are in a decline, these companies have few options for new revenues other than from broadband rates. That is the main function of the data caps – the big ISPs are gouging their biggest data users first, with the full knowledge that every year more and more people are going to creep over the data cap threshold.

The AT&T announcement also speaks to duopoly competition. Any community that thought they might see some renewed competition between Comcast and AT&T now knows for sure that that isn’t going to happen. These companies are not competing with prices against each other – they are doing the opposite and matching each other in the ways they will increase prices and revenues. That can only happen in a monopoly or duopoly.

This is only the first step in data price increases and I think we are now going to soon start seeing all broadband prices increase every year from these providers, in the same manner that we are used to cable rate increases. It’s their only real option to keep making the money that Wall Street expects from them.