The Anti-Competitive US Marketplace

President_sealThe US Council of Economic Advisers released a report on April 15th that cited examples of anticompetitive market power throughout many sectors of the US economy. The report says that in many sectors of the economy that the fifty largest companies control more of the market today than they did in 1997.

The conclusion of the report is that industry concentration has an overall negative impact on the economy. The largest companies in each industry tend to erect barriers that squelch start-ups, thwarts innovation and discourage real competition.

The president used this report to issue an executive order on April 30 that instructs all executive agencies and departments to submit a plan within 30 days of ways that they can promote competition. I don’t hold out a lot of hope of success for this action due to the fact that we are now deep into the last year of this presidency. But it’s still refreshing to see the government acknowledge that competition is better for our economy than having an economy controlled by large companies with huge market power.

There are few industries that demonstrate the negative aspects of anti-competitive behavior than telecom. The cellular part of the industry is probably the worst since four companies have the vast majority of customers in the country. There are not a lot of other cellular companies that own their own spectrum and many competitive alternatives to the big four, like Cricket, actually ride the networks of the bigger companies and buy wholesale minutes from them.

But right behind the concentration of cellular companies are the ISPs. A handful of largest cable companies and telcos have more than 90% of the broadband customers in the country. And even in markets where these providers overlap, the competition between these large companies can best be characterized as duopoly competition where the companies charge roughly the same prices and don’t compete in any meaningful way.

The only broadband markets in the country that have real competition are those where some outside party has entered the market with a competing network. That might be a municipal provider or else one of the handful of commercial providers that are building competitive networks.

Earlier this week I wrote about how the largest ISPs all attack municipal competition and the reason for this is clear. They don’t want there to be success stories where it can be shown that a city was effectively able to take over a market – because such an idea could spread to a whole lot of other cities.

The report goes on to show that government sometimes has been able to curb some of the worst abuses of anti-competitive behavior. There were a few government actions touted in the report as positive steps the government has taken to promote competition. One big action in the telecom space was blocking of the merge between AT&T and T-Mobile. Another was the FCC’s order of net neutrality and of placing broadband under Title II regulation.

But the feds also sometimes get it wrong. Right now the FCC is using the excuse of lack of competition as the motivation for ordering an opening of the settop box market. But I talk to folks in the industry all of the time and nobody I talk to thinks that settop boxes are much of a concern. If anything, the feeling is that new technology will naturally kill settop boxes and eliminate the need for them.

I was relieved to see the merger between Comcast and Time Warner die, but we are still seeing consolidation in the cable industry and the largest companies are getting more powerful. There is very little positive that can be gained from the Time Warner and Charter merger. And it’s always been disturbing to see large ISPs that also own programming content. That alone gives Comcast a huge advantage over anybody that tries to compete against them.

I don’t know how anybody can undo the consolidation in this industry. The big companies have locked up the market and the cost to build new networks to compete against them is a major barrier to entry. But perhaps having new networks built by municipalities and other commercial providers will chip away at enough of the market over time to make a difference.