The Monopolies that No One Is Talking AboutSeptember 1, 2017
Recently there’s been a lot of noise about monopolies and antitrust in the United States. The Federal Trade Commission approved Amazon’s bid to buy Whole Foods in August, and Google was served with a record breaking fine by the European Union’s antitrust regulator in June. These stories have been fueling the buzz around competition policy discussions in the U.S. People are suddenly discussing the relevance of the Sherman Act, passed over 100 years ago. People are talking about whether there are “new monopolies” that these tech platforms could have on internet search, internet shopping, and more. But mostly, people are looking around and realizing that after waves of consolidation, the U.S economy has a few big players at the top — and fewer options when they need to buy something be it online or in their hometown.
Leaving aside the discussion for a minute on whether tech platforms like Google and Amazon actually might meet the definition of a monopoly under our nation’s antitrust laws (a precise and economically rigorous definition usually left to the Department of Justice, the Federal Trade Commission, or the federal (and sometimes state) court system), we seem to have forgotten about an important part of the digital ecosystem and whether it has a monopoly problem. It’s the one that’s hiding in plain sight and the evidence is in your mailbox (or inbox) every month when you get your cable bill.
Why does is matter if cable internet service providers have market power? When companies monopolize they may hurt consumers because they no longer have the incentives to compete on price or service, with the unsurprising result that even while profits for companies increase consumer satisfaction plummets and prices continue to rise.
That cable internet service providers have terrible service ratings isn’t anything new. The largest cable companies in the U.S seem to compete for the title of most disliked service provider, and hang out on the bottom of consumer satisfaction reports. Customers don’t seem surprised. And that’s the problem. According to the Federal Communication Commission’s latest Broadband Progress Report, most consumers only have once choice of broadband provider in their area, and so even with these poor ratings, consumers don’t have another option when their current provider fails them.
Cable pricing is notoriously byzantine with an archaic list of charges and fees showing up on your bill every month that seem to bear little resemblance to the prices in their advertisements. Throw in the complications of bundling internet service with phone and TV, and it becomes unsurprising that cable providers have special sections on their websites for consumers trying to understand how to read their monthly bills and answer important questions like: Why did my bill go up?
But what happens when there actually is competition in this kind of market? We had a chance to observe some examples of what competition in broadband internet could look like with the growth of new internet offerings in the U.S. Starting in 2010, Google began offering superfast broadband internet. Some cities like Chattanooga, Tennessee even began offering municipal broadband, including broadband at faster than ever speeds.
In 2016, the Fiber to the Home Council asked Analysis Group to conduct a study to see what was happening in the markets where cable internet companies actually were facing competition. It’s a basic presumption of economics that where there is competition consumers will be better off. Would that actually hold true when we looked at the data? The report, released in November of 2016 and entitled Broadband Competition Helps to Drive Lower Prices and Faster Download Speeds for U.S. Residential Consumers, found that where cable internet service providers were competing with superfast internet offerings that prices were better for consumers. Not only did cable internet service providers offer higher speeds, but even the prices for lower speed tiers of service went down as well. According to the report where gigabit services are offered prices for standard plans offering speeds of 25Mbps to less than 1 Gbps decline by approximately $13-18, or 14-19 percent.
Cable internet service providers argue that they are already in a competitive market. They claim that DSL is a viable option that competes with their own services for customers. But that ignores the technical realities of these different technologies. In 2015 the FCC redefined broadband internet to take into account the needs of consumers as the way that we use the internet has changed. Now broadband internet service is defined as offerings with speeds of at least 25 mbps down and 3 up. These speeds allows consumers to stream video, listen to music and podcasts, make video calls, and connect smart devices around their homes. But this classification reflects that DSL is effectively no longer in the running, and consumers have limited choices for broadband.
It’s important that we consider how technology platforms impact our lives and our patterns of consumption as we evaluate our nation’s approach to competition. But we shouldn’t allow those important issues to obscure this one: that most of us don’t have enough choices when it comes to our cable broadband provider- and if we did, we could see real savings in our pocketbooks.
Image credit: Flickr user alykat