On the same day (August 21) that Federal Trade Commission Chairman Deborah Platt Majoras said there is no evidence to show the broadband market is failing, Verizon and BellSouth each announced they were going to add surcharges to the bills of subscribers of their broadband service. Coincidence? Cosmic irony? The mind boggles at the disconnect between economic theory and the reality.
Technically, Verizon and BellSouth didn't raise their prices to consumers. What they did was fail to lower them. As part of the reclassification of broadband service, the Federal Communications Commission told the telephone companies they didn't have to levy universal service charges on Digital Subscriber Line (DSL) service. The charges vary, but are generally $1.25 for slow speeds and close to $3 for higher speeds. But the companies told subscribers that although the Universal Service Fund charge would be dropped, a new charge would take its place.
It's a “supplier surcharge” for Verizon customers and a “regulatory cost recovery fee” for BellSouth. Verizon's is $2.70 monthly, and BellSouth's is $2.97. As Verizon explained it in a notice to customers: “This surcharge is not a government imposed fee or a tax; however, it is intended to help offset costs we incur from our network supplier in providing Verizon Online DSL service.” And which company would be Verizon Online's supplier? Oh, right, Verizon.
As consumer commentators were quick to point out, only companies with a significant amount of market power can afford to treat consumers like that. The telephone companies certainly qualify, particularly as their duopoloy over broadband with the cable companies solidifies.
Raising prices in a restricted market may or may not be classified as “anticompetitive conduct,” but it's a sure sign that competition doesn't exist. That's why Majoras' speech was somewhat curious. On one hand she was subscribing to the axiom that bureaucracies, like nature, abhor a vacuum. If the FCC was going to cut broadband loose, the FTC would be there to pick it up. FTC made that argument earlier this summer in testimony to the Senate Judiciary Committee, and Majoras picked up the theme again, saying that the antitrust and consumer protections of government are well suited to swing into action when “private actors can and do distort competition.”
Yet after staking her claim, Majoras then quickly backed out of doing anything meaningful with it other than to announce the formation of an Internet Access Task Force and to parrot the telephone company line in the hottest consumer protection/markets issue of the day.
Majoras takes her shots at the commercial advocates for Net Neutrality, saying: “I start by admitting my surprise at how quickly so many of our nation's successful firms have jumped in to urge the government to regulate.” She adroitly noted that “when fear of marketplace disadvantage arises, there is a tendency to quickly turn to government to seek protection or help.” Starting with the last phrase, isn't the FTC supposed to act in when the market fails? Isn't that what antitrust enforcement, or even consumer protection is all about? And the reason those “successful firms” want government to act is because they have no protections, nor do the people who use their services. Telephone and cable companies control access to the home and can dictate the terms of delivery of data.
Majoras says she supports a “highly competitive Internet environment,” but questions the assumption that “regulation, rather than the market itself under existing laws, will provide the best solution to a problem.” What market is she describing? The broadband market in which 98% of customers get their service from telephone or cable companies? That may change in the future, but not any time soon. Perhaps the FTC will act to make the market more competitive.
Majoras also brought out the telco line about the lack of a “demonstrated harm.” We shouldn't act until there is a problem, she said, noting the existence of the one case, in which Madison River blocked Vonage. For someone who wants to take jurisdiction over Internet services, it's a shame she wasn't better versed on the background. There was no “demonstrated harm” because discrimination has been illegal. The telephone companies and cable companies won't do anything stupid now because they want the telecom bill, with national franchising, to pass. It's an open question now whether the Madison River complaint, if brought today, could have been acted upon by the FCC, because the service involved is now out of their jurisdiction. Would the FTC have handled it?
So let the FTC study the state of competition in the broadband market. Can anything the agency does bring the lower prices and higher data speeds European consumers enjoy to the U.S.? Hope springs eternal.