Originally published: February 23, 2014
Last updated: March 5, 2014 - 8:48am
[Commentary] What we need is the ability of different companies to provide broadband services to America’s households. And here’s where the real problem lies: the cable companies own the cable pipes, and the regulators refuse to force them to allow anybody else to provide services over those pipes.
This is called local loop unbundling, it’s the main reason for low broadband prices in Europe, and of course it’s vehemently opposed by the cable companies. Local loop unbundling, in the broadband space, would be vastly more effective than waiting for some hugely expensive new technology to be built, nationally, in parallel to the existing internet infrastructure. The problem with Cowen’s dream is precisely the monopoly rents that the cable companies are currently extracting. If and when any new competitor arrives, the local monopolist has more room to cut prices and drive the competitor out of business than the newcomer has. In other words, the market in delivering broadband to the home is pretty much the opposite of the international text-messaging market which was disrupted so effectively (and so profitably) by WhatsApp. In broadband, by contrast, it’s the cable operators who could, if they wanted to, bring the marginal cost of broadband down to zero. (There’s no reason, in principle, why they can’t provide broadband for free to anybody with a cable-TV subscription.) Meanwhile, any would-be disruptor, needing to repay a massive capital investment, is going to have less ability to slash prices than the incumbents do. So don’t count on competition to bring down prices in the broadband space. This is an area where the regulators -- and only the regulators -- can really be effective.
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