Competition/Antitrust

[Commentary] Recently, without any reference to the Net Neutrality debate, the cable industry trade association NCTA made the unsurprising observation that broadband speeds in the US continue to rise, as they always have. Seeing all things through the lens of Net Neutrality, Public Knowledge Senior Vice President Harold Feld immediately laid claim to the trend, asserting that the data in NCTA’s post supports the FCC’s reclassification decision. According to Feld, the speed trend confirms that the “Title II Virtuous Circle” is “totally working” because “the rate of increase has accelerated since the FCC adopted the Title II Reclassification Order in February 2015.”

Feld sets up a direct test of the wisdom of Title II reclassification based on the pace of speed increases following the 2015 Open Internet Order. An empirical question requires an empirical answer. Using the Akamai speed data, Ford subjects Feld’s “theorem” to a battery of statistical tests. Without exception, the data reveal a statistically significant decline in the rate of average broadband speed increases for the US subsequent to the 2015 Open Internet Order. Ford finds that “but for” the FCC’s 2015 Open Internet Order, US broadband speeds would have been about 10% higher—or about 1.5 Mbps faster—on average. Thus, in direct contradiction to Feld’s claim, reclassification appears to have significantly retarded expected broadband speed increases.

The United States is ahead of the global curve when it comes to delivering “broadband for all.” But we too face challenges. First, a quick snapshot: 93% of Americans have access to fixed broadband with a speed of at least 25 Mbps down. An estimated 73% of Americans subscribe to fixed broadband at home. And approximately 80% of Americans use smartphones. When you dig deeper into those numbers, however, you begin to see some real divides. In urban areas, 98% of Americans have access to high-speed fixed service. In rural areas, it’s only 72%. 93% of Americans earning more than $75,000 have home broadband service, compared to only 53% of those making less than $30,000. Too many identify with the lines in One of Us, in which ABBA sang: “One of us is lonely / One of us is only / Waiting for a call.”

Every American who wants to participate in our digital economy should be able to do so. Access to online opportunity shouldn’t depend on who you are or where you’re from. I’m pleased to say that since my first days as Chairman, the Federal Communications Commission has taken significant actions to make that a reality.

A tiny Internet service provider has sued Comcast, alleging that the cable giant and its hired contractors cut the smaller company's wires in order to take over its customer base. Telecom Cable LLC had "229 satisfied customers" in Weston Lakes and Corrigan (TX) when Comcast and its contractors sabotaged its network, the lawsuit filed recently in Harris County District Court said. Comcast had tried to buy Telecom Cable's Weston Lakes operations in 2013 "but refused to pay what they were worth," the complaint says.

Starting in June 2015, Comcast and two contractors it hired "systematically destroyed Telecom’s business by cutting its lines and running off its customers," the lawsuit says. Comcast destroyed or damaged the lines serving all Telecom Cable customers in Weston Lakes and never repaired them, the lawsuit claims. Telecom Cable owner Anthony Luna estimated the value of his business at about $1.8 million, which he is seeking to recover. He is also seeking other damages from Comcast and its contractors, including exemplary damages that under state statute could "amount to a maximum of twice the amount of economic damages, plus up to $750,000 of non-economic damages," the complaint says.

One of the central arguments in the Net Neutrality debate is over whether the Federal Communications Commission’s controversial 2015 decision to reclassify broadband Internet access as a common carrier “telecommunications” service had a negative effect on network investment in 2016. The evidence is mounting that it did. Free Press believes the consistency in the data does not carry over to Broadband Service Providers’ (“BSPs”) advocacy, however. Comparing statements made by BSPs to the FCC and to Wall Street, Free Press contends that these apparent inconsistencies imply that the companies are lying to the Commission and to the public about the effect of Title II on investment. The Internet Association—a trade group of companies favoring aggressive Internet regulation—recently borrowed from Free Press’s report to produce an online video summarizing the Free Press narrative.

Ford subjects Free Press and the Internet Association’s anecdotal evidence to review, and finds that it is Free Press and the Internet Association—and not BSPs—who are not telling the whole story. Free Press and the Internet Association have presented a false narrative to both the FCC and the public at large, and that their evidence actually points to the harms of reclassification on investment incentives.

In many rural communities, where available broadband speed and capacity barely surpass old-fashioned dial-up connections, residents sacrifice not only their online pastimes but also chances at a better living. In a generation, the travails of small-town America have overtaken the ills of the city, and this technology disconnect is both a cause and a symptom. Counties without modern internet connections can’t attract new firms, and their isolation discourages the enterprises they have: ranchers who want to buy and sell cattle in online auctions or farmers who could use the internet to monitor crops. Reliance on broadband includes any business that uses high-speed data transmission, spanning banks to insurance firms to factories.

Rural counties with more households connected to broadband had higher incomes and lower unemployment than those with fewer, according to a 2015 study by university researchers in Oklahoma, Mississippi and Texas who compared rural counties before and after getting high-speed internet service. “Having access to broadband is simply keeping up,” said Sharon Strover, a University of Texas professor who studies rural communication. “Not having it means sinking.”

Rep Doug Collins (R-GA) has introduced a bill that would provide a tax incentive to companies to build out rural broadband, providing a House version of a Senate bill, with both backing up a proposal long-advocated by Federal Communications Commission Chairman Ajit Pai. The Gigabit Opportunity (GO) Act would allow companies to defer capital gains taxes when they converted those gains into "long-time" investments into designated Gigabit Opportunity Zones. That means expensing investments on rural broadband buildouts on the "front end." The goal is to boost competition and speed investment, something Chairman Pai has said is an FCC priority for rural areas. Rep Collins said his bill would "dovetail" with the FCC's proposal to streamline broadband regulations, both wired and wireless. The bill is actually dovetailing with another dovetail, as it is a companion to one introduced in the Senate in May by Sen Shelley Moore Capito (R-WV).

For over a century, assessments of competition or the lack thereof have been central to how public policy treats the telecommunications industry. This centrality continues today. Yet, numerous foundational questions about this concept persist. In this paper, we chronicle how the definition of “competition” has evolved in economics and has been applied in the communications arena. The academic literature on competition hits an important inflection point in the mid-20th century with the development of “workable competition”: a term that is equated to “effective competition.” We find that while the concept of “effective competition” is central to policy formation at the Federal Communications Commission, the FCC’s own applications of “effective competition” are inconsistent. Given the centrality of this concept, and its inconsistent applications to date, we draw upon the seminal contributions to the development of the notion of “effective competition” to offer a modern definition suitable for application in 21st century communications markets.

Broadband provider Frontier Communications recently laid off the West Virginia state Senate president after a vote the company didn't like—and yes, you read that correctly. West Virginia does not have a full-time legislature, and state lawmakers can supplement their part-time government salaries ($20,000 a year, according to BallotPedia) with jobs in the private sector. West Virginia Senate President Mitch Carmichael (R-Jackson County) was also a sales manager for Frontier. But after six years with the company, Frontier terminated his employment on May 26. The dismissal came just weeks after Carmichael voted for a broadband infrastructure bill that was designed to bring faster speeds, lower prices, and more competition to Internet customers. It was described as a layoff in local press reports, but Carmichael said in multiple interviews that he believes the Senate vote led to his newfound unemployment.

Competitive cable operator WOW! reaffirmed a commitment not to implement data caps and usage-based policies for all of its high-speed Internet customers, holding that it’s taking the “consumer side” in that debate. WOW! said the promise of no data caps comes amid recently updated Internet-only plans and new bundles, adding that it now offers speeds up to 500 M bps across 95% of its footprint. WOW is also pushing ahead with a rollout of 1-Gig speeds using DOCSIS 3.1 technology, starting in markets that include Auburn and Huntsville (AL), Evansville (IN), and Knoxville (TN).

The “Customer is Always Right” maxim was perpetuated because it reflected a truth: in a competitive market, the seller that gives the customer what the customer wants will succeed and others will fail. But there is not enough competition in cable broadband markets to force cable companies to focus on satisfying customer needs as a path to beating the competition and “winning” the customer.