Competition/Antitrust

Anxiety about the health of competition in the US economy — and elsewhere — is growing. The concern may be well founded but taking forceful action will require economists to provide some practical ways of proving and measuring the harm caused by increasing market power in the digital economy.

The forces driving concentration do not affect the US alone. In all digital markets, the cost structure of high upfront costs and low additional or marginal costs means there are large economies of scale. The broad impact of digital technology has been to increase the scope of the markets many businesses can hope to reach. In pre-digital days, the question an economist would ask is whether the efficiencies gained by big or merging companies would be passed on to consumers in the form of lower prices. Another key question was whether it would still be possible for new entrants to break into the market. Digital platforms make these questions harder to answer.

• One much-needed tool is how to assess consumer benefits.
• A second issue is how to take into account the interactions between markets, given that most platforms and tech companies steadily expand into other activities and markets.
• A third issue, perhaps the most important, is the effect increasing concentration has on incentives to innovate and invest.

[Diane Coyle is professor of economics at the University of Manchester]

We measure households’ willingness-to-pay for changes in key home broadband Internet connection features using data from two nationally administered, discrete choice surveys. Both surveys include price, data caps, and download and upload bandwidth, but only one includes latency. Together, these surveys allow us to measure tradeoffs between bandwidth and other connectivity features such as price and data caps, and perhaps most notably, provide the only empirical evidence to date of tradeoffs between bandwidth and latency. We find that households' valuation of bandwidth is highly concave, with relatively little added value beyond 100 Mbps.

For example, households are willing to pay about $2.34 per Mbps ($14 total) monthly to increase bandwidth from 4 Mbps to 10 Mbps, $1.57 per Mbps ($24) to increase from 10 to 25 Mbps, and only $0.02 per Mbps ($19) for an increase from 100 Mbps to 1000 Mbps. We also find households willing to pay about $8.66 per month to reduce latency from levels obtained with satellite Internet service to levels more common to wired service. Household valuation of increased data caps is also concave as caps increase from 300 GB to 1000 GB, although consumers place a significant premium on unlimited service. Our findings provide the first relative valuation of bandwidth and latency and suggest that current U.S. policy may be overpenalizing latency relative to reductions in bandwidth and data caps. For example, we find that in its CAF Phase II Auction, the FCC is imposing a bidding penalty for latency that is about five times higher than what our WTP estimates suggest it should be relative to bandwidth offered.

In a recent perspective, I reviewed a report authored by Dr. Christopher Hooton of the Internet Association on the impact of Net Neutrality regulation on broadband infrastructure investment. My earlier review of the IA Report focused mainly on Dr. Hooton’s difference-indifferences (“DiD”) model, which from an empirical perspective is the only analysis he offered that could plausibly quantify the effects of the regulation since it involves a counterfactual.

In this perspective, I return to Dr. Hooton’s analysis. My interest in further analysis stems from Dr. Hooton’s claim that his evidence leans in the direction of a positive investment effect in that his “regression coefficients of interest were positive in all but one case.” (That negative case being his primary DiD analysis.) Closer inspection of these “positive” cases reveals errors as severe, if not worse than, the errors plaguing his DiD analysis, including the fabrication of much of his data.

With few alternatives, many households are choosing to simply cancel the services they need. A 2015 study found that 15% of American adults had abandoned their paid cable or satellite television service. Meanwhile, only 67% of adults had broadband service at home, down from 70% from just two years prior. This case study aims to examine a community absent from telecom companies’ field of view. The subject of this study is a working-class couple in their late 50s....Americans have been vocal about their opposition to increasing TV and internet prices, sometimes opting to cancel their services altogether. As service providers start to recognize the threat of losing customers, they must acknowledge the extent to which their practices have harmed elderly, immigrant, and working-class households in particular. Most importantly, policymakers must take advantage of the role they may play in advocating for these communities through promoting competition among telecom companies.

Speedtest has long been the go-to for measuring internet speed, and now it’s launched the Speedtest Global Index, a monthly global ranking that allows you to see how your country stacks up when it comes to internet speed. The Global Index compiles data from the billions of tests consumers run on the service, and shows both mobile and fixed broadband speeds from around the world. Set to be updated monthly, each country’s ranking shows both its average download speed, as well as any difference in rank from the previous month. Click through on an individual country, and view both its average download and upload speed.

A Federal Communications Commission decision to eliminate price caps in much of the business broadband market can remain in place after a federal judge denied a petition to halt the FCC order. The FCC's Republican majority in April imposed a new standard that deems certain local markets competitive even when they have only one broadband provider. In those markets, incumbent phone companies like AT&T, Verizon, and CenturyLink will be able to charge higher prices for business data services that are delivered over copper-based TDM networks. Companies that will have to pay higher prices sued the FCC. They asked for a stay that would halt the elimination of price caps pending the outcome of the case.

But Aug 7, the US Court of Appeals for the 8th Circuit denied the motion for stay. The order provided no explanation for the denial. The FCC's decision eliminates price caps in a county if 50 percent of potential customers "are within a half-mile of a location served by a competitive provider." A county is now also considered competitive if 75 percent of Census blocks have a cable provider. (There are no price caps for cable-based business data services.)

The US residential median broadband price was $80 per month during the second quarter of 2017, according to research from Point Topic. Globally, the average residential download speed was 135 Mbps and the average monthly charge was $105. The best value was provided by fiber (208 Mbps for $94) and the worst by copper (14 Mbps for $68).

The range between high and low prices for broadband service tend to be more extreme in some countries than in others, according to Point Topic’s data. India (a high/low range of about $120/$5), Brazil (about $115/$20) and Turkey (about $118/$20) have a higher range, while Germany (about $50/$22), Japan (about $35/$3), South Korea (about $55/$30) and Russia (about $30/$5) tend to have less of a gap between high and low broadband speeds. The midrange seems to be comprised of China (about $60/$5), the United States (about $85/$15), France (about $55/$10) and the UK (about $55/$5).

On August 3, the passed the following technology and telecommunications bills:

1. S. 19, Making Opportunities for Broadband Investment and Limiting Excessive and Needless Obstacles to Wireless Act (MOBILE NOW Act), Legislation to increase spectrum availability for next-generation gigabit wireless services and foster broadband deployment. Sponsors: Sens. John Thune (R-SD), Bill Nelson (D-FL)
2. S. 96, Improving Rural Call Quality and Reliability Act of 2017, Legislation to require the FCC to establish quality and reliability standards for rural phone networks. Sponsors: Sens. Amy Klobuchar (D-Minn.), John Thune (R-SD), Jon Tester (D-MT)
3. S. 123, Kari’s Law Act of 2017, Legislation initiated after the murder of Kari Hunt in a hotel in Marshall, Texas, when Hunt’s daughter tried to call 911 but was unsuccessful due to a required “9” prefix on the hotel phone. This legislation bans the requirement of a prefix when dialing 911 for assistance. Sponsors: Sens. Amy Klobuchar (D-MN), Deb Fischer (R-NE), Brian Schatz (D-Hawaii), John Cornyn (R-Texas), John Thune (R-SD), Ted Cruz (R-Texas)
4. S. 134, Spoofing Prevention Act of 2017, Legislation to stop the transmission of misleading or inaccurate caller ID information, including such calls and text messages originating overseas. Sponsors: Sens. Bill Nelson (D-Fla.), Deb Fischer (R-Neb.), Amy Klobuchar (D-MN), Roy Blunt (R-MO)
5. S. 174, Federal Communications Commission Consolidated Reporting Act of 2017, Legislation to require the FCC to condense duplicative reports on competition in the telecommunications market into one comprehensive report released every two years. Sponsors: Sens. Dean Heller (R-NV), Brian Schatz (D-Hawaii)
6. S. 88, Developing Innovation and Growing the Internet of Things Act (DIGIT Act), Legislation to bring together private sector and government entities to assess the needs of the Internet of Things (IoT) and study the readiness of government to support the IoT. Sponsors: Sens. Deb Fischer (R-NE), Cory Booker (D-NJ), Cory Gardner (R-CO), Brian Schatz (D-Hawaii)

Charter Communications has moved 30 percent of the customers it acquired in a blockbuster merger onto new pricing plans, resulting in many people paying higher prices. Charter closed the acquisitions of Time Warner Cable (TWC) and Bright House Networks in May 2016. Before the merger, Charter had about 6.8 million customers; afterward, Charter had 25.4 million customers in 41 states and became the second-largest US cable company after Comcast. The merger was quickly followed by customer complaints about pricing in the acquired territories. In November 2016, we noted that "tens of thousands of ex-Time Warner Cable video subscribers have canceled their service since the company was bought by Charter, and pricing changes appear to be the driving factor." At the time, Charter CEO Thomas Rutledge explained that the TWC video customer base was "mispriced" and needed to be moved "in the right direction." Charter came up with new prices and packages, and many customers saw their bills rise when their previous discounts expired and they were switched to non-promotional pricing. Now, 30 percent of the ex-TWC and ex-Bright House customers are paying different—and often higher—prices.

Cable providers are among the most despised businesses in the country, regularly coming in below airlines, banks, and drug companies in public-opinion polls. "Cable is essentially a monopoly now in urban areas,” said Susan Crawford, a professor at Harvard Law School and a former policy adviser to President Barack Obama on science, technology, and innovation.

Internet service was deregulated during the George W. Bush Administration, with the theory that fewer rules would foster greater competition. For a time, as AT&T and Verizon started building fibre-optic networks to compete with cable Internet, there seemed to be truth to the idea. Over the past few years, however, the companies have largely abandoned those projects; according to Crawford, the capital investments required were too high. Rather than fuel vigorous competition and lower prices, the rise of these giant companies has meant that Americans are paying inflated costs for poor service.