Expert Opinion: Broadband Adventures in Wunderland: The (Expensive) Myth of CompetitionBroadband Stimulus, Broadband's Impact, Expert Opinion, National Broadband Plan, Universal Service June 15th, 2011
Craig Settles, Broadband Industry Analyst, Author
The National Broadband Plan won’t do jack until more folks in Wunderland acknowledge and aggressively address one stark truth – broadband competition is mostly a myth, expensively maintained through lobbyists, think tanks and easily-influenced politicians. Until we get meaningful competition, a significant part – though mercifully not all – of Wunderland’s policies will result in dabbling around the edges rather than a meaningful advancement of broadband in the U.S.
Case in point: the misguided attempt by some of Wisconsin’s state legislators to prevent their state universities from using federal stimulus money to advance broadband is purely about AT&T clawing to maintain its near monopolistic hold over broadband there. In this and other states’ legislatures we see cable and telco duopolies roadblocking federal and local efforts to get communities the broadband they want and need.
Counterproductive legislation is just one element of the fallout from a lack of competition. High prices, low network service quality, abysmal customer service and just plain lack of access plagues many rural and urban communities. Furthermore, policymakers’ dreams of a future in which broadband enriches the U.S. economically or otherwise are on shaky ground without the pressure of real competition to force/entice buildouts of networks capable of delivering on those dreams.
Incumbents and their apologists are loud and swift proclaiming the industry, particularly mobile broadband, is “vibrant” in its competitiveness. They shout, “we’re a veritable font of innovation!” (accompanied by loud chest thumping). They repeat that mantra “almost every America has dozens of providers from which to choose,” I guess – assuming we easily confuse quantity with quality.
Let’s look at the reality of broadband competition. You have to tear away two curtains hiding the man at the PR controls.
First, just because there are a lot of providers in a state doesn’t mean you have competition that leads to better broadband for a better price. Last year I partnered with data analytics firm ID Insight to release an analysis of competition within all 50 states based on data from millions of Internet users nationwide. We ranked the states based on how closely the market share of their respective top 10 competitors came to 10 percent for each competitor. The viability of competition depends on more than market share, of course, but we took this approach to give the discussion of competition some context and consistency.
Even in the 10 states where the competitors are most evenly matched in market share, as you go down the list the combined market shares of the top three competitors moves into the high 70s. In Michigan and Iowa, states that ranked 21 and 22 on the list, the combined market share percentages of the top three competitors break solidly into the 80s.
In state 24, Wyoming, and on down the list we have what are pretty much duopoly states. The top two competitors’ market share percentages collectively are in the mid 70s moving toward the 80’s (often one’s a wireless and one’s a cable provider, and it’s questionable they really compete with each other that much). For the bottom five states (Delaware, Colorado, Maryland, Hawaii and Rhode Island), their duopolies range from 89 percent to 95 percent market share.
If you practice the fine art of rational thinking, you’ll be hard pressed to believe that 60 or 70 providers in a state means you have anything resembling “robust” competition if 50 or 60 of them are fighting for 15 percent of the market. Drill down to the county level and often you don’t even see three or four of the top ten providers. Sometimes two, occasionally just one, at which point their market share is even greater.
It’s at this local level you find frequent stories such as this from Sibley County, Minn. For more than two-and-a-half years, these communities pleaded with providers to partner with them, offering incentives that included most of the network’s sales revenues. They offered to put up the money to build the network. Yet the best broadband these towns currently receive is DSL service at 256 kilobits per second (Kbps) downstream and 128 Kbps upstream. However, let one competitor pop up on the scene offering fiber services, these incumbents fall all over themselves with special offers and high speeds. We see it happen time and again.
Here’s where you yank away the other curtain around the competition myth. To do so, you need to get into the market and the mind of the people who actually pay for and use what passes for broadband services in their area. Wunderland is fixated with broadband adoption, but many folks miss the boat completely when it comes to broadband utilization. Utilization means using broadband to perform tasks and run applications important to economic development, education, job skills improvement, delivering better medical services, etc. It matters little if you adopt a broadband service that’s inadequate for the utilization needs at hand.
In numerous areas competition is low or effectively nonexistent when you look at how few Internet access providers have any meaningful clout within those areas. But when you look at the more important question of, can a community get broadband that’s sufficient to do the tasks deemed important for its economic enrichment, you see the true lack of competitive forces. Slip out from under the debilitating influence of industry lobbyists with their fairy tales of robust competition and spend some days visiting communities and listening to their stories.
Over 130 communities, such as Chattanooga, Tenn., own their own broadband networks, plus communities that have formed co-ops and nonprofit entities to run their networks. Look at the collective benefits Chattanooga’s gigabit community network offers its constituents (part 2 of the story here). You see that achieving communities’ various economic dreams requires a lot of broadband capacity, but competition to provide this kind of capacity is nonexistent in so many parts of the U.S. That’s why several thousand communities (not hundreds, thousands) are champing at the bit to be like Chattanooga, Powell, Wyo., Ontario County, N.Y., Santa Monica, Calif. and the others. They want to provide the competition that addresses utilization, not just adoption.
More people in Wunderland have to grab this bull by the horns, or some other vital area, and kick it in the butt. People need to take a two-by-four and beat back these attempts to undermine and circumvent programs that fund broadband efforts that introduce much needed competition. Let’s see some profiles in courage and toss this AT&T/T-Mobile merger out the back door. Encourage (incentivize) companies like Google and Corning to partner with communities to put fiber infrastructure in place. If you’re going to do more than just pretend to reform USF, take that $4 billion that comes directly out of taxpayers’ pockets and put it into communities to solicit and fund the best solutions they can find someone willing to provide.
Either we get serious about competition or we stop pretending we’re serious about broadband.
Craig Settles is a broadband business strategist, marketing expert, author and internationally renowned speaker. Craig helps organizations use broadband technologies to improve government and stakeholders’ operating efficiency, as well as local economic development.