PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

The Real Story on Broadband Service Competition and Regulation

By at 19 April, 2017, 8:35 am

by Raymond J. Keating-

When discussing broadband services and public policy, it’s apparently too much to expect that a basic understanding of economics and markets will provide a foundation from which to proceed. That was most recently evident in a New York Times op-ed written by Susan Crawford, a law professor at Harvard, which amounts to little more than a screed against broadband service providers and the new chairman of the Federal Communications Commission (FCC), Ajit Pai.

Americans Hate Business?

Professor Crawford seems to have no use for businesses in the broadband arena, as she opened her piece declaring, “If there’s one thing that brings Americans together, it’s our hatred of the giant companies that sell us high-speed data services.” Golly, “hatred”? Who knew?

And the source of this hatred, according to Crawford, is a lack of choices. She claims that five companies – Comcast, Charter (now Spectrum), Verizon, CenturyLink and AT&T – “account for over 80 percent of wired subscriptions and have almost total power in their territories.” For good measure, Chairman Pai “wants to let these companies become even more powerful by letting them do whatever they want and allowing them to merge with one another.”

For the ills she perceives, Professor Crawford naturally calls for more government regulation, for government to reject mergers, and have government (that is, the taxpayers) build networks. For some reason, Crawford and other advocates for more government regulation, control and even ownership in broadband, believe that politically-driven big government will somehow serve consumers better than private companies that must compete against current and future competitors, and are ultimately judged by consumers themselves.

Outdated Regulatory Mindset: Looking Backward, Rather than Forward

For good measure, this kind of advocacy for more regulation is akin to driving regulatory policy in the broadband arena by looking in the rearview window. Regulatory policymaking overwhelmingly is based on the make-up or state of an industry at a certain moment in time – sometimes as it stood just yesterday, or too often, how it was run years ago. But it’s rarely ever about what’s coming. Meanwhile, entrepreneurs, investors, managers and businesses in general must be forward looking. That is, where is the market, innovation, invention and, ultimately, decisions made by consumers, taking us?

One word used by Professor Crawford made clear that her eyes are trained on that rearview mirror, that is, “wired.” Her case for extensive government regulation – and with it, of course, increased costs and uncertainty, and therefore less investment and innovation – chose to ignore, for example, dynamism, competition and innovation across all of the broadband service marketplace from which consumers can and do choose their services.

It’s is important to note that even as markets change and innovations develop at a rather breathtaking pace, those favoring more regulation – as they, again, eye things via the rearview mirror – choose to still think of two separate markets – one being wired or fixed broadband and the other wireless or mobile. But such a distinction does not really make much sense.

Consider, in his dissenting statement on the FCC’s 2016 Broadband Progress Report, FCC Commission Michael O’Rielly laid out the realities of the marketplace:

“To divert attention from the substantial progress made on fixed broadband, the report includes a lengthy discussion on mobile broadband. As I predicted, the Commission now finds that the availability of advanced telecommunications capability requires access to both fixed and mobile service. The idea that we would need to see close to 100 percent availability of each service in order to reach a positive finding is ludicrous. This siloed way of thinking is outdated and simply does not comport with usage trends. The report is quite certain that fixed and mobile broadband aren’t substitutes, which is a completely erroneous conclusion, given that it hasn’t even defined mobile broadband service yet. But it also runs completely counter to the generational preferences and views on substitutability noted in this very report.”

Indeed, based on a April 2016 report from the U.S. Department of Commerce’s National Telecommunications & Information Administration, Giulia McHenry, chief economist for the NTIA’s Office of Policy Analysis and Development, explained, “Americans’ rapid move toward mobile Internet service appears to be coming at the expense of home broadband connections, according to the latest computer and Internet use data released by NTIA. At the same time, many Americans are using a wider range of computing devices in their daily lives…”

She went on to report: “Mobile Internet service appears to be competing more directly with wired Internet connections. According to the data, three-quarters of American households using the Internet at home in 2015 still used wired technologies for high-speed Internet service, including cable, DSL, and fiber-optic connections. However, this represents a sizable drop in wired home broadband use, from 82 percent of online households in July 2013 to 75 percent two years later. Over this same period, the data also shows that the proportion of online households that relied exclusively on mobile service at home doubled between 2013 and 2015, from 10 percent to 20 percent. The growth in online households that reported only using mobile Internet service to go online at home appears to have come at the expense of wired broadband connections. Across demographics, households have become more likely to rely on mobile Internet service to go online at home.”

Looking at this data, Will Rinehart is Director of Technology and Innovation Policy at the American Action Forum, astutely concluded: “While there are still limitations to wireless technology, it is foolish to denounce its importance to competition in the larger broadband market, which is often seen through the lens of wired broadband. The extensive use by consumers of mobile broadband is creating a vastly different competitive world.

In terms of wireless network coverage, as of December 2015 according to the FCC’s September 2016 report on competitive market conditions regarding mobile wireless, 93.4 percent of the U.S. population is covered by four or more providers, 97.9 percent by three or more, and 99.7 percent two or more. In terms of LTE mobile broadband coverage, 89.1 percent of the U.S. population is covered by four or more providers, 95.9 percent by three or more, and 98.8 percent two or more.

Meanwhile, as US Telecom reports, “U.S. broadband providers invest between $50 billion and $60 billion each year. More than 95 percent of the U.S. population has access to broadband infrastructure.”

Consumers in Charge

Finally, consider a few key points about the decisions being made by consumers in this area as offered by polling results released by the Pew Research Center in January 2017:

• “The vast majority of Americans – 95% – now own a cellphone of some kind. The share of Americans that own smartphones is now 77%, up from just 35% in Pew Research Center’s first survey of smartphone ownership conducted in 2011.”

• “The proportion of American adults with high-speed broadband service at home increased rapidly between 2000 and 2010. In recent years, however, broadband adoption growth has been much more sporadic. Today, roughly three-quarters of American adults have broadband internet service at home.”

• “As the adoption of traditional broadband service has slowed in recent years, a growing share of Americans now use smartphones as their primary means of online access at home. Today just over one-in-ten American adults are ‘smartphone-only’ internet users – meaning they own a smartphone, but do not have traditional home broadband service.”

A realistic portrait of the broadband marketplace makes clear that this is a dynamic, innovative industry in which competition is real and robust, and consumers have real and substantive choices.  Professor Crawford points out that this is an industry sector “that accounts for a sixth of the American economy. But even that is an understatement: Everything we do, from manufacturing to governance, requires reliable, inexpensive, world-class data transmission.”

And therefore, contrary to Crawford’s assertions, the last thing anyone should desire is to put government in control.

Policymakers need to understand that more government regulation and control – such as treating broadband service providers like 1930s utilities – will only raise costs, and wind up restraining or reducing investment. Who suffers as a result? Well, just about everyone – not just large broadband providers, but also entrepreneurial firms in the telecommunications sector, content providers, and of course, consumers, including small businesses that rely on broadband services for the health of their enterprises.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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