The proposed merger of telecommunications giants Comcast and Time Warner Cable (TWC) has raised a number of concerns regarding the already lackluster state of broadband service in the U.S. Absent what appears to be an unlikely intervention by federal regulators, the merger could further exacerbate the problems facing Internet access in this market.
Big and Bigger
Comcast is the largest provider of cable and broadband services, dwarfing even second place TWC. The merger, according to Gizmodo, “would represent roughly half of all paying cable-TV-phone customers in the United States.” The purchase price will be $45 billion on stock.
Concern among pundits and consumer groups focuses on the already high broadband rates in the U.S. compared with other nations, as well as the relatively dismal speeds provided. Ars Technica, citing a study by the New American Foundation’s Open Technology Institute, summarizes the results by saying that “US customers are getting hosed when it comes to broadband speeds and prices… The best prices worldwide (such as in Seoul and Tokyo) make even Google Fiber look expensive.”
In considering a justification for federal intervention in the deal, The New Yorker says, “But the Federal Communications Commission, by law, is only supposed to approve the merger if it finds that it serves ‘the public interest.’ Given recent history, and in today’s cable business, the public’s interest can be captured in two words: ‘lower prices.’…Here’s a simple rule of thumb: unless the FCC thinks that there is a realistic chance that the deal will reverse two decades of rising prices, it should stop the merger.”
But the problem goes beyond two mega companies in pursuit of a deal to increase profits: the situation is complicated by the nature of the market—which hovers between private and public.
One of the perennial complaints against telecommunication companies in the U.S. is a lack of competition, leading to fewer choices as well as poorer service at higher prices. The blame is often placed at the feet of the so-called free market: Paul Venezia at InfoWorld, for instance, says, “Think about it—why wouldn’t the United States want the two largest ISPs to merge?...It seems like just the thing we need to inspire that all-powerful invisible hand of the free market. I can smell the competition emerging from this deal.”
But the broadband market is anything but free. In another InfoWorld piece, Bill Snyder points out that major Internet carriers are notorious for essentially bribing politicians (aka lobbying) to pass laws that stifle potential competition. One result is that localities seeking to implement broadband infrastructure are prevented from doing so. Furthermore, powers of eminent domain are regularly employed on behalf of telcos for communications infrastructure—something that would never occur in a truly free market.
The result is a grey area that has just enough semblance of freedom to garner the hatred of consumers, but just enough government control to preclude any real competition. But the solution in this case is uncertain: cables must be routed somehow to reach customers, although this issue is mostly problematic in more-rural settings. Naturally, competition will be scarce or nonexistent if telcos are able to buy political favor and thereby legislate competitors out of business.
The proposed Comcast-TWC merger raises many of the same questions as net neutrality: particularly, are broadband providers truly private companies that have a right to operate their equipment as they see fit (even if that means throttling or “taxing” certain traffic), or are they more public entities whose government-enforced pseudomonopolies entail following certain principles or regulations that ensure the “public good.” The recent court decision striking down the FCC’s net neutrality policy, however, may or may not ultimately signal the demise of such regulations. The decision left the door open for the FCC to impose net neutrality, just under a different legislative framework. Unfortunately, according to CNet, “The FCC ended up with even more influence over how the Internet operates in the future. All of this power concentrated in the hands of the FCC, aka the government, is dangerous, critics say.”
Neither the matter of broadband-service competition nor the matter of net neutrality can be resolved rationally without a clearer delineation of the role of telcos as either private companies or public ones. If they are to be private, with all the privileges thereof, then they should face competition like any other private entity. If they are to be more public (i.e., government-protected monopolies), they should expect greater regulation that ensures adequate service to customers at “reasonable” prices. Unfortunately, as the so-called Affordable Care Act demonstrates, the government is a lousy means of obtaining better, cheaper service.
What’s the Alternative?
Municipal networks for localities could be the starting point for an answer to the problem raised by giant telcos controlling broadband access and providing dubious service levels for the price. Unfortunately, corruption and incompetence at the local-government level means that in many cases, the outcome could be worse. But opening the market to all comers raises the question of who bears the cost of right-of-way usage and other considerations for laying different networks. Furthermore, the question arises as to whether remote locations should be ensured service, or whether companies can choose only potentially profitable locations to deliver service (which is what pseudomonopolistic telcos already do).
Increasing wireless networking and available processing power (idle desktop PCs, for instance) could enable a form of mesh network, serving as a local basis for a decentralized Internet. Of course, such an alternative faces numerous challenges, but in light of the stranglehold of telecommunication companies and uncontrolled government spying, it (or something like it) may gain momentum.
The Comcast-TWC merger, according to some market watchers, is unlikely to see significant resistance from regulators. Effectively, though, little will change: the broadband market will still be controlled by a few giant corporations with little incentive to provide better service at lower prices. And, of course, some will blame the free market—as though the kind of monopolistic practices and cronyism at the heart of the Internet-service market are the hallmarks of freedom. The deal highlights many of the same issues as the recent controversy over net neutrality; unfortunately, the current model of the Internet and the various logistical details make an easy solution nearly impossible. The perennial solution to all problems—more government regulation—may be a stopgap for an already twisted industry, but as the field of medicine proves, the end result is a disaster of huge prices, lousy service and, of course, more government regulation to compound the problem.