A usual trope of some large corporations with immense market power is that any regulations to which they are subjected make markets less efficient and innovative and impose unnecessary costs that they then have to pass on to their customers. Unfortunately there are many regulations that do lead to one or both of these consequences. However there are also cases in which the absence of regulation allows oligopolies to garner monopoly rents with high prices and to stifle smaller innovative competitors. Telecommunications is one example of a critical sector of the economy which falls into this latter category. Ironically the U.S., which views itself as strongly and even uniquely committed to the principles and practices of competitive markets has recently become less competitive in this sector than countries which are often characterized by their allegedly anti-competitive, state-managed economies, e.g. France.
I described this disturbing anti-competitive momentum in the U.S. broadband market in a letter that was published in the Financial Times of March 8 2013 and is reproduced here:
FCC must unpick broadband cartel
From Mr Martyn Roetter.
Sir, Niels Erich’s letter (March 5) referring to Edward Luce’s article “The corporate tie that binds America to a slow internet” (February 25), omits, as did Mr Luce, to point to the disastrous decision of the Federal Communications Commission and the Department of Justice to approve the formation of a broadband and video cartel between Comcast (and three other cable operators) and Verizon in August last year. This alliance between supposedly fierce competitors in the broadband market signals the death knell of effective competition in the US broadband landscape. It represents the culmination of sustained and largely successful attempts by Verizon, Comcast and AT&T in particular to eliminate the decreasing number of restraints on their ability, even though their networks make extensive use of public resources from spectrum to rights-of-way, to act howsoever they choose regardless of the impact on customers or smaller competitors and innovative third-party services providers. Verizon has even claimed that the FCC’s rules on the ways in which it manages use of and access to its network violate its first (free speech) and fifth amendment (no taking of private property without just compensation) rights. The opponents of genuine healthcare reform in the US reject third-party international comparisons of outcomes that are unflattering to the US. Similarly, Comcast et al continue to proclaim in the face of mounting evidence to the contrary that the US leads the world in telecommunications with respect to price and performance. In 2005, the FCC recategorised broadband as an information service that did not have to be regulated like traditional telecommunications, on the grounds that competition between telephone companies and cable operators would ensure that consumers’ and others’ interests would be protected. In the new era marked by the Verizon/ Comcast cartel this competitive force is vanishing. The trend to relative decline in US broadband infrastructure and services is bound to continue absent a reversal of the FCC’s 2005 decision. The distinction between “broadband” and “telecommunications” is meaningless since all services, even narrowband ones, are increasingly being delivered over broadband facilities.
It is particularly galling that the proponents of a fundamentally uncompetitive market structure wrap themselves in the mantle of “free market” ideology. However their operational definition of “free” is limited to securing their freedom from regulation, regardless of what this entails for the freedom of choice of customers or the freedom of maneuver of innovators to launch their ideas for new or improved products and services into the market when they challenge the established revenue flows of incumbents. Regulations alone cannot solve this problem. But they can create and protect an environment that allows competition and innovation to flourish, as did U.S. regulatory initiatives in the 1970s and 1980s that inspired similar moves around the world,.