Thursday, September 22, 2016

Why market competition cannot remedy America’s lousy telecom service

Almost daily, the justifiable criticism of the lousy state of America’s telecommunications service includes the demand for more competition as the solution. Providing more competition – and specifically as fiber to the premise (FTTP) -- for indolent incumbent legacy telephone and cable companies in no hurry to modernize their aging and increasingly obsolete metallic infrastructures will provide superior service and value for consumers. Sound good in theory, but completely misguided.

Telecommunications is not and will never be a truly competitive market where consumers can select among many sellers. The economics simply don’t allow it because it costs too much to enter the market and the return on investment under the dominant, vertically integrated, subscription-based business model is too skimpy or too far in the future to attract would be competitors. If telecommunications were a truly competitive market, consumers no matter where they live would have multiple sellers and services from which to choose just as they do other consumer offerings. Cherry picking in a few select metro markets as we’ve seen with Google Fiber and AT&T’s “Gigaweasel” as fellow blogger Steve Blum dubs it is hardly robust market competition.

That’s a key distinction. Telecommunications is not a consumer market. It’s a natural monopoly market and the incumbents have established their place in it. And they vigorously defend that place. That’s not evil as Susan Crawford recently pointed out. The incumbents are merely doing what they must do to faithfully and diligently serve the interests of their shareholders no matter how smarmy, greedy or disingenuous it may appear at times. Shareholders come first, market demand second. And the interests of the demand side of the market can easily remain in second place in a natural monopoly market because there is and won’t be any pressure to offer more to maintain market share because market share is assured. The market will accept whatever it’s offered because it has no choice – and cannot have meaningful choice. That’s why consumers complain service sucks equally between legacy telcos and cable providers.

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