Wednesday, March 16, 2016

Why the “more competition” argument for better Internet service is misguided

Hardly a day goes by without calls for “more competition” as the elixir to make modern Internet-based telecommunications services more widely available and offering better value than those offered by the legacy incumbent telephone and cable companies. U.S. Federal Communications Commission Chairman Tom Wheeler has curiously joined the chorus calling for more competition -- even though his agency and its 2015 Open Internet rules are predicated on regulating Internet service as a natural monopoly common carrier utility.

The problem is telecom infrastructure by nature isn’t a competitive market defined as having many sellers and buyers. There are many buyers but there cannot be many sellers because it’s too costly and economically inefficient to have multiple providers building and owning infrastructure connecting homes and businesses. More competition isn’t a solution here. 

In the states, the legacy incumbents reinforce the notion of competition by blocking projects that would threaten their service territory monopolies. From their perspective, these projects represent competition because they would potentially steal away customers. Therefore, proponents reason, competition must be a good thing if the incumbents oppose it. This however illustrates the faulty reasoning of the “more competition” argument. 

The problem is the pro-competition proponents are buying into the incumbents’ concept of competition -- and not a consumer perspective. For the incumbents, any project that would build infrastructure in their service territories is competition. However, for consumers, having a choice among many sellers is competition. That’s not possible with telecommunications infrastructure. But it is possible if the infrastructure is publicly owned like roads and highways. That would open up Internet service to competition since multiple Internet service providers could offer their services over that infrastructure.

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