Wednesday, April 13, 2016

Key U.S. telecom issue is market failure, not market competition

Verizon FiOS finally coming to Boston as mayor announces $300M fiber network - The Boston Globe: “Today, 90 percent of Boston residents have only one option for broadband,” said Jascha Franklin-Hodge, Boston chief information officer. “The free market only works for consumers when companies compete for their business. And when this project is complete, the majority of Boston residents will have real choice for the very first time.”

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In a report on high-speed Internet access last year, the Federal Communications Commission said 45 percent of American households have only one provider for such access.“We have seen first-hand that competition does in fact encourage other providers to build-out or upgrade broadband services,” the commission wrote. A good example of that dynamic is Google Fiber, the Internet giant’s push to install high-speed Internet in select US cities, said Deb Socia, executive director of Next Century Cities, an Internet advocacy group.

This is a parochial misconceptualization of America's telecommunications infrastructure crisis. It's not about competition or the lack thereof in a "free market." Telecommunications infrastructure has never been and will never be a competitive market offering in a market with many sellers and buyers. There cannot be many sellers because the microeconomics simply don't support it. In telecom infrastructure, the "free market" isn't so free -- it's highly constrained by large CAPEX and OPEX costs. The desire for competition is driven by the tendency of many to view "broadband" as other consumer services where consumers are accustomed to having the ability to choose among many vendors. That thinking is flawed insofar as it neglects the underlying infrastructure necessary to deliver it.

The real issue for the United States isn't market competition. It's market failure and the disparate infrastructure access that leaves 34 million Americans unable to obtain telecommunications service capable of delivering high-quality voice, data, graphics and video, according to figures released by the U.S. Federal Communications Commission earlier this year.

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