6 Comments

Summary:

Economists gathered in Washington, D.C., this morning to debate how the wireline duopoly affects the market for broadband in the U.S. at an open meeting held by the FCC. The majority of the speakers, including representatives from the Federal Trade Commission and the Department of Justice, […]

productShot_01bEconomists gathered in Washington, D.C., this morning to debate how the wireline duopoly affects the market for broadband in the U.S. at an open meeting held by the FCC. The majority of the speakers, including representatives from the Federal Trade Commission and the Department of Justice, insisted that when it comes to broadband access regulators need to also look at the wireless market. While typically a region will be served by one DSL provider and one cable provider, explained Marius Schwartz, a professor of economics at Georgetown University, there are also four national wireless carriers that can provide broadband service as well.

If the FCC is going to view the wireless providers as a true nationwide substitution for wired broadband, then I suppose it’s good that it’s trying to bring the same set of rules and standards for net neutrality to play for wireless operators. However, believing that wireless is a credible substitute for wired broadband is like believing that Molly McButter’s powdered flakes are a credible substitute for the real thing.

Sure, if you’re in a place with no wireline access, a 3G card and down the road possibly a 4G wireless service is better than nothing. But you’d pay considerably more for less, in terms of speed as well as download capabilities. Not that wireline carriers aren’t trying to take some of the pricing packages from the wireless world and apply them to the wireline one.

Another big point of debate at the meeting was the issue of transparency, especially when it comes to how a network operator or ISP discloses their network management policies as well as their various pricing plans. Schwartz argued against disclosure, citing consumers’ limited willingness and ability to process all that information while also referring to network management as a competitive secret — a carrier’s “secret sauce.” Though as two other panelists pointed out, that “secret sauce” has been used in the past by Comcast to throttle P2P traffic, a fairly egregious example of how a lack of disclosure can cause harm to both consumers and those in the software industry.

The panel also briefly mentioned the need for more data on what types of service packages consumers were buying and what speeds and products they actually had access to. The need for more spectrum was addressed as a way to bring wireless networks closer to parity with wired networks. Shane Greenstein, Elinor and Wendell Hobbs Professor of Management and Strategy at the Kellogg School of Management at Northwestern University, tried to engage regulators with information on how today’s market affects entrepreneurs and small business, but his efforts fell flat.

The best line came from Joseph Farrell, director at the FTC’s Bureau of Economics, who noted that the broadband market “is not exactly a monopoly and it’s not exactly competitive — it’s somewhere in between.”

Exactly. So instead of having long debates over whether wireless is a substitution for wired broadband and if consumers can handle disclosure, let’s get the data needed in order to determine where in our country broadband is a monopoly and figure out policies to address that. Transparency will help, and everyone’s favorite panacea of more spectrum will, too, but until we have one nationwide network, this will remain a local issue. As such we have to get into the weeds and figure out how to deliver competition to those poor souls who have no choice but to use the equivalent of butter-flavored flakes.

  1. a few years ago it was common to see articles describing the future of wireless. these articles often talked about radio transceivers on every lamppost in major cities. the idea is really not that far fetched; and wireless really could be a viable alternative/replacement for wired if the carriers switch to smaller cells covering smaller areas with overlapping frequencies.

    anyways it has been a couple years since i have seen discussion of such a wireless network. but i do believe that in the end that is what we will have. the everyday consumer simply assumes that they will be cutting there cord in the years to come. with only a slight price reduction from what we have now we will start see large number move to wireless and am quite sure most will be cancelling the wired connection. the carriers will have no choice but to build the appropriate network as the customers start pilling on.

    i do however think it will be a bumpy road as customer live with slow clogged network while the upgrading happens. what i think is underestimated by the tech. press is consumer willingness for a slower less reliable connection in exchange for the convenience of wireless everywhere.

    Share
  2. Whether the FCC considers wireless as a substitute for landlines is irrelevant. The key is the wireless companies do. The FCC should get out ahead. Like the MPAA learning from the slightly earlier mistakes of the RIAA, wireless learns from our currently chaotic wired internet. Wireless wants caps, wants to weed out copyright questionable content, wants to favor in house video feeds vs stuff like iTunes and YouTube and wants high prices. The question is whether the FCC has sole jurisdiction. Current land lines (including FioS and cable) provide connectivity and bandwidth as the business model. Wireless companies turn this around and provide said connectivity and bandwidth as a side course to a finance contract. That’s the key mistake people make. Yes, that’s right, wireless companies are finance companies whose contract is essentially a rent to own arrangement on top of a downpayment, with “plans” as an adjunct. That’s why there is a credit check and early termination. This rent to own is very lucrative, something like 10% a month, about 100+% per annum. Do the math. Assume iPhone connectivity is worth $20-$25 per month, then apply the rest to the carrier subsidy. Since the whole thing was not regulated from the beginning, unlike landlines, the carriers have been free to define the customer relationship. There is going to be tremendous resistance by companies to regulation and consumers attracted by the latest shiny toy are likely to acquiesce in large enough numbers to make an internet connection managed by wireless companies the standard. What started as cell phones has moved to smartphone and will move to netbooks, housebound tablets, and even stationary objects. It is no accident that the subsidized netbook experiment has started and LTE is close on the horizon. What is daunting is that two major wired companies are also the number 1 & 2 wireless companies so where is the incentive to compete? Also what does a company like Comcast do to stay on the same footing, form partnerships? The only hope I see is wireless competition. Genachowski has recognized the tsunami that is wireless and sees a future wireless frequency deficit. As a consequence the FCC will be much more willing to slice and dice spectrum and award white spaces, so much so, that someone has mentioned that the future radio frequency distribution will look more and more like a genome project. Hopefully when new frequencies come up for bid, others like Google step up to the plate, and they don’t go to a short list of the usual suspects.

    Share
  3. I am continually amazed that writers such as your self make the egotistical argument that just because wireless is an insufficient solution for *your* needs, that it is an insufficient solution for *everyone’s* needs.

    Would wireless suit your usage? Probably not. Would it be perfectly fine for many people who use the Internet *less* than you do? Probably.

    The fact that it doesn’t have the features, speed and cost *you* want doesn’t mean it’s not a competitive offering.

    Share
  4. The article above demonstrates a lack of knowledge of the capabilities of wireless.

    Share
  5. For premises IP communications, wireless at this point is an interim solution on the road to FTTP (Fiber to the premises).

    Tim Nulty once employed an passenger aviation metaphor to illustrate its role relative to wireline. Wireless IP connectivity is like helicopters and provide limited carrying capacity whereas what is truly needed in the long term are jumbo jets to move people across continents and around the world.

    Share
  6. [...] To be sure, Hoettges didn’t say outright that the U.S. market was a stagnant oligopoly, but his comparison to the European cell market sure made it sound that way. His assessment and comparison may come as a blow to folks on this side of the pond who argue that not only is the country’s cellular market competitive, it’s even robust enough to compete with wireline voice and data. [...]

    Share

Comments have been disabled for this post