Friday, December 13, 2013

Another Message for Susan: Promoting Policies Premised on a Hypothesized Market Will Harm Consumers and Hinder Broadband Progress

On November 22, Susan Crawford participated in a teleconference in which she discussed marketplace competition and her book, “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.” Professor Crawford asserted that the U.S. market for broadband services is dominated by cable TV companies. She stated that consumers only have a choice of about 1.5 competitors, and that competition should be measured based on the market for the choice-limiting “bundle” of video and data services. When asked about statistics that seem to prove that competition is healthy and increasing, Professor Crawford stated that companies like AT&T are good at “shaping the numbers to make it appear like competition is right around the corner.”

Today, many statistics demonstrate that the broadband market is effectively competitive. Also, recent technological innovations and trends in consumer habits indicate that “the bundle” is not the only market relevant to analyzing the state of broadband competition. Broadband services are currently offered by many competitors that include cable, telephone, and satellite companies alike. In addition to a variety of service providers, consumers can also choose from a range of subscription options and modes of access to content. Although some obstacles to broadband innovation and investment may remain, the U.S. offers broadband access and a choice of providers to most consumers and leads the world in many measures that are indicative of broadband leadership.

Despite its curious failure to determine that the broadband market is effectively competitive, in the FCC’s most recent 706 Report, the Commission found that the broadband “market has responded” to consumer demand for increasingly fast Internet services. The report notes that “recent trends show [broadband] providers offering much higher speeds” and increasing data limits for customers. Mobile broadband providers have expanded their coverage, and are “deploying faster, and more spectrally-efficient mobile network technologies.” Yet there are several remaining barriers to infrastructure investment including costs and delays in building out networks, broadband service quality, lack of affordable broadband Internet access services, lack of access to computers and other broadband-capable equipment, and a lack of relevance of broadband for some consumers.

Although there may be some remaining obstacles to broadband deployment and adoption, the communications and information services marketplace today offers many consumers access to high-speed broadband services at affordable costs. Additionally, consumers may subscribe to broadband not only through their local cable providers, but also through phone, satellite, or Internet providers.

In her book Captive Audience, Professor Crawford asserts that Comcast possesses monopoly power with respect both to the provision of broadband services and the provision of video programming. In the recent teleconference, Professor Crawford seemed to argue that cable companies, particularly Comcast, dominate the broadband market because they have a price advantage in obtaining video programming for “the bundle.” However, companies other than cable providers are quickly gaining traction in the video marketplace. For example, companies like AT&T and Verizon now offer video services in addition to phone service and Internet service. According to Professor Crawford, being able to compete in the video market enhances the ability of companies to compete with cable companies in the broadband services marketplace. Following this line of reasoning, since companies like AT&T and Verizon are competing with cable providers in the video marketplace, they are also competing with cable providers in the broadband marketplace, which means that the broadband market is not monopolistic.

Looking more specifically at the video marketplace, the Wall Street Journal reported in November that Verizon and AT&T “are nearing the market share of cable operators in areas where they operate.” The top two cable providers, Comcast and Time Warner Cable, shed 435,000 video customers in the quarter, while AT&T and Verizon added 400,000. Verizon and AT&T are not the only companies competing with cable providers in the video marketplace.

The FCC’s 15th Annual Video Competition Report provided more evidence of a marketplace in which consumers have a choice of service providers and modes of access to content. By the end of last year, cable providers represented only 55% of the more than 100 million households that subscribe to all multichannel video programming distributors (“MVPDs”) overall. Meanwhile telephone and direct broadcast satellite MVPDs gained marketshare, claiming about 8.4% and 33.6% of all MVPD subscribers respectively. At the end of 2012, 98.6% of subscribers or 130.7 million households had access to at least three MVPDs, 35.3% or 46.8 million households had access to at least four, and some areas had access to as many as five MVPDs.

In addition to this variety of service providers, consumers today can also access content through a greater range of technologies and subscriber options than ever before; bundled service subscriptions are just one option available and may not provide a proper measure of the broadband services market overall. The FCC’s 15th Annual Video Competition Report cited an SNL Kagan study, which estimated that by the end of 2012, there would be 41.6 million Internet-connected television households, representing 35.4% of all television households. The FCC’s 15th Annual Report also noted the continued growth of non-cable MVPDs, rapid deployment and adoption of other new technologies that enable time and space shifting, and other developments that offer further options for consumer viewing.

Furthermore, consumers today can access video content through a wide range of devices, not just through set top boxes leased by cable providers as part of a “bundle.” Video access devices available today include IP connected MVPD provided set-top boxes, multi-room DVR and home networking solutions, cloud-based user interfaces, mobile applications, portable media players, gaming consoles, Internet-connected smart phones and table computers, and home monitoring systems that act as extensions of cable MVPD networks.

Today’s video marketplace offers consumers a choice of providers, subscription options, and devices. Subscribing to a “bundle” of video and data services offered by cable providers is not the only way to access video content anymore. The implications of this marketplace development are that cable providers likely do not have an advantage in the broadband market because other companies now offer video services, and can compete directly with cable providers for “bundle” customers.

Additionally, innovative modes of access to content and changing viewer habits also indicate that not all consumers prefer the cable “bundle” of video and data services: high-speed broadband access to over-the-top content may be enough for some consumers today. As the Wall Street Journal observed, the growth of telecom’s share of the video market is already having a significant impact on the cable industry, and offering high-speed broadband services will be the way to maintain subscribers given these changes. Thus, cable, telecom, and satellite providers must compete in the broadband marketplace to adjust to these developments, and the Wall Street Journal’s recent statistics indicate that such competition is currently underway.

Free State Foundation scholars have often analyzed the state of the communications and information services marketplace to respond to Professor Crawford’s arguments that the broadband market is not competitive. Recently, Free State Foundation President Randolph May posted a “Message for Susan” on our blog. That piece presented recent statistics, which demonstrate that the cable market is effectively competitive, and not monopolistic.  And by definition, Mr. May found that the same is true for the cable operators' competitors, AT&T, Verizon, and all the other broadband providers, including the various wireless and satellite operators. Mr. May urged Professor Crawford to stop branding Comcast and other cable operators "monopolies," and to stop calling for regulation of broadband companies as utilities like electric power companies, which by and large continue to retain dominant market power.

Citing an earlier response to Professor Crawford’s book entitled, Captive Audience’s Captive Thinking,” Mr. May argues: 

“Captive Audience" is flawed because Professor Crawford relies on an incorrect – indeed, a hypothesized – view of the communications and information services marketplace to construct the case for monopoly power. And then she offers anachronistic, legacy regulatory measures to remedy the supposed ills that exist in her hypothesized market.

In the recent teleconference, Professor Crawford again seemed to look at too narrow a market to draw conclusions about the overall state of competition. Rather than analyzing the state of the cable market based on “the bundle,” any assessment of the marketplace should be informed by the vast range of service providers, subscription plans, technologies, and content provision platforms available to consumers today. Recent statistics and articles, and the continued innovation and growth in the cable marketplace indicate that there is effective competition – not monopoly power in this market.

Of course there may be weak spots in an otherwise generally competitive market. As the FCC’s 706 Report pointed out, not all Americans currently have access to high speed broadband. However, the U.S. leads Europe in broadband progress, and offers broad choice to consumers in the cable and video marketplaces. Additionally, cable and telecommunications providers lead capital investment in the United States; AT&T, Verizon Communications, Comcast, Sprint Nextel, and Time Warner, all ranked in the top twenty of non-financial companies making capital investments in the U.S over the past year. The investments of these companies, among others, have allowed 99.5% of Americans to have access to broadband – via landline, wireless, or both – as of the end of 2012.  

These successes and other positive digital economy developments may be threatened if burdensome public utility-style regulations are implemented. As the Commission noted in its 706 Report, the broadband market in particular is responsive to consumer demands and is constantly evolving to improve weak performance areas. Critics should listen to Randolph May’s “message”: “It's no time to let captive thinking premised on a hypothesized market trump the competitive realities of the broadband marketplace. If such thinking ever were to lead to regulating broadband providers as public utilities, rest assured that consumers would be the real losers.”