Cable Cos, Wi-Fi, and Limiting Competition

David Pogue, a NY Times Tech columnist, recently wrote about a partnership between cable companies to share Wi-Fi access points:

I, a Cablevision customer, can now use all of Time Warner’s and Comcast’s hot spots in these three states. If you have Time Warner’s Road Runner service at home, you’re now welcome to hop onto Cablevision’s Optimum hot spots wherever you find them, or Comcast’s Xfinity hot spots. And so on. It’s as though all three companies have merged for the purpose of accommodating your Wi-Fi gadget, hugely multiplying the number of hot spots that are available to you.

The companies call this kind of partnership “the first of many.”

Now, I think this development is fantastic. It hits me where I live. It’s free. It’s fast and reliable. I love it.

He goes on to ask, what's in it for them? Apparently, David Pogue has little understanding of how dominant firms work together to cement their power and limit competition.

He then put up a post with an answer from an insider:

“David, widely available WiFi makes our service better, and more useful and valuable,” he wrote. “And we don’t compete directly with TWC or Comcast for high-speed Internet customers; we compete with phone companies that offer a wide array of services, including data plans over increasingly over-burdened and sluggish cellular networks for an extra $60 per month."

Bingo. Big cable companies do not compete with each other - one suspects these companies have tacitly divided the national cable market with an understanding that they will not overbuild each other. The barriers to entering the cable/broadband market are already substantial: any new network requires a massive upfront capital expenditure. This Wi-Fi partnership with cable incumbents makes that barrier even larger.

Let's imagine that a city wants to build a publicly owned network that will compete with one of these companies. Customers of the private incumbent have Wi-Fi access all over the place, across three states - and probably more to come. The incumbent gets the benefit of investments from other cable cos in the partnership.

Any guesses on whether the publicly owned network will be invited to join that partnership?

A new network is at a disadvantage because it now has pressure to compete against not just one massive carrier with all the advantages of any incumbent that can cross-subsidize from (overpriced) non-competitive markets, but the combined wireless resources of several colluding carriers. Consumers who want roaming wireless access will want to stick with the massive cable incumbents and their partnerships.

These partnerships are great for consumers in the short run - by increasing the available Wi-Fi services - but do harm by creating larger barriers to entry for new competitors. And because the existing barriers are already so high, it seems that the public sector is just about the only entity interested in building competitive networks. Now these massive cable companies have yet another advantage that will limit competition.