Gentlemen, Please - Dealing with a Divided Market

Susan Crawford recently posted "The Gentlemen's Agreement," noting that major cable companies have divided the national market and tend not to compete with each other (they actually help each other in some circumstances).

Though bad for everyone not named Comcast or Time Warner, this division is actually a historic accomplishment:

Even J.P. Morgan couldn’t get independently-owned railroads to agree not to compete with one another in the late 19th century. Not that he didn’t try. In 1890 one of Morgan’s associates was excited by the prospect of a Western Traffic Association that would include a director from each railroad and set uniform rates: “Think of it - all the competing traffic of the roads west of Chicago and Saint Louis placed in the control of about 30 men!” But the effort fell apart because some of the independents insisted on cutting rates and invading each other’s territories.

Cable and fiber-optic networks, as with railroads, have natural barriers to entry because the costs of building a network are very high; entrenched incumbents have nearly all the advantages should any competitor have the resources to surmount the barrier of sky-high upfront capital costs. In short, the market cannot self-regulate. We have a number of choices:

  1. Do nothing, let Comcast, et al. do as they please.
  2. Regulate: Hope the FCC or other Federal Agencies can stand up to the corporate lobbyists and regulate in the public interest.
  3. Provide a Public Option

We prefer the public option route - communities can build their own networks and remain independent of corporate control of infrastructure.

However, many communities have chosen to do nothing -- some in hopes the federal government will get its act together and reign in the power of these companies as the U.S. falls behind international peers in broadband metrics.

Verizon's FiOS has brought fiber to the home in some cities (with many cities courting the company), but some quickly found FiOS comes with significant trade-offs. Karl Bode details some of these - like Boston being shunned because it wanted Verizon to pay property taxes.

Seattle and Portland have suburbs with FiOS but are stuck with Qwest and Comcast networks in their cities. Baltimore was not deemed worthy of FiOS - presumably for the same reason as so many others who remain stuck with Verizon DSL: they had the wrong demographics. Verizon's mission is to maximize returns for its shareholders, nothing more. Communities that pin their hopes to a company like Verizon will find that Verizon has all the power in their relationship.

In contrast, communities that build their own networks can offer the same fast speeds (and faster) while knowing that no company controls its digital future. Any by owning the network, the community can open it to competition, creating a true market for broadband that FiOS communities will likely never experience.