Cable monopolies hurt consumers and the nation
Suppose, for the purpose of argument, that by the time you read this Time Warner Cable and CBS have settled their schoolyard dispute over transmission fees, and your CBS and Showtime shows are available again on your Time Warner cable box.
Problem solved, right?
No. The problem’s just beginning. I bet you know it, though you may not know you know it.
Let’s say that as a Time Warner Cable residential customer, you made up for the loss of CBS programming by watching more on Netflix. Guess what: You almost certainly accessed your Netflix stream via your Time Warner Cable Internet service. You used Hulu? You watched that on Time Warner Cable. Videos via Amazon Prime? You watched them on Time Warner Cable. Spent more hours diddling around at home on your iPad’s Wi-Fi connection? You got it through Time Warner Cable.
Feel monopolized yet?
The filthy little secret of home and business Internet data services in the United States is that the vast majority of Americans receive them from their local monopoly cable provider, the two largest of which are the increasingly rapacious and indolent Comcast and Time Warner Cable.
Sure, many also receive data services via their smartphones, but those are pale options for services requiring capacious high-speed data streams, such as video: Not only are their speeds lower than what can be provided via a pipeline to the home, but they commonly throttle data speeds after you use as little as 2 gigabits in a month. That’s not enough to view a single high-definition feature film from Netflix.
Those figures come from Susan Crawford, a telecommunications expert at New York’s Cardozo School of Law. She should know. The author of the recent book “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age” and a former special assistant to the Obama administration for science and technology, Crawford has been tracking the tightening death grip of the cable industry over our communications services for years.
“Cable has won; it’s a monopoly now,” she told me last week. “People are just waking up to that fact.” More than 80% of new subscribers to high-speed Internet service are going with their local cable providers. It’s not because they think those providers are just grand; it’s because in most of the country there’s no choice. Local cable service is a monopoly almost everywhere; fiber companies such as Verizon and AT&T;, which have the technology to bring you higher speeds, won’t spend the money to compete.
And cable is only getting stronger. The Federal Communications Commission waved through the 2011 merger of Comcast with NBCUniversal, making the nation’s No. 1 cable operator vastly more powerful. The industry’s current concentration, which gives Comcast and Time Warner control over roughly 40% of the broadband Internet market, will increase if the FCC allows smaller companies to merge.
The implications are dire not merely for customer service, but for the nation’s economic competitiveness. American business and political leaders obsessed with China’s growing footprint in world trade seem to have missed that its government has set a goal of making fiber-optic connections available to 100 million households by 2015.
The U.S. has fallen way behind other developed nations in both the speed of our broadband connections and their cost. Last year the New America Foundation charted the best Internet connection you could find in 22 major cities around the world for the equivalent of $35 a month. In Hong Kong that will buy you a 500-megabit-per-second download connection; in Seoul, Paris, Berlin, and Bucharest, 100 megabits. In Los Angeles, from Time Warner, it will buy you 10.
In a way, that’s misleading, because those Asian and European speeds come via fiber, and Time Warner’s via a cable connection that might as well be from the Stone Age. But that disparity points to another flaw in U.S. communications policy. We’ve left the rollout of fiber connections in the hands of private companies that don’t care to make the investment anymore.
Verizon’s record shows why fiber connections are too important to be left to the private sector. The telecommunications giant started marketing its FiOS fiber service in 2005 as a higher-speed rival to the cable operators. It spent $23 billion on the venture. Then it stopped. Put bluntly, if FiOS isn’t available in your neighborhood now, you’re not getting it.
That means FiOS is no competitor to cable at all. Crawford estimated last year that its ultimate reach of 18 million American households will cover less than 15% of the population and will overlap a mere 15% of Comcast’s service area and 11% of Time Warner’s. Verizon itself is very passive-aggressive about FiOS. In testimony last year before a Senate subcommittee, the company’s general counsel, Randal Milch, couldn’t stop talking about what a great product it was. He described it as “a hugely successful product that is taking market share from cable and satellite competitors because, frankly, it’s superior.”
But he also said it was “designed to reach a relatively small portion of the country.” Why was it giving up? Because “Wall Street punished us for investing in FiOS,” he said. So much for America’s “innovative” private sector. Still think the problem with American competitiveness is that “government won’t get out of the way”? It’s Wall Street thinking that won’t get out of the way.
In a truly free market, the cable industry would move heaven and earth to stay ahead of potential competitors by keeping their networks at the cutting edge in speed and capacity. That’s not happening. In 2011 and 2012 combined, Time Warner spent $3.6 billion, or less than 9% of its $41 billion in revenue, to maintain and upgrade its data network. Comcast spent an even lower share — 3.7% of its $118.3-billion revenue. (I am not counting the money they spend on equipment at customers’ premises such as set-top boxes and cable modems, because those devices can’t run any faster than the pipelines feeding them.)
The result is crummy service, visible every day in the quality of your YouTube or Netflix streams. Every day at prime time the quality of my Netflix image degrades, most likely because those are the hours when usage in my neighborhood peaks. This is a widely remarked phenomenon nationwide, and the reason is that the people in control of the networks have no incentive to expand capacity to carry all the traffic they get.
For the record, the people at Time Warner say they’re not to blame. Do you believe them? Yeah, sure. Netflix has been trying to reach agreement with cable operators over technology that will improve the experience for its subscribers; Time Warner is among the cable monopolies that have balked.
Crawford rightly observes that regulation of cable-based Internet service has failed to keep pace with the industry’s monopolistic behavior. “The Internet today is our general-purpose two-way-communications connection,” she says. “It should be treated not as a luxury but as a utility, an essential input into every aspect of American economic, social and cultural life.”
That means that the FCC should exercise “genuine oversight” over the service, she says. The FCC should set a baseline goal for downloads of 100 megabits per second — more than 10 times what you commonly get from your cable provider — and the same for uploads. It should require that service be available almost everywhere in the country at a reasonable price. That means forcing the cable monopolies to allow interconnections from competing data providers on their networks, encouraging the spread of municipal networks, and funding an upgrade of the national fiber system.
All this requires a regulator with the spine to designate high-speed data as a regulated service. At the moment we don’t have one. “The FCC’s problem is that if it acts bravely,” Crawford observes, “the incumbent giant companies will march on Capitol Hill and gut its budget.”
What’s needed, in other words, is political leadership. We don’t have that, either. How can we tell? For one thing, when President Obama arrived for his vacation on Martha’s Vineyard, one of his first golf partners was a man named Brian Roberts. He’s an old friend of Obama’s. He’s also the chairman and chief executive of Comcast.
Sure, Time Warner Cable and CBS have been acting like thugs, trampling their customers in their profiteering pursuits. The resulting blackout of CBS programming is only the most irritating manifestation of the utter lack of oversight the telecommunications industry has been receiving in recent decades. But it won’t be the last one, and unless Congress, the president and the regulators hear howls of protest from those of us who depend on data in our daily lives — and increasingly that’s all of us — it will only get worse.
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