The FTC's do-nothing stance on broadband competition puts the onus on Congress to bar ISPs from discriminating against small Web sites
I've been having trouble with my broadband Internet service lately. It cuts out frequently. The calls to customer service have gotten longer. The actual speed of the service isn't close to what was advertised. And the price has gone up twice in a year.
I'd like to take my business elsewhere. But I can't.
Even though I live in a large metropolitan area, my local cable company is the only option for broadband at my condo. The local phone company has yet to wire my building for DSL. Satellite broadband—which costs more for slower speeds—isn't an option, because my unit faces north and is shaded by a thicket of trees. Surfing the Internet on my cell phone is slower than dial-up and the reception is spotty. So I'm stuck.
Telcos and Cable Operators Stifle Competition
Most Americans don't have it much better. The average consumer has just two choices for high-speed Internet. In most cases, that means the phone company or the cable company. As a glance at your monthly bill will tell you, a choice between two options isn't real competition.
Millions of Americans still can't gain access to or afford high-speed Internet services, and the U.S. continues to slip in every global ranking of broadband progress (see BusinessWeek.com, 4/25/07, "U.S. Broadband Access Slips Further"). Yet the very same phone and cable companies whose anticompetitive policies created this sorry situation are now proposing that they become gatekeepers of Internet content and services.
They want to get rid of what's known as network neutrality, the principle that prevents Internet service providers from discriminating against Web sites based on their source, ownership, or destination. The issue of whether to abandon net neutrality became a hot one in Washington last year—so hot that it derailed a massive overhaul of the Telecommunications Act (see BusinessWeek.com, 1/29/07, "Web War: Nothing Neutral About It"). On one side is an unprecedented coalition from across the political spectrum, including MoveOn.org, the Christian Coalition, the American Library Assn., every major consumer group, thousands of bloggers, small businesses, and a few big Internet companies including Google (GOOG) and Amazon.com (AMZN). On the other side are the phone and cable companies and their legions of lobbyists.
The FTC Weighs In—and Cops Out
Recently entering the fray was the Federal Trade Commission—the federal agency charged with ensuring competitive markets. In February, the FTC convened a two-day workshop in Washington to discuss the state of the American broadband market and debate what the marketplace would look like with or without network neutrality.
Last month, the FTC issued its final report, a nearly 200-page opus that urged policymakers to "proceed with caution"—in other words, to do nothing.
On what did they base this conclusion? As the report makes clear, the "FTC staff did not conduct independent empirical research regarding competition in local broadband Internet access markets." Instead, the agency takes the incumbents at their word, concluding that "the broadband Internet access industry is showing signs of robust competition."
Robust competition? Hardly. According to the Federal Communications Commission, which closes its own inquiry into net neutrality in the coming days, over 95% of residential broadband connections are provided via cable modem or DSL. But in almost every instance, there is only a single company providing each respective technology. Your local phone or cable company is the only game in town.
In a truly competitive market, we wouldn't really have to worry about net neutrality. If my ISP started interfering with certain Web sites—say, loading Yahoo! (YHOO) faster than Google, or blocking me from using eBay's (EBAY) Skype instead of Yahoo—I could simply find another provider. But when both the phone and cable companies get rid of net neutrality (as they've said repeatedly they will do), there's no alternative.
Tiered System Obstructs Smaller Players
Eliminating net neutrality would turn the open system of the Internet on its head. With net neutrality, you can start a business selling widgets online and be assured that consumers can reach your Web site just as easily as Wal-Mart's (WMT). But under the tiered system proposed by the phone and cable companies, the level playing field is gone. Wal-Mart will be able to buy a spot in the fast lane on the information superhighway. The little guy will be stuck on dirt roads.
The phone and cable companies say they need to discriminate to generate a new revenue stream—which they claim will be used to improve infrastructure. It's unclear whether these new tolls would actually generate substantial income. But eliminating net neutrality would allow these companies to use the power of discrimination to favor their own content—that is, they would use their domination of the broadband access market to exert power over the content and applications market.
And there's no guarantee that they would reinvest the funds from this new revenue stream in faster broadband. In fact, the broadband providers would even gain incentive to delay deployment of faster networks. If the "pipes" were "fatter," there would be no need for tiering. Thus, the providers have a strong incentive to reduce output—the precise outcome you'd expect in a duopoly market.
Proposed Bill Supports Consumer Preference
The FTC couldn't deny that the public likes the free and open Internet the way it is. Their report admits: "In the area of broadband Internet access, [consumers] have revealed a strong preference for the current open access to Internet content and applications."
Nevertheless, the FTC stuck its head in the sand. That leaves it to Congress to take decisive action to protect the free and open Internet and bring the benefits of broadband to everyone. The bipartisan Internet Freedom Preservation Act, introduced by Senators Byron Dorgan (D-N.D.) and Olympia Snowe (R-Me.), is a good start.
Perhaps Congress should keep in mind that those consumers are also voters.