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Telecoms Competition on a Downhill Slide in America

That is what happens when you base your telecommunications policies on the wrong foundations.

The problems with the telecommunications industry in America go back to 1996 when the FCC decided that broadband in America should be classified as internet (being content) and that therefore it would not fall under the normal telecommunication regulations. Suddenly what are known as telecommunications common carriers in other parts of the world became ISPs in the USA. How odd is that?

This is rather incomprehensible since, to the rest of the world, it is very clear that broadband is an access product and has nothing to do with the internet as such—and most certainly nothing to do with content!

While nothing to do with this topic, it is also important to mention that in exchange for these generous gifts from the FCC the incumbents promised to fibre up America. Over the last 20 years such promises were made again and again, and every time these promises were broken with no retributive action from the FCC whatsoever.

And—surprise, surprise—in the resulting monopolistic situation—the incumbents used their newly won classification as ISPs to their own advantage.

As an immediate result retail-based broadband services were monopolised by Verizon and AT&T. There was no longer any obligation on their part to make broadband available on a wholesale basis, and as a consequence, there is very little retail-based broadband competition in the USA. It has to be said that the very weak regulation in place before 1996 made it very difficult for retail broadband providers to obtain affordable wholesale rates from the carriers. But the classification as broadband being content totally killed the DSL retail market, and within a year all those DSL retail providers were all dead and buried.

The door was now also open for the incumbents to look for extra revenues that they could extract from the big digital media content providers by offering preferential treatment over their broadband infrastructure. This would create a high-speed internet lane for these companies and put the rest in a second-rate slow broadband lane.

This generated a public outcry, and as a result, the FCC had to introduce what is known as net neutrality (NN), which stopped the incumbents from creating fast and slow lanes. NN was an attempt by the then FCC Chairman Tom Wheeler to keep the internet open.

Now I am certainly not in favour of net neutrality, and in principle, I don’t have a problem with telecommunications providers offering managed network services at premium prices to business users and others, but it needs to be provided in the context of a competitive environment. With competition in place, the costs of these managed services will be kept in control; some providers will concentrate on business users and others on residential services, so competition will keep misuse in check. When you don’t have such a competitive environment, it would be very dangerous to just let incumbents do and charge whatever they want.

It would, of course, be far better if the USA were to address the underlying issues and do what every other country in the world does—classify broadband as a telecommunications access service and regulate it—with proper wholesale requirements—under such a regime, in which case there would be no need to bolt NN onto the regulatory regime.

However there is no hope whatsoever under the current government in the USA that such a broader telecommunications review is possible; and certainly not under the leadership of FCC Chairman Ajit Pai (an ex-Verizon executive and a conservative Republican).

One of the key arguments Pai is using on why he wants to dismantle NN is that it reduces investments in the telecoms market. However, both Verizon and AT&T are on the record that this not the case, they have publically indicated that NN has not slowed down their investments.

Pai might be a likable and charismatic person, but he is totally committed to a nearly uncontrolled telecoms market. He strongly believes that as much regulation as possible should be abandoned (he also abandoned consumer privacy in relation to customer data held by the industry). He totally ignores the fact that the American market is one of the most monopolistic telecoms markets in the developed economies. I am all in favour of free market principles but not under a regime that only fosters monopolies that pay hundreds of millions of dollars to influence politicians right across the American political landscape, in order to get their way.

So, while, in general terms, I am not in favour of NN, in the case of the USA, it is one of the few regulatory tools available to keep the telecommunications monopolies in check. Unless the underlying competition issues are addressed, I would keep NN in place.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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