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What Duopoly?

For the last twenty years, the industry has talked about broadband in cities as a duopoly, meaning there was competition between cable companies and telcos—competition between cable modem broadband and DSL broadband.

Twenty years ago, there was a true duopoly when the speeds on DSL and cable modem were close in capability. The market at that time demonstrated real duopoly behavior. Both telcos and cable companies charged roughly the same prices. Whether coordinated by backroom deals or by listening to smart advisors, both industries gave up trying to compete on price. For the first five years after 2000, there was fierce marketing rhetoric about which technology was best—but price competition never entered the picture.

A few cable companies tried to punish small fiber providers and a few of the first municipal ISPs through price wars, but the public blowback and outcry was loud enough for them to worry about the FCC stepping in, and cable companies abandoned the price war tactic.

By the time cable modem speeds hit 30 Mbps speeds, the market competition was over, and cable clearly won the price war. AT&T made an effort a few years later to reintroduce speed competition when it went to the DSL U-verse product using two copper pairs, but by then, cable modem speeds were already faster than the newer DSL.

I would argue that’s the duopoly died when faster DSL was a flop because telcos stopped raising rates and were content serving the third of the public who cared more about price than speed. Even today, most people who stick with DSL hate the speeds and performance but don’t want to pay the price for cable modem broadband that is approaching twice the price of DSL.

Verizon and AT&T not only stopped trying to sell DSL, but both are now actively deactivating copper. It’s fair to say that real duopoly competition ended about the time when AT&T U-verse did not claw back many cable customers.

There was one example of a duopoly competition that survived. Verizon built FiOS fiber throughout portions of the Northeast. Verizon and the cable companies competed on price when fiber first hit the market, but over time, this devolved into classic duopoly competition where both companies charged high rates. Verizon and the cable companies still market against each other using special one-year pricing deals, but most consumers have picked one side or the other and stopped switching providers to chase a slightly better price.

What I find most amusing about the state of the broadband market is that the FCC regularly brags about the large percentage of the public that has a choice of multiple ISPs. In the last FCC broadband report for 2020, the agency still acts as if the ability to buy 25 Mbps broadband is a second legitimate broadband option compared to gigabit-capable cable company broadband. The FCC said that at the end of 2020 that 94.4% of all US homes had the option to buy 25/3 Mbps broadband. I think anybody that reads this blog knows that is a joke in rural America, but that FCC also expects that the telcos are telling the truth about 25/3 Mbps capability in cities. I’ve been pouring through speed test data from all across the country, and I rarely see a market where DSL speeds average faster than 15 Mbps in real life. But the 25/3 Mbps argument is a red flag. Even if every urban resident could buy something that fast, the public has rejected DSL technology, and households continue to drop DSL lines by the millions.

The other evidence that duopoly competition died is that the cable companies began acting like monopolies. They have steadily raised prices every year, and they barely acknowledge that DSL even exists.

There are a lot of plans by ISPs to build fiber in the coming few years. But much of this building is by the big telcos. For those who think this will bring new competition, I refer you to the history of Verizon FiOS. It’s more likely that the new fiber builders will piggyback on the already-high rates of the cable companies. If history is our guide, we’ll see three or four years of loud advertising after fiber is introduced into the market. But then, both sides will likely grow comfortable with the adjusted market share, and we’ll have revived the duopoly again.

By Doug Dawson, President at CCG Consulting

Dawson has worked in the telecom industry since 1978 and has both a consulting and operational background. He and CCG specialize in helping clients launch new broadband markets, develop new products, and finance new ventures.

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