Comcast, Time Warner, AT&T, and Verizon are the major
Internet providers of our country, and this small number is alarming. In 2002,
the FCC reclassified Internet access from the heavily regulated
telecommunications industry to information services, which is unregulated. The
hope was that providers would compete more but the opposite happened. The
large corporations don’t compete, and when compared to South Korea, Hong Kong
and Europe our prices are higher and our speeds are slower. The only five American
cities with speeds and prices competitive to Europe’s are provided by companies
outside the big four named earlier.
Recently we discussed industries and interest groups seeking
regulation through rent seeking to gain monopolistic profits as detailed by the
late Gordon Tullock. However in the
Internet industry, the small number of providers and their inaction to go after
each other’s markets has created a functional oligopoly. They have no need for
regulatory capture because a fully competitive market doesn’t exist.
Furthermore, a large reason firms seek regulations is to limit entry into the
market, according to Stigler. These firms can simply rely on the lack of public
fiber networks to discourage new competitors. Now, Europe has required the
owners of the pipes to the Internet to lease space to their rivals to encourage
competition and this idea is based on Jean Tirole’s recent Nobel-winning work
on regulation.
America has a conundrum where the lack of competition is
creating a need for regulation. This is one of the rare examples where it seems
the real world is behaving opposite of the models.
1 comment:
This blogpost nicely illustrates how Comcast, Time Warner, AT&T, and Verizon have been able to maintain a monopoly-like influence in the industry because of FCC's reclassification of internet access from a highly regulated telecommunications service to an unregulated information service. In contrast to Stigler's theory of regulation capture, these companies sought deregulation of the industry because the limited number of public fiber networks serve as a natural barrier to entry into the internet-provision market. The result has been a slower and more expensive internet for citizens across the country. Interestingly, this article shows how some municipalities have taken providing faster internet services to their citizens into their own hands. In Chattanooga, Tennessee, for example, the local government used a federal stimulus grant to build a fiber-optic network that has provided faster and less expensive internet access. The article contends that, since the fiber optic network began working four years ago, "signs of growth in Chattanooga [have been] unmistakable" and the city has attracted a new population of investors, programmers, and entrepreneurs. Although the full economic impact of the super speedy internet remains to be seen, this example can give us hope that the industry can continue to innovate despite the dominance of a few Internet providers.
Post a Comment