TDIF: Access

Previously in this series we discussed the issue of transparency in creating internet related policies as well as well as the threats to expression online. In this post we will address the second principle in the Declaration of Internet Freedom which reads,

Access: Promote universal access to fast and affordable networks.

Universal access is important because as the internet becomes more and more a part of our everyday lives, it will become increasingly crucial that all Americans have access to the online services that we depend on. While services like Facebook and Netflix have certainly become a fixture in our current culture, let us not forget that services like online banking, job applications, online bill pay, e-commerce, online classes, information gathering, and basic communications tools are the uses to keep in mind when discussing the importance of affordable internet for all. It is obvious how crucial access to the internet is when you look at statistics like the fact that 80% of all Fortune 500 companies accept applications only online. However, despite the fact that our dependence on the internet to navigate our lives is rapidly increasing, there are major obstacles that stand between affordable internet access and many groups of Americans.

The Digital Divide

The Digital Divide is a broad term but is often used to describe the way in which Americans with broadband access at home are segregated from those who do not. In the United States only 62% of Americans have broadband internet access, a rate that ranks 15th globally. However the numbers get even worse when you dig a little deeper. For example, only 40% of American’s making under $20,000 have access, 19 million American’s don’t even have broadband as an option where they live, and in rural and tribal communities that number makes up nearly %33 of homes. Only 46% of African Americans and 56% of Latinos have broadband access while  67% of White Americans enjoy access. These statistics offer just a snapshot into the issue of how Americans are divided between those that have high speed internet and those who do not.

One other important issue, which I won’t get into here, is the difference between wired and mobile broadband as it relates to the digital divide. I would encourage anyone interested to read this very informative Colorlines piece on the issue.

Monopolies

When families without broadband internet in their homes are asked why they don’t subscribe, 47% say that the monthly cost is too expensive, and a large reason behind those high fees are the monopolies that control broadband internet access in the United States. The history of internet service providers (ISPs) (e.g. Comcast, Verizon) and their corporate consolidation is a complex and fascinating tale, detailed in wonderful books like Tim Wu’s The Master Switch and Susan Crawford’s Captive Audience. While this topic is deserving of a much more extensive conversation and is something I hope to blog about more in coming posts, I’ll do my best to boil down the current situation succinctly.

The FCC and Open Internet Rules

One event that set the stage for the current state of oligopoly control in the ISP market was a decision made over decade ago by the Federal Communications Commission (FCC). In 2002 the FCC classified cable modem service companies such as Comcast and Time Warner  as an ‘Information Service’ under Title I of the Communications Act. This meant that unlike DSL internet service at the time, and standard telephone service before that, the FCC did not view cable internet as deserving of Title II protections such as common carriage and rate setting that had previously forced the telephone monopolies to extend their service at a reasonable price to Americans across the country. To reiterate, the FCC decided to view ISPs as an ‘Information Service’, akin to Google or CNN.com, instead of a ‘Telecommunications Service’, like the old Bell phone companies, and this meant that the FCC relinquished nearly all of the rule making power that it had to help guide the internet as a utility for the benefit of all Americans.

In 2007 Comcast subscribers discovered that Comcast was selectively blocking and slowing down legal ‘Peer to Peer’ traffic across its networks. This action was in clear opposition to the FCC’s four principles of open internet, which included such noncontroversial statements as “Consumers deserve access to the lawful Internet content of their choice.” Consumer advocate groups and and the FCC took Comcast to court over this issue in Comcast Corp. v. FCC but lost in a unanimous decision that stated that the FCC had no authority to regulate how Comcast controlled its network under Title I.  Realizing that it now had no power to prevent Comcast from blocking or slowing whichever sites it wanted, the FCC, under former chairman Julius Genachowski, went back to the drawing board to see what options, if any, the agency had in regulating Comcast’s behavior. The simplest solution seemed to be to reclassify cable internet as a telecommunications technology under Title II, which would allow the FCC to regulate Comcast and other ISPs in the same way they did with older telephone companies. Chairman Genachowski signaled that he was contemplating this move but received an onslaught of lobbying against the idea from cable/telco industry groups based on the claim that the government wants to takeover the internet. The resulting ‘compromise’ was the FCC Open Internet Order (official document). There are multiple shortcomings with this new “third way“, not the least of which is that it creates 2 classes of internet service, wireline and wireless, and wireless internet providers (e.g. Verizon, AT&T) are exempt from most rules. Regardless, Verizon sued the FCC before the rules were even published,  and so it is still yet to be seen whether the FCC will be able to enforce any of these rules in court.

Market Competition

These events have left FCC without the ability to impose any meaningful regulations in the broadband market and have had far reaching implications. Primarily it has meant that the rates that companies charge, and the customers they choose to serve, have been left entirely to the free market. Unlike telephone and other utilities, the broadband internet  market exists without any authoritative rule making body like the FCC to oversee its development.

In the early 2000s, when this deregulatory decision was made, the justification was that the phone companies and cable companies of the time would compete against one another to offer internet access, and that it was competition that would keep prices low and push innovation. However, what happened next couldn’t have been farther from that prediction.

The phone companies, which had originally offered traditional dial-up internet before moving to sell DSL, were still using their copper phone lines to deliver the internet. This wasn’t an issue at the time when cable internet technologies were in their infancy and the speed difference between coaxial cable internet and copper phone line internet were comparable.  However, as technology progressed it became clear that the cable companies could easily upgrade their hubs to achieve speeds much fast than anything that could be delivered over copper wires. In order to offer competitive internet speeds, phone companies would have to tear up their copper wire network and replace it with cable or fiber-optic lines, a highly expensive proposition.

In response to this dilemma,  phone companies withdrew from the market of wireline internet access to focus solely on wireless. AT&T, which had some cable infrastructure, sold it off to a company that eventually was bought by Comcast, and Verizon, which had been deploying a fiber network (FiOS) that competed with traditional cable companies, decided to cease investment in that effort in 2010. Wireless companies consolidated to form AT&T and Verizon which together serve 65% of all smartphones, while third place  innovative and low cost competitor T-Mobile was almost bought by AT&T before being blocked by the Justice Department for anti-trust concerns. To make matters worse, in early 2012 Verizon made a deal with SpectromCo, a consortium of cable companies that include Comcast and Time Warner, aimed at suppressing competition. The deal sold $3.6 billion of wireless spectrum owned by the cable companies to Verizon and in return Verizon would develop the new spectrum and exclusively cross market the resulting products with SpectrumCo. Essentially the cable companies decided not to compete with Verizon and instead create a partnership where Verizon would control wireless, the cable would companies control wired broadband, and both would help market each other’s products.

On the cable internet side mass consolidation also occured. Comcast serves 110 million in 40 states and Time Warner Cable serves an additional 66 million in 29 states. As the corporate buyouts that led to this situation were being negotiated these two cable giants, along with others at the time, swapped territories so that, for example, Time Warner would control the New York and Dallas metropolitan areas while Comcast would own the access to Boston and San Francisco. This way these large national cable companies wouldn’t have to compete in any regional markets with one another. The swapping of regional cable access between these companies was dubbed “The Summer of Love” by Leo Hindry, former president of the TCI (now owned by Comcast), referring to the summer of 1997 when many of these swaps occurred. Nowadays when you want to order cable service for your home you most likely have only one choice, and this is no a coincidence.

This all brings us to our current situation where Comcast internet rates are on the rise (example, example), while the profit margin on individual Comcast broadband customers is more than 70%. With a hamstrung FCC incapable of imposing ground rules, and a complete free market failure in the ISP market, the industry is now currently run by an oligopoly that has little incentive to innovate and no competition to keep prices from steadily rising.

Conclusion

The United States Congress has recognized the importance of providing broadband internet access to all Americans and ordered the creation of the National Broadband Plan, in 2010. In turn the National Broadband plan has identified price as a major hurdle to Americans who have yet to adopt broadband. However the current regulatory and market conditions provide no incentive for ISPs to provide affordable broadband nor to provide that service to rural Americans and other less profitable groups. Author of Captive Audience, Susan Crawford, puts it best when she says

The rich are getting gouged, the poor are very often left out, and this means that we’re creating, yet again, two Americas, and deepening inequality through this communications inequality.

Updated: Comcast hides standalone broadband products, violating a condition of the Comcast NBCU merger.

Funny ‘commercial’ regarding your friendly cable company.