Recently, Motherboard wrote a fantastic piece on Internet Service Providers fighting back against cities who want to wire themselves due to a lack of satisfaction with current broadband speeds. Included in the piece are stories about Comcast agreeing to wire the Washington DC government in exchange for a monopoly on the DC area (including residential areas that Comcast wouldn’t wire) and San Francisco wiring the city schools, police and government buildings yet are not ranked in the top 100 for municipalities in the country due to other parts of the city lack substantive broadband speeds.
incumbent internet providers continue to make it as hard as possible for others to enter their markets
Thankfully, Google Fiber has brought attention to this problem through their entrance into areas around the country where there is little to no competition outside of the local monopoly provider. Unfortunately, incumbent internet providers continue to make it as hard as possible for others to enter their markets.
Basically, ISP’s will make fantastic deals with city governments so that the provider can therefore lock out any and all competition through sweetheart franchise agreements.
- When AT&T didn’t want to compete in Wisconsin against a local university internet system, they got lobbyists to say that AT&T was fighting for “fiscal responsibility.”
- When Cablevision wants to stop any competition from entering their monopoly-dominated markets, they use the “level playing field” excuse which means they want to add as many rules and regulations onto competitors looking to enter the market.
- When Time Warner Cable wants to help their customer service rankings, they simply put in legal language in contracts which restrict what is technically deemed a complaint.
- When Comcast wants to stop competition, they start and fund (to the tune of $250,000) a group that pushes ads about the competition having “secret plans” to put money into the pocket of executives!
In 2005, the Tri-Cities area government (outside of Chicago, IL) decided that it was time to start their own high-speed internet service due to incumbent broadband providers, SBC and Comcast, being despised in the area by residents due to the lack of quality service at an affordable rate.
After the idea of a municipal broadband network was floated to the public, the broadband providers fought back. Or, as the mayor put it, “all hell broke loose” due to “fear and trepidation” by SBC and Comcast. The local providers spent millions of dollars telling citizens that if a municipal network was allowed, there would be phantom tax increases, employers of the broadband companies would lose their pensions and other fabricated information.
After the idea of a municipal broadband network was floated to the public, the broadband providers fought back
The companies’ main claim was that municipal broadband was a dangerous gamble. This assertion was based on the Heartland Institute making the claim that most municipal broadband networks “operate at a loss.” Mother Jones interviewed Heartland’s president, Joe Bast, where he admitted that he never studied enough cases to show this was true.
The providers also called residents with pitches such as this:
“Should tax money be allowed to provide pornographic movies for residents?” the caller asked. “It was just blatantly a push poll,” says Simon, a landlord and entrepreneur in a Chicago exurb called the Tri-Cities. “When I asked, ‘Who are you representing?’ they just hung up.”
The city of Lafayette, Louisiana found with Bellsouth and Cox for years as detailed by USAToday. Even though the vote for a municipal broadband network would eventually pass, Bellsouth and Cox took a page out of Comcast/SBC’s book with threats that if the plan did pass, BellSouth would fire 1,300 local employees.
Then there is this brilliant tactic by paid-off lobbyist groups representing the incumbent providers:
One local Louisiana television channel quotes several local residents, one of whom claims they were told by a pollster:”if the government controls the cable TV, you may not be able to watch TV except on Monday, Wednesday, and Friday ’cause they could ration your TV watching.”
In the last 5-10 years, ISPs have teamed up with heavily-donated-to state legislatures to pass laws that make it almost impossible for cities to offer broadband service. In fact, up to 20 states have laws on the books which have such restrictions.
This year, Kansas tried and failed to pass a cable lobby proposed bill which would have outlawed municipal broadband service for residents except in “unserved areas,” which was defined in such a way that it was impossible to call any area unserved. Utah also tried to implement a similar bill but it was pulled back after criticism for some “minor adjustments.”
Ars Technica wrote a piece detailing the tactics used by the cable lobby when facing pressure from competition whether privately or publicly funded:
“One tactic is to require public broadband networks to quickly achieve profitability, something that is difficult even for a private entity because of how much initial construction costs. Some laws also force municipalities to impute to themselves costs that private providers would pay, even if the municipality doesn’t actually have to pay them. These bills are supposedly intended to create fair competition but what they’re really intended to do is thwart altogether or significantly delay and make public communications projects as unattractive as possible.”
The country’s first 100 Gbps fiber network was installed in Washington D.C. During a re-negotiation with Washington D.C. in 1999, Comcast threatened to cut off cable service to the city unless its fiber access was only used for the government’s “exclusive use.” Therefore, the renegotiated contract required that the city not ‘engage in any activities or outcomes that would result in business competition between the District and Comcast or that may result in loss of business opportunity for Comcast.’”
Another way for incumbent providers to keep smaller competitors out is through “level playing field” protections found in franchise agreements. The general point of these regulations is to allow incumbent cable providers to be the “most favored” if another company tries to compete in that area. Incumbent internet and cable providers have taken this provision and forced out competitors for a variety of reasons.
- When United Cable Television Services felt that another cable franchise was allowed “without properly considering its financial responsibility,” they said that their “level playing field” protection was being violated.
- When Cablevision didn’t want a competitor in their area, they claimed that the deployment schedule of the new company was too fast and therefore violated their “level playing field” protection.
- When Comcast didn’t want competition in their area, they claimed that since it took them 6 years to build out (with much in place already), a new competitor starting from scratch with a 12 year build-out was violating their “level playing field” protection.
- When multiple competitors across New England didn’t want competition in their area, the Supreme Court of Connecticut had to remind them that it wasn’t illegal for a new company to profit from building out into areas that were not being served by the current companies.
- When an incumbent cable operator in Minnesota didn’t want competition in their area, they claimed that a new cable franchise being awarded was “arbitrary and capricious” due to the incumbent wanting to examine the new companies “employees, staff and consultants.”
Strong competition in the Internet world causes prices to reflect marginal costs. The biggest issues that we face, however, are that access networks in the US and many countries are monopolies or duopolies under significantly less competitive pressure. This is why ISP’s like Time Warner Cable, Comcast and Verizon FiOS are using their size as a way to demand payments from Netflix, Google and YouTube.