Our Industry Insight series brings insight and analysis from industry thought leaders on important issues facing the telecom industry. This latest insight comes from industry veteran Craig Settles, who provides his views and analysis on the competitive landscape for broadband.
There’s a scene in the movie My Cousin Vinny I think about every time I hear telecom industry execs and their PR front groups like CTIA rambling on in these deception-PR campaigns that claim we have plenty of broadband competition in the U.S. It’s the point where the prosecutor challenges Marisa Tomei as an expert witness.
Of the challenge, she replies, “it’s a ‘B.S.’ question!” Basically, it’s a little razzle dazzle by the prosecutor where the facts presented in the question technically are correct, but moved around just enough and presented in a way that the question is a deception. A less knowledgeable person is expected to be taken in by the deception.
The incumbents’ assertion that communities have an abundance of competition is a ‘B.S.’ PR campaign. No sugarcoating, let’s call the campaign what it is – a steady stream of razzle dazzle that presents facts and statistics that are technically correct, but moved around just enough and presented in ways that deceive less knowledgeable people.
I make this assertion from two points of reference. One is looking at market share. The other is from speaking with, and collecting data from, hundreds of people who represent/serve those living with the reality of broadband inadequacy.
Earlier this year data analytics firm (ID Insight) we released an analysis of competition within all 50 states based on data from millions of Internet users nationwide. We assessed the top 10 competitors of each state since the collective market share for the remaining providers is one or two percentage points.
We ranked the states based on how closely the market share of their respective 10 competitors came to 10% for each competitor. The viability of competition depends on more than market share, but this particular snapshot is nevertheless quite revealing.
Even when you take the 10 states where the competitors are most evenly matched in market share, as you get near the bottom of this group you see the beginning of combined market shares of the top three competitors moving into the high 70s. Coming to Michigan and Iowa, states #21 and #22 on the list, you find the combined market shares of top three competitors break solidly into the 80s.
In state #24, Wyoming, we break into what are pretty much duopoly states. The number-three competitors in these states have 8% – 6% market share or less, and the top two competitors’ percentages (often one’s a wireless and one’s a cable provider) are collectively in the mid 70s moving toward the 80’s. For the bottom five states (Delaware, Colorado, Maryland, Hawaii and Rhode Island), their duopolies range from 89% – 95% market share.
Incumbents claim consumers have dozens of service providers available within the various states. One industry organization lists Arkansas, the most competitive state in our report, as having 49 providers of highspeed lines. With 90% of the market already accounted for by the top six providers, it’s difficult to consider these remaining providers serious players in the competitive scheme of things. If the picture is that stark in the more competitive states, do you really think broadband choice overflows in the states controlled by duopolies? (see a full analysis of ID Insight report)
With competition, quantity is not always quality
Now let’s ask the question about competition that really matters: are there organizations out there competing to provide the services our community wants and needs?” The problem with the industry’s razzle dazzle is that it ignores the question. Sure, I may have two dozen providers offering some sort of Internet access. But is it fast enough, reliable enough, supported well enough to do what we as businesses, unemployed workers, healthcare facilities or college-bound students need? The answer in many rural AND urban areas is, no. It’s hard enough to find one provider to meet these communities’ needs, let alone two or three competitors.
Meaningful broadband competition is not about the access, it’s about meeting needs. I recently completed a needs assessment for a small California community that sits within 30-40 minutes of a couple of major metro areas. It’s neither isolated nor desolated. We telephoned over 425 businesses the city is relying on to drive economic growth. They have, at least on paper, 12 ISPs available to them.
Over 30% have inadequate service for completing a range of Internet-related computing tasks respondents deemed important to their businesses. Nearly 20% didn’t have adequate coverage for simple e-mail and Web browsing. For the next three-to-five years, the biggest usage increase is expected for those tasks this “robust competitive environment” can’t even address currently. Two national incumbents technically have available service, but won’t bring it to the industrial park, or not at a favorable cost/speed ratio. The most commonly cited problem in the survey’s open comments section is a lack of competition and the lack of providers offering affordable services that meet businesses’ needs.
Having four companies competing to sell me a bicycle (because that’s all they have) when I need a car or small truck to meet my real travel needs is not a competitive environment that matters. It’s similar with broadband.
What type of competition matters
What defines this adequate service that few providers seem capable of delivering? From D.C. to the farthest corners of the U.S., broadband is touted as a main driver to improving economic development, both for businesses and individuals (workers, home-based entrepreneurs, students seeking higher education, etc.). Working with the International Economic Development Council, I surveyed 300 economic development professionals to get their take on how broadband can impact this area.
Over 55% believe speeds of 100 Mbps or more are needed for businesses AND individuals within three years. Only 8% think the FCC’s goal for rural areas of 4 Mbps makes any sense for driving local economies. Looking at these needs, then reviewing the available services from the incumbents who control most of the market share state by state, the industry’s claims of “a vibrant competitive marketplace” is ‘B.S.’ indeed.
It’s not just speed that matters. It’s about having providers that compete to deliver service to an area where advertised, compete to have the most reliable service, compete to have sufficient customer service. It’s about the state laws and backroom deals that enable incumbents to stifle rivals and install government-sanctioned protectionism.
Regardless of the National Broadband Plan’s many good points, one of its most glaring flaws is its failure to address the lack of competition and the barriers to competition. This is a failing too of the broadband stimulus program. Like it or not, communities must be the ones to step into the breach to affect change. Better get your waders on, though, ‘cause there’s a lot more crap to work through in order to reach that goal.
Interesting points Craig. Generally speaking, competition is a good thing and should be encouraged. But this policy can go the wrong way too – in the form of artificial competition in certain rural markets where the market can barely support one provider, much less multiple ones. Tools like CETC funding through USF prop up a competitior, that absent that support, wouldn't be able to stay in business, much less compete. We need to be smart about broadband competition policy, and not create competition just for the sake of saying we have competition in markets where that does not make sense.
Now I'm all for service providers competing to serve these rural markets, provided the rulesand requirements are the same for all involved. In that case, may the best broadband win!
I feel many of our policies, like those that led to subsidizing otherwise non-sustainable telcos, are based on an un-erring belief that the private sector cures all ills. It doesn't, the same way that government doesn't cure all ills.
In some markets that clearly cannot support several competitors, we need to consider local community-run networks owned by local government, local businesses and main institutions. Though the network still has to generate operating capital, the metrics for success aren't driven by profit margins. The local telco moves from trying to sustain infrastructure (a costly proposition) to providing services. That Federal money currently subsidizing telcos shifts to the communities, while the telco shifts its business model. If it can't, it can't.
This may seem cruel, but the reality is, USF reform might otherwise force local telcos out of business anyway while diverting billions to the national incumbents – a recipe for making bad broadband situations worse. There's going to have to be a change in the way local and regional telcos as well as ISPs do business. So we may as well embrace the inevitable with policies and funding programs that empower communities to create solutions best suited to their needs.
There are already hundreds of community owned broadband providers. They're called co-ops and they are providing superior service already. If it aint broke, why are we trying to fix it?
@Tom – Coops are great. However, the existence of these coops does nothing to disprove Craig's points. If the system is supposed to provide meaningful choices, fast and reliable services, all at affordable costs, the system is most definitely broke.
@Bernie,
I quibble with your language – rural areas are unlikely to support multiple infrastructures but they certainly can support multiple providers over a robust fiber infrastructure, for instance. I doubt you would disagree with me, but words are important and that is a key distinction.
On publicly owned (or nonprofit or coop) networks, there is no need to monetize the infrastructure to such a degree that it increases profits every year. These approaches can embrace open access to maximize competition (which will be sustainable) and even when there is not competition, the structure of public (and nonprofit or coop) means that the networks must be more accountable to the community than are absentee private companies that have a responsibility to put their shareholder needs first.
@communitynets – conceptually your concept sounds good, I just wonder how these robust fiber infrastructure networks get built and paid for in the thousands of communitiess across the country, many of which already have an existing network with an existing incumbent, willing and able to serve. I'm not talking rural communities served by large publicly traded conglomerates. Rather I'm talking about small locally owned (whether as a cooperative or private entity) providers, who have their community's best interest at heart already. That fiber infrastructure has a cost – and a significant one. Who pays for it? And how do you dictate to the existing provider what to do with their existing network, which is probably far from full depreciation?
The solution depends on what you set up the problem to be. Craig wrote an essay around "competition" because he believes that competition is needed to improve product/service/price, and he gave an example and shared a study about that . But as Bernie pointed out, competition doesn't naturally work in capital intensive/high risk service areas. To Craig's point about the industrial park — why do you think that all these "competitors" aren't building out there? Because they don't perceive a return that's worth the risk. Right or wrong, that's free market principles at work!
If the goal is a good product/service/price, then let's make sure the gov't does not get their hands directly into it. Let private industry, with some USF props, do the job in rural/high cost areas. In urban areas, where there's a sufficient customer base, let the competitors duke it out. And we shouldn't forget the large rural RBOC landscape which has been largely suffered. Any monies handed out to these folks needs to come with strings attached for service and price levels, because the natural tendency is to use it to maintain high dividends.
Telecom infrastructure by its nature tends towards monopoly. So I don't quite understand why it would even be discussed in the context of a competitive market defined as many buyers and sellers.
I hear arguments like Frank's all the time. However, I find most of this off the mark. In the example of the industrial park, the issue isn't totally one of companies not providing services, it's that most of the services are inadequate to meet the current and projected needs. The city is doing a cost-analysis exercise to determine how much the long-term benefits of improved economic development justify the investment in city-own infrastructure, or infrastructure they own in partnership with a private company.
The ROI here from the city perspective is a combination of local economic growth and potential revenues to be generated. This is not the same ROI that many businesses can live with, or at least the time required to get a sufficient payback to satisfy company owners. So, if the community decides there is adequate payback to justify the investment, they will decide to move forward. They are justified – and accountable to local constituents not incumbents – in making whatever decision they make.
This move by the city I work with or many other cities will almost always result in companies jumping into that market to provide cheaper service and promises of faster services. We see it time and again. Incumbents whine about not being able to afford to bring business to an area, they moan about unfair competition. But once it becomes clear that the city's making the move, here come the private sector to build out infrastructure, offer local government partnerships, throw up all kinds of price "specials."
As I point out in my column, there's too much national telco b.s. when it comes to discussing competition. To their credit, I find that at least a good number of the small telcos and service providers make earnest efforts to partner with local communities.
I don't agree at all with the 4mbps standard for rural. All that means is the cell compaines will get usf funding to build wireless networks that will be obsolete in a few years when people will actually be demanding 100mbps +.
Craig Settles has a vested interest in spreading the myth that there’s no broadband competition in America. He’s a consultant who makes money by advising communities to start municipal networks. So, of course, he seeks to deny the existence of competition – even when in fact it does exist.
I operate a competitive ISP in a small town in southeastern Wyoming. In our town of 28,000 souls, we have 9 infrastructure-based broadband providers and dozens of non-infrastructure-based ones. If this sort of competition exists in my town, it’s clear that there will be even more in larger ones. But you will not hear this from Craig; his goal is to profit personally by dismissing all competition as inadequate. Best take him with a grain – no, a truckload – of salt.
Why would so many telecom providers overbuild each other to serve a small town in Wyoming? That flies in the face of current practice and simply doesn't add up.
Like Craig I believe that communities should build their own infrastructure, thereby empowering that community with their own resources. Open access networks will foster competition in service providers. A community development cooperative model that is made up of residents, businesses, institutions and associations holding a majority interest, in say, a utility company will allow incumbents, if any, to participate in an equity position in this enterprise thereby protecting and growing their investment in the community. Such a cooperative could foster other aspects like a community foundation that could go after community grants. Cloud computing needs to be in a community, to maximize local opportunities and minimize the impact on both the cellular network and Internet.
It is almost irrelevant to talk about speed as inevitably we will deliver what is demanded of the network. The only purpose it serves is to set a lower limit of acceptability not just in terms of standards. Some cellular companies tout having 4G networks but the ITU defines 4G as 100 Mbps to devices such as cell phones which no company actually provides.
Does your town have one gas station? One restaurant? One bar? Those companies are building infrastructure because they want to serve customers.
Absolutely RIGHT ON. In addition to market share, we can look at the Pricing Plans — while cost of providing service continues to drop, pricing remained well above international markets. It is a joke when someone can call from India to United States on their mobile phone for 1-2p/sec (which amounts to $6-7 per hour), a mobile call from U.S. to India will cost us above $20 which includes subscription plans. Proper regulation of the Telecom market for Voice, Data, Video, Television and broadband markets should reduce the combined monthly charges to average household below $100.
Brett,
my small community has a highly capable open access street network that accommodates the needs and interests of all residents and businesses, including FedEx, DHL and UPS. It enables REAL competition among service providers based on a completely level infrastructure playing field, instead of the wasteful, expensive and ruinous facilities-based competition that prevails in the telecom industry. I for one fully agree with Craig's assessment of the situation. We don't need cometing street networks, and we don't need competing broadband networks.
If my community doesn't deploy its own open access FTTP network, it will be unable to retain and attract wealth creators in the economies of the 21st century. No teleworker, entrepreneur or conventional businesses operator with exploding bandwidth requirements will take this community seriously as a place to live, work or build a business. The name of the game is now accessible, reliable, scalable, affordable bandwidth, and the more we invest in facilities-based competition (competing networks), the further away we get from this. The economies of the 21st century will be built around open access broadband networks, just like the economies of the 20th century were built around open access road networks.
I want a single shared FTTP network in my community that minimizes cost for all service providers and their customers, maximizes competition in services, and maximizes opportunity for economic and social development. If your own community decided to do this, there is no good reason why you wouldn't be able to continue serving all the customers you already serve, and more. The difference is that you would be serving them over a shared network that you don't control, which saves you the cost of building and operating your own network. Sounds like a hell of deal to me, unless you have an aversion to earning customers on the basis of your services instead of your network.
And therein lies the rub. The vast majority of service providers today are network operators first and service providers second. Services are simply the principal means of paying for networks.
Craig is right… this is BS, and we're done with it. By insinuating that his motives are less than honest, you have only harmed your own reputation and credibility.