Cheaper, More Competitive Broadband: Not Gonna Happen Anytime Soon, Analyst Tells Congress

A committee in Congress yesterday held a hearing on promoting broadband infrastructure investment. That is, getting more wires put in the ground so more people can get online faster and more reliably. That’s a laudable goal that we here at Consumerist tend to cheer on. But one theme became clear from the testimonies of the assembled analysts, industry members, and local public companies who spoke: real improvement is going to be a long, ugly series of fights… and consumers are going to keep paying a lot more while it happens.

There are a lot of different problems and policy questions rolled up under the umbrella of “broadband infrastructure investment.” Ultimately, there are two main separate, but connected, kinds of projects we’re talking about.

The first pressing problem has to do with reaching all of the underserved or entirely unserved areas of the country — about 55 million people, or just around 1/6 of the population. The FCC has a mandate from Congress to bring broadband coverage to as many people as possible, and so government broadband pushes often rightly focus on the parts of the country that are still largely offline, or crawling along on the best dial-up speeds 1995 could offer.

The other problem is one of adding more competitors to areas that are already served. Because competition in broadband just plain sucks, and the FCC also has a mandate to protect and promote competition in communications where they can. Millions upon millions of us live in areas where only one high-speed provider operates, despite deregulation in recent decades that promised to open up a free market where competition would flourish. But that just keeps not happening, because the barriers to entry are just too high.

And so your bills are going to go up for a well-worn and predictable reason: because they can.

That was the message from industry analyst Craig Moffett.

Moffett started his testimony by, in his own words, pointing out the obvious: infrastructure deployment is really expensive, and companies are only going to do it if they expect a healthy return on the wad of cash they spend. He continued that the large, incumbent, publicly traded cable companies — Comcast, TWC, Charter, and Cablevision — all make healthy returns on their broadband systems, now, because much of the outlay was done in earlier years.

But AT&T and Verizon aren’t making a whole lot of money on upgraded networks. And that’s why Verizon has pretty much called a halt to FiOS expansion, even while it kills off its copper-wire phone and DSL networks as quickly as it can.

In short, Moffett said, “the returns to be had from overbuilding — that is, being the second or third broadband provider in a given market — are generally poor.” And if a business isn’t going to make money doing something, they won’t do that thing.

“Stated simply,” Moffett concluded, “it means that market forces are unlikely to yield a competitive broadband market.”

And not only are we all stuck in an uncompetitive market, but our broadband providers are also our TV providers, in many cases… and we’re buying less TV. Money they can’t make from us on one side, they will have to make up on the other.

“This may sound nefarious,” said Moffett, “but it’s not intended to be so. It’s simply an observation that cable operators have historically benefitted from the fact that their infrastructure can support two separate businesses … Absent reforms to restrain the runaway growh in programming costs, video will become unprofitable and broadband will be left to carry the entire burden of incremental deployment.”

All else being equal, he added, that either means that either new broadband builds will become less frequent and stop happening, or broadband prices will jump.

Or we could see both.

Speaking later in the proceeding, Rep. Anna Eshoo of California called Moffett’s appraisal of the situation “highly pessimistic,” adding that it was “depressing” to hear his descriptions of the telecom marketplace. And yet, it’s the marketplace we all have to live in at the moment — and Moffett’s analysis seems spot-on.

Take Comcast, for example, which released their most recent quarterly earnings report just this morning. The headline news was that their broadband subscribers officially outnumber their TV subscribers. They also demonstrated that their revenue from high-speed internet has increased by over 10% as compared to this time last year.

But here’s the key number: their “total revenue per customer relationship” has increased 4.5%. That means that Comcast’s hand-over-fist money-making machine isn’t growing by reaching new households (although it does routinely pick up some of those, too); it’s growing by making more off of every existing customer. In short, we’re all paying more.

Breaking that monopoly, of course, takes exactly the kind of infrastructure investment the hearing was convened to discuss. Some of the new competition comes from corporate expansion — AT&T and CenturyLink promising to unveil new fiber networks, or Google making its slow roll across the country. But much of that comes from local public entities starting their own municipal cable and fiber networks.

Businesses in search of maximum profit not only don’t want to go rural, but also really hate municipal networks. And yet cities just keep starting and expanding them. And despite incumbent businesses arguing against it, the FCC recently voted to allow two cities to preempt industry-funded state laws and expand their own municipal networks. (That legal fight is still ongoing.)

In the end, businesses and communities do not always share goals, as Deb Socia of Next Century Cities, an organization of communities that have or plan to launch municipal networks, summed up.

“When you think about profit … I think the ways that our cities are looking at ‘what is a profit’ are a little bit different than the ways that a company might look at what a profit is. Right?” Socia said.

She then listed off a set of civic goals that communities routinely want to meet and enhance, including economic development, transportation, and education before asking: “What is that worth? How do we ensure that our tribal lands and our rural communities can benefit in the same ways that our other communities are able to?”

You can watch the full video of the hearing below.