10 Reasons for the Lack of Competition

On Dave Farber’s list today Gerry Faulhaber of the Wharton School (right) asked an intriguing question concerning wireless broadband.

Where are the competitors?

Five years ago I spent a lot of time covering Wireless ISPs, entrepreneurs (mostly in rural areas) who were using 802.11 to deliver broadband service, often against the Bells.

Given the political contempt people feel for the Bells, there should be more of them. Why aren’t there?

Here are 10 reasons:

1. Uncertainty. The Bells have been using the agencies of government to change regulations and drive competitors out of business for several years now. Their monopolies are actually subsidized, through programs like the Universal Service Fund, which by law must flow to the Bells if the Bells want the money.
2. Backhaul. In many rural areas the Bells offer the only backhaul for a WISP, and they charge prices geared toward keeping their monopoly for it.
3. Price Wars. As with cable “overbuilds” in the 1990s, incumbents can drop prices and improve service where competition exists, subsidized by captive monopoly customers.
4. Frequency. If the FCC would open up more unlicensed spectrum, instead of selling every hertz it sees to the incumbents, we’d have more WISPs.
5. Power limits. The FCC has uniform power limits for unlicensed equipment, which must operate at microwave frequencies. If rural areas had higher limits, WISPs would benefit.
6. Bandwidth Hogs. A very small minority of WISP customers, mainly engaged in music and/or video hoarding, pushed the industry toward bandwidth limits, limiting their competitiveness.
7. Rural Industry. The present WISP industry is very rural. Thus the suppliers concentrate on rural WISP problems. Economics of scale have not yet been brought to bear on the mesh gear that would fit suburban or urban environments.
8. Municipal Broadband Most companies that want to provide WISP services in cities are trying to get concessions in order to become sole providers.  This discourages truly competitive entrants.
9. Sponsors. The owners of competitive backhaul – Level 3 and Google – have not been aggressive in enabling mesh technology sales to entrepreneurs.
10. Wall Street. Bankers don’t want to bank competitive broadband when they see the low profits being reported by the monopolists.

Some very simple changes in government policy could change all this in a heartbeat. (They could easily be initiated by FCC chair Kevin Martin, left.) Opening up more unlicensed spectrum. Raising power limits. Enforcing the anti-trust laws.

Fact is the attitude of the present government is to endorse the duopoly because it leaves law enforcement with a small number of chokepoints through which it can monitor all online traffic. It’s a quid pro quo that is understood at the highest levels in both the White House and AT&T offices in San Antonio.

An overt conspiracy does not need to exist. This is a nod-and-wink deal. But the fact is U.S. policies at all levels have, for nearly six years, endorsed the re-creation of the Bell monopoly, leaving the U.S. falling behind in the infrastructure which defines 21st century economic success.

Something needs to be done about that. There are things which can be done. But expecting capital to flow into an industry the government is discouraging doesn’t mean the science is wrong, or the market has rejected the idea.

It means we need to change the policy. As with energy, get rid of the incumbents’ subsidies and create conditions under which competitors can grow.