The 30 Percent: Is a Little Competition Enough?

Posted on February 20, 2012

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In the last two posts, I showed how 60 percent of the country will have a choice between two providers of broadband speeds more than enough to stream HD video. What about the other 40 percent? First, up to 10 percent of the country will not have access to high speed broadband from anyone. The FCC has understandably focused on these households, reconfiguring the national universal service fund to promote broadband deployment to these areas. Even in this area, the news is promising. Verizon is testing a fixed wireless LTE service that is capable of 27 mbps, WISPs provide WiMAX services to an additional 2 million people in rural areas, and new satellites have recently been launched that will enable broadband at speeds that exceed 10 mbps. These services are not perfect—wireless broadband will need fiber to cell towers and will degrade if too many people are using it, and the satellite services suffer from latency and jitter problems. Still, consumers in these areas should have a much-improved ability to browse the Internet.

That leaves the 30 percent of Americans who can get very high speeds from a cable company but not from a telecom company. For them, the picture isn’t as dire as it seems. First, they are better off than they were a year ago, when they did not have access to the high speeds provided by the cable company. As for competition, the fact that the telecom company provides slower speed service will probably be enough competition to constrain the cable companies.

In this section of the country, the cable companies are gaining an advantage that is materially different from the advantage they have had in the past. The numbers are imposing: consumers will have a choice between cable modem service at 100 mbps or DSL service at 1.5 to 7 mbps. For people who use their broadband service to stream video, this advantage is significant. Consumers who live close to a central office or remote terminal will be able to stream HD movies, but only one at a time. Those that live farther away will only be able to stream non-HD video.

Wireless 4G services may provide more customers with an alternative for video. According to the Colombia Institute report, the wireless companies are actively deploying 4G services, with advertised speeds of 5–12 mbps. Verizon alone covers 94% of the U.S. population, and it expects to have 4G deployed to its entire footprint by 2013. AT&T, Sprint, T-Mobile and other wireless providers are also rolling out 4G services. WISPs provide WiMAX services to an additional 2 million people in rural areas.  Verizon alone has already made wireless LTE 4G available to 185 million people.

The wireless services that are currently being deployed will be capable of speeds in excess of 20 mbps, which is more than enough to stream HD movies. But the availability of those speeds will depend on two things: whether the nearby tower is fiber-fed, and how many customers are using that tower to download data. The first is rapidly becoming a non-issue in most areas. The wireless companies are investing heavily in fiber to their cell towers, and in the near term the vast majority of cell towers will be connected by fiber. The extent of this fiber deployment is demonstrated by Windstream, which serves mainly rural areas and is building fiber to 90 percent of the cell towers in its serving territory.  The second factor will be more variable. In heavily populated areas, the higher data speeds will probably not be available. But most heavily populated areas will probably have fiber to the home or node. In some of the less-densely-populated areas that do not have a telecom fiber-to-the-x alternative, these new wireless services may deliver consistently acceptable speeds for some households. These services may be particularly attractive for consumers who use the Internet for traditional web surfing. The FCC’s user tests demonstrated that, for these services, the consumer experience does not improve at speeds higher than 10 Mbps.

And the technology continues to evolve. The distinction between wireless and wired networks is rapidly becoming an anachronism. Wireless consumers already use wi-fi for data, and wi-fi technology will soon be capable of transmitting much higher data rates.

While the alternatives to cable modem may be acceptable to a segment of the population, a large number of people will probably only be satisfied by the higher speeds, and the cable companies will probably gain significant share in the areas where telecoms have not deployed fiber. But the cable companies may still not be able to take advantage of their significant advantage in these areas by raising prices. That would require the ability to differentiate between customers in areas served by telecom fiber-to-the-x and areas that are not, which will probably be quite difficult. The areas served by fiber-to-the-x are often adjacent to areas that are not, and the cable companies will not be able to target most marketing to the different areas. They may be able to target-market some discounts to particular areas through e-mail or direct mail, but TV, radio and billboard advertising will likely reach customers from both areas. Thus, prices in areas in the 30% of the country served by DOCSIS 3.0 but not fiber-to-the-home/node will be the same as the prices in the half of the country that is served by fiber-to-the-home/node.

Regulators should closely monitor the situation in these areas, to make sure that the cable companies are not exercising market power to the disadvantage of consumers. But at this point, there is not enough evidence that this is happening to justify significant regulatory action.

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Posted in: Broadband