Wednesday, March 17, 2010

A Man. A Plan. A Problem. The Internet.

Judging from the back-slapping and high fives over at the FCC, you’d think that America’s Internet was sailing smoothly into the future. Think again.

With much fanfare on Tuesday, FCC Chairman Julius Genachowski delivered the National Broadband Plan to Congress, saying it will help make Internet access faster and cheaper for everyone in the United States. Getting more people connected to high-speed Internet -- from the 65 percent currently online up to 90 percent of households by the year 2020 -- is Job One, according to Genachowski.

There are a lot of good things in the plan’s 376 pages, including pledges to reform the Universal Service Fund and to re-allocate spectrum for broadband. But the plan glosses over some of thorniest problems plaguing U.S. Internet users: high prices, slow speeds and a lack of choices among providers.

Internet access in America is held captive by powerful phone and cable interests. And regardless of what the laissez-faire editors at the Wall Street Journal think, doing nothing to protect people from getting ripped off is not an option.

Genachowski has said that affordable Internet access is the nation’s sure path to more jobs, economic prosperity, democratic participation and global competitiveness.

The plan is meant as a blueprint for FCC and congressional action to address these challenges. But it has left many of the details for later, and that’s where devils lurk.

Here’s where things currently stand:
Few Choices: High-speed Internet users suffer from a lack of choice in the marketplace. According to data in the plan, 5 percent of households have no wireline providers; 13 percent of households have one, and 78 percent have just two wireline providers. In other words, 96 percent of the country has two or fewer choices for wired broadband.

Slow Speeds: Americans are paying a whole lot more and getting a whole lot less of the Internet speeds that we deserve. U.S. broadband speeds average about 4 to 5 megabits per second (Mbps) when downloading and 1 Mbps when uploading. That’s a fraction of the download speeds available to users in other countries. For example, Japanese internet users accustomed to surfing the Web at speeds of 100 Mbps at the same prices Americans pay for access to the slow lane. In Hong Kong, one provider now offers a 100 Mbps connection for $13 a month.

High Prices: Americans are at the mercy of cable and phone companies that continually jack up Internet prices simply because they can get away with it. A 2009 study by the Pew Internet and American Life project found that where there are fewer choices for broadband, prices skyrocket. A comparative global study by Harvard’s Berkman Center bears this out: The faster speeds get in America, the fewer options people have and the more expensive they become.
And it’s about to get worse. Comcast and Time Warner Cable just announced price increases; and Verizon and AT&T are flirting with an Internet metering model, which will force you to pay through the nose if you use the Internet for more than just basic e-mail and Web surfing.

The elephant in the room? The FCC plan does not propose the kind of tough measures necessary to create competition and realize President Obama’s vision of universal, fast, affordable Internet.

This lack of competition goes a long way toward explaining how the United States has become a broadband backwater – falling further behind other countries in every measure of Internet success.

It also explains how ISPs earn obscene profit margins from broadband services in uncompetitive markets. Craig Moffett, an industry analyst for Sanford C. Bernstein & Co., noted that the margin for Comcast's broadband service is on the order of 80 percent. In other words, Comcast charges customers $40 for something that costs the company $8 to supply.

Taking on the Incumbents

“It’s very important now that we move to action,” Chairman Genachowski said during a press conference on Tuesday. “You’ll be seeing a lot of action at the FCC in the weeks and months ahead.”

To connect every American to a world-class broadband network, we need more than FCC benchmarks; we need to confront the market power or the phone and cable company’s head on.

This is an immense task. The FCC and Congress must muster the courage to stand up to the narrow corporate interests that control prices, speeds and access for the vast majority of Americans.

Proposals are on the table that would open markets where few choices exist. They include calls for open access to increase competition, and Net Neutrality to protect the Internet’s fundamental openness.

Getting these reforms in place is going to be hard-going in Washington, where the phone and cable lobby still dictate policy. On these and many other key issues in the plan, the FCC has deferred the fight with industry for now.

But that fight is inevitable, and the sooner we have it the better.

Without public support and bold leadership from the FCC and Congress, the National Broadband Plan could end up skirting the biggest problems standing between Americans and a better future: entrenched phone and cable companies.

Thursday, March 11, 2010

America's Communications Breakdown

Too often in Washington, words speak louder than actions. Tuesday, however, was not one of those times.

As lobbyists for the largest Internet providers gushed over a National Broadband Plan designed to deliver fast and affordable Internet services to Americans who are currently priced out of the market, one of the largest providers, Comcast, informed customers that it planned to raise its rates even higher.

For those in Comcast's service area, the news couldn't have come at a worse time. Some 35 percent of the country is still stuck on the wrong side of the digital divide. Their main obstacle to access is cost. Surveys by the Pew Internet & American Life Project, the Federal Communications Commission and others find that most of those without broadband say "the price would have to fall" before they can afford to connect.

But Comcast won't go there. Instead, the cable giant opted to jack up rates for access to all of its broadband services, including prices for its most basic offerings.

Inclusion Illusion

But don't let that news stop Comcast's top lobbyists from talking a good game about digital inclusion.

"Getting more Americans connected to broadband -- it's a critical goal that we should all support," Joe Waz, Comcast's Senior VP of External Affairs, wrote late last year. The FCC's national broadband plan is a "real blueprint for how we address the nation's true broadband priorities," he added in January.

Still, the company seems unwilling to explain the rationale for its latest price increase.

Landel Hobbs, the chief operating officer for Time Warner Cable, offers his perspective. During a meeting with investors, Hobbs said his company can raise broadband prices simply because it can get away with it: "Consumers like it so much that we have the ability to increase pricing around high-speed data."

Not quite. It's not that consumers like pricey cable services like Comcast and Time Warner Cable; it's because they have few to no other choices in the marketplace.

Market Failure

There are 11 major Internet service providers in America (companies with more than a million customers), according to market research by ISP Planet. But those numbers can be deceiving. Most communities that have high-speed Internet access are only served by one cable and one telephone company. A significant number of rural communities lack any broadband options. And alternatives to phone and cable, like wireless Internet and broadband transmitted over power lines, still fail to offer viable competition.

All told, this phone and cable duopoly controls more than 95 percent of broadband connections to the home in the United States. Americans have few choices but to pay far too much for Internet connections that are much slower than what's available to consumers in developed countries in Europe and Asia.

Spiraling broadband prices are a key indicator of this marketplace breakdown. While the costs for providing connections to homes are declining, Internet providers keep hiking their rates. It's an arrangement that benefits local cable monopolies well, while emptying customers' wallets.

As a result, cable operators' record obscene profit margins. Craig Moffett, an industry analyst for Sanford C. Bernstein & Co., noted that the margin for Comcast's broadband service is on the order of 80 percent. In other words, Comcast charges customers $40 for something that costs the company $8 to supply.

Highway Robbery

On Wednesday, FCC Commissioner Mignon Clyburn said in a statement that price increases like those announced by Comcast are "an issue we must examine closely going forward."

"Just as we are in the process of proposing steps to ensure that more people are comfortable signing up for broadband service, providers of that very service are raising prices," Clyburn said. "Across-the-board price increases, especially on those who can least afford it, should raise a red flag for the Commission."

This is a good sign. The FCC has long avoided confronting the competition problem, leaving American consumers at the mercy of phone and cable executives whose only interest is in overcharging customers to boost their margins.

The resulting competition failures are why America continues to lag our global counterparts in every measure of broadband success.

"We hope that the FCC follows Commissioner Clyburn's lead and confronts these issues directly," Free Press Policy Director Ben Scott said in a statement. "American consumers need the market to work for them, not against them."

The public will take the industry's rhetoric about closing the digital divide more seriously when it walks its own talk.