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The Seriously Flawed American Telecoms Market

Paul Budde

The recent decision regarding the end of Network Neutrality (NN) in the USA is based on a totally flawed telecoms policy. Once the foundation of a telecoms 'house' is fundamentally wrong, whatever is built on top of that will basically collapse at a certain point.

The market fundamentals in the USA are so wrong that any initiative to improve broadband access, fibre roll-outs, infrastructure competition or telecoms and transactor innovation, will either fail or have a minimal impact. For example, after 15 years of municipalities trying to bypass the flawed system, ruled by the incumbents combined, more than 50 cities might have reached only 1% of total broadband penetration. Even adding some of the recent initiatives to this such as Gigabit Sq, Google's fibre network in Kansas City, is not going to change that 1% very much.

None of the current initiatives taken — based on that wrong foundation — is going to make a serious impact on the lack of good quality broadband. If nothing at all changed, altogether 5% competitive infrastructure may be reached in another 15 years, and this is exactly the way the incumbents want it. Even adding the numerous (small) wireless ISPs to the situation doesn't change it all that much — all just crumbs falling off the table of the incumbents.

It is totally up to the three or four large incumbent players in the US market to dictate which customers get what, at what time. They totally dictate what will happen in the country, and the current NN judgement again underlines this. The incumbents are fully and firmly in control of the political telecom agenda and under the current system they are the only ones that have the power to make any large-scale impact on any of the telecoms developments in the country.

If, for example, as some analysts indicate, the FCC also had a win because they might be able to control some of the processes, it will take many years for them to legally test this. It would take even longer to see any results that would have any serious impact on the overall competition and innovation situation of the American telecoms market.

In the meantime the incumbents are laughing their heads off. This is exactly the way they like it — the more complex the regulatory situation, the better it is for them. They actively use their hundreds of lawyers to create situations that look like win-wins — they are true masters of deception and incredibly the American political system seems to be happy to be kept hostage by them.

That is not to say that the American people are happy with their telecom players. Not at all — they dislike them intensely and in overall national satisfaction ratings they rank telecoms as the lowest sector they trust. But there are simply not enough people to protest to result in political pressure.

One of the most striking abnormalities is that, thanks to lobbying from the incumbents, no country in the world other than the USA classifies internet access — as content, an untenable situation, but it simply continues. All other countries differentiate between actual content and the telecoms service that provides access to that content; however, this is not so in the USA. This makes it possible for the telcos (they very cleverly now call themselves ISPs) to stop any telecoms regulations on internet access services; regulations that apply to all other telecom access services.

Furthermore, linked to that anomaly is a lack of wholesale services: telcos are not required to provide broadband wholesale services (because broadband is seen as an internet content service). Again there is no other country in the developed world, other than the US, that by now doesn't have a properly working DSL wholesale market. In Australia, for example, this has resulted in 45 competitors, and as long as there is this level of wholesale competition NN will not be an issue. If one competitor blocked access to certain internet services, another one would happily provide access, so no competitor would even think of blocking certain services. So the US is the only country where NN is a serious issue, simply because the enormous concentration of market power is in the hands of a very few telcos.

Having actively monitoring the US broadband situation for six years, I've observed that those who want to change the system, all the way down from President Obama, keep running around in circles addressing and re-addressing all the same issues, albeit from slightly different angles, time and time again. As mentioned before the foundations are flawed, and unless this is addressed in the first instance, nothing else will change. The politicians and their institutions simply keep dancing to the tune of the incumbents.

During those years the only real, although slow, progress in the market for the end users has come from the three or four incumbents, and nobody else. So plutocratic progress will continue at their pace and whatever Obama, Congress, the courts, or the FCC say or do is not making one iota of difference. Although customers complain about the incumbents and rank them as near criminals, the American system will protect the incumbents and not the customers.

Unless there is the political will to change this, we will still be muddling on and addressing these issues over and over again for many years to come.

By Paul Budde, Managing Director of Paul Budde Communication – Paul is also a contributor of the Paul Budde Communication blog located hereVisit Page
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