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It’s Amazing What a Little Competition Will Do

January 26, 2006 - 0 Comments

Lost in all the debate over whether Verizon will charge Google to use FiOS or AT&T will charge eBay for selling goods over Project Lightspeed is the fundamental change in the nature of the broadband market over the past year. Competition has broken out. Maybe not perfect competition. But real competition nonetheless. Competition that will benefit the consumer and the country.If we go back just a couple of years, the cable and telephone companies were treating the broadband markets much like their traditional markets. They were mostly focused on signing up new customers at relatively high prices. They weren’t competing with each other so much as they were just trying to occupy the space in an unserved market. Their prices, features and services were not terribly distinguishable. A classic duopoly.But then a couple of things happened to upset the balance — and induce stronger competition. First, the maturity of VoIP technology allowed the cable companies (and other providers like Vonage) to enter the voice market in a strong way. The Bells were faced with losing significant revenues from voice without anything to replace them. Second, the FCC changed the rules to end most unbundling of new facilities deployed by the Bells. That gave them the ability to make large long term investments without worrying that regulatory rules would make it unprofitable.We’re just starting to see the fruits of this competition today. Verizon is rolling out fiber to the home services to millions of homes. AT&T and BellSouth plan to upgrade much of their networks to offer 25 Mbps video and data connections. These are major qualitative improvements in the broadband access market, offering consumers speeds and services not thought of before.This new investment by the telephone companies has spurred major upgrades to the cable networks. Most of the cable operators have increased the speed of their offerings from 3 Mbps to 6 Mbps without increasing the cost of the service. Several cable operators are starting to offer even higher speeds, from 10-15 Mbps. So while the spotlight has moved on to issues like Net Neutrality and the DTV transition, I thought it was worth noting that some good regulatory policy combined with technological innovation is leading to the roll out of the second generation of broadband services in an increasingly competitive market. And that is a very good thing indeed.

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