So don't count on competition to bring down prices in the broadband space. This is an area where the regulators - and only the regulators - can really be effective.
Ah, the enduring faith in the ability of government to lead us out of the wilderness and into a land of gigabit nirvana. Shall we count the ways that regulation has accomplished this feat, or should we count the ways it has led to sanctioned monopolies? Remember that one of the immutable laws of nature is that the regulated always capture the regulator, either through mutual interest in protecting relative turfs or "donations" to the politicians who oversee the regulator.
Two good, recent articles point out that the problem isn't enough regulation, rather it's regulation which accompanied the birth of broadband which stands in the way of delivering the amazing speeds which technology could provide to us. Andy Kessler in the WSJ and Jack Shafer at Bloomberg both make relatively the same point: Get the local governments who collect a fortune from the existing cable companies to cease excluding new entrants into their markets. Here's Kessler:
Gigabit is in demand. Many cities, like Louisville, Ky., have invited Google Fiber but been turned down. Google didn't like the terms. Even Mountain View, Calif., home of the Googleplex, reportedly declined to make the necessary concessions. Remember, most municipalities collect a kickback in the form of cable franchise fees (up to 5% of revenues) in exchange for the right of way. Hard to give that up. Citizens be damned.
The FCC can change this overnight. Instead of allowing municipalities to dictate onerous terms and laws that lock in (slow) incumbents, the FCC can mandate right-of-way rules similar to those granted Google Fiber to all credible competitors. If only the federal regulator would promote progress and focus on what's best for the U.S. economy rather than for those it regulates.
It's doubtful the Obama FCC will take up the challenge. Instead, last week it said it will introduce new rules to stop Internet providers from charging different prices for different content, like movies and TV shows on NetflixNFLX or Hulu. A U.S. appeals court in January threw out the FCC's previous "network neutrality" rules as unconstitutional. Great, now a new set of convoluted net-neutrality rules that will limit incentives to run fiber.
Rather than subjecting broadband to further regulation in the interest of curing the bottleneck which regulation has created, perhaps it's time to try a different tack. There's no reason to cut off the honey pot which municipalities have discovered in cable, simply open the market to competitors who might indeed increase their take. As Jack Shafer notes, the cable industry values its subscribers at about $4000 apiece. Google (NASDAQ:GOOG) and other disrupters might see value at multiples of that number. Open it up and let the innovators and disrupters have a crack at the market. Regulation is always an option which can be taken on failure, it doesn't always have to be the first option.
As an aside, given the FCC's recently aborted attempt to gather information on the manner in which news organizations gather and disseminate news, do we really want to increase their sway over one of our primary channels of communication? Think about it.
Disclosure: No positions