The Cost Of Our Monopoly Internet

by: Dana Blankenhorn

Core Internet services are a highly competitive market. As a result, the cost to move bits around the country is constantly falling.

Akamai (NASDAQ:AKAM) and Google (NASDAQ:GOOG) cache content close to customers, Amazon (NASDAQ:AMZN) data centers are spread about the country, and core ISPs like Level 3 (NASDAQ:LVLT) continue to invest in their infrastructure

But once bits reach the network edge, they're stymied. The reason is monopoly, or rather the shared monopoly known as oligopoly, in which a few companies control access to the market and competitors are not allowed in.

Thus, the speed and price of U.S. broadband has not declined in over a decade. In fact, the prices are actually higher. The FCC is now saying they're on-board with capping data plans - with limiting the number of bits customers can obtain - so these edge monopolists can keep prices high and (in the case of the cable operators) vertically integrate.

It's just as bad in the wireless space. Because the return on assets is negative, thanks to Moore's Law, only two wireless carriers are viable - AT&T (NYSE:T) and Verizon (NYSE:VZ). Carriers can't share costs and inter-operate, as they do in the wired space, because frequencies are owned.

Neither frequency ownership nor last-mile monopoly are products of a free market, no matter how much the carriers may claim so. They are the products of government policy. Governments with different policies have far more competitive markets. And more investment.

That's why is moving into Japan, with prepaid wireless data plans they frankly can't offer in the U.S. Customers there will pay $20 for the equivalent of 500 Mbytes of service. In the U.S., by contrast, AT&T customers get only 300 MB for that price.

What if Amazon were free to innovate in the U.S. as it is free to innovate elsewhere?

This throttling of competition through government fiat is as expensive to our economy as China's censorship regime is to its citizens. American writers are fond of snidely pointing out the cost of the Great Firewall.

But our costs are just as high, they are getting higher, and it's just as much in the power of the government to end it as it is in the power of China's to end its.

And the answer in this case is quite simple. Require that carriers re-sell their last-mile capacity, at cost-based prices. Free the last mile, let the real free market rule. Customers would get a better deal, carriers would have more outlets for their wares (and make more money), and the benefits of core Internet expansion on the U.S. Internet market could finally be realized.

Disclosure: I am long AMZN.