Broadband by the Byte

There is nothing fundamentally wrong with broadband providers charging for usage, or by any other measure they choose. This is central to a successful free market model, where the unrestricted interplay between competing businesses and customers will tend to business models and price levels that establish a sustainable equilibrium. A minimum level of competition is, however, required to give consumers an equitable say in the market's invisible hand. That is what's missing in the broadband market. All this quibbling over particular price points today is merely a distraction from the larger issues.

There are some good reasons why competition is scarce. Perhaps the preeminent one is that a large capital outlay, along with disruptive construction in our cities, makes it prohibitive for entrepreneurs. The dearth of capital in the present market coupled with the a deeply-entrenched base of incumbents form an almost insurmountable barrier to newcomers. Wireless has better prospects, but not by all that much.

As a society (which includes our governments), we need to decide once and for all if broadband is to be a free market business or a regulated utility. What we have instead is a combination of public relations bafflegab and political grandstanding, all in an attempt to gain favour with an increasingly-confused general public. This is an area that is crying out for some political leadership.

If broadband is to a fully private-sector business, governments should be aggressive in easing entry of new broadband providers. By this I do not mean the regulated wholesale DSL market we have in Canada (although it does help), but lower barriers to spectrum acquisition and terrestrial rights-of-way. With tax revenue challenges, we have instead seen these become revenue-generating opportunities for governments, which in the end don't generate sustainable tax revenue or promote broadband competition.

If broadband is to be a regulated utility, let's do it right and implement it fully. This is counter to the prevailing views of contemporary governments, even those with a leftward slant, and so is unlikely to achieve any meaningful traction in the near future. Outside of the government, the general population seems to be generally averse to strict regulation. Right or wrong, a return to strict telecommunications regulation is unlikely, which brings us back again to the need to enable competition.

One telco and one cable company in a region (and recall that wireless is owned by the telcos so it is not an independent third choice) is insufficient for effective competition. Sure it's better than just one provider, but an oligopoly still tilts the business-consumer equilibrium in the favour of business. We get the worst possible outcome: weak and inefficient businesses and high consumer prices. Whether those prices are determined by bytes, maximum bandwidth or flat-rate is irrelevant.

I would love to offer a prescription to the present dilemma, except I don't have one. We are going to continue to flop around in the no-man's-land between the regulatory past and the present, defective free market for some years to come. As consumers we can at least keep up the pressure by quickly defecting when faced with unattractive pricing changes from our broadband providers.