Broadband Competition vs. Regulation

The recent court decision in Comcast's favour has put the issue of net neutrality firmly back on centre stage. There is the expected emoting by the various interested parties, including consumer advocates, which may do not to obfuscate the issues than to enlighten. Although I am familiar with much of the law and regulation under which the FCC operates (from a part I played earlier in my career), I have no intention of getting into that here; not only would it most likely put you to sleep, it would also put me to sleep. Instead, I want to take a brief look, once more, at why how these disputes come about: lack of competition.

I would like to simplify the public policy alternatives -- perhaps somewhat extreme but in a way that I believe brings some clarity -- into two approaches the government can take to create a vibrate broadband internet industry, one that gives consumers service that they would consider to be acceptable and at an affordable price. It is one I've addressed before, perhaps most directly in my comment on this earlier article. These are the alternatives as I see them:

1. Competition
2. Regulation

In the first case, with lots of competition in a free market, companies would strive to do better than the others. This would, without government intervention, bring in efficiencies which would lower prices, and result in better service (neutrality, download speed, customer service, etc.). The choice would never be quite this simple since there would be alternatives such as lower prices but with less customer service, and higher prices with lots of customer service.

When competition is limited or non-existent (monopolies), the service providers tend to grow fat (high internal costs), and have both poor service and high prices. Since there are few market incentives to change, creating a different outcome requires external intervention in the form of government regulation. This has its own costs since the providers will then spend money on lobbying and otherwise fighting the government and their own customers (resulting in higher prices) and there is political risk for the government since they can become culpable for all the industry's faults in the eyes of the public.

There is nothing unique about broadband in this dichotomy. The same thing happens with most utilities and other industries with high barriers to entry. Telecom, which includes broadband, is notorious for this very problem. Net neutrality is nothing more than one of poor industry behaviour due to limited competition and a politically-sensitive regulatory regime. That is, if there would be sufficient broadband competition, net neutrality would simply become one of many service differentiators that one or more providers would offer so as to draw customers from those that filter content. This is why, for example, Canadian ISPs like Teksavvy and others offered unfiltered broadband and advertised this aspect of their service. At least, that is, until Bell Canada and the CRTC decided otherwise.

Because of the political risks of regulating broadband, governments in both Canada and the US would prefer that more competition would arrive, and soon. All they can do is create an environment that does not dissuade new entrants, but they cannot guarantee -- nor should they -- that there will be effective competition. They can directly intervene occasionally, such as they did with Globalive, to clear the path, but they can do nothing about the fact that it takes lots of money and time, and willing investors and entrepreneurs.

All these fights over Globalive here and Comcast there are nothing more than skirmishes that highlight how much governments and their regulators wish that competition would come to the rescue and free them from this public policy morass. Be prepared for much more of the same in the coming years.