Monopolization is inevitable in telecom absent stronger antitrust law---its key to stop rampant price hikes

Seriously, be mad about your internet bill In 2019, New York University economist Thomas Philippon did a deep dive into market concentration and monopolies in The Great Reversal: How America Gave Up on Free Markets. And one of his touchpoints for the book is the internet. Looking at the data, he found that the United States has fallen behind other developed economies in broadband penetration and that prices are significantly higher. In 2017, the average monthly cost of broadband in America was $66.17; in France, it was $38.10, in Germany, $35.71, and in South Korea, $29.90. How did this happen? In his view, a lot of it comes down to competition — or, rather, lack thereof. To a certain extent, telecommunications companies and internet service providers are a sort of natural monopoly, meaning high infrastructure costs and other barriers to entry give early entrants a significant advantage. It costs money to install a cable system because you have to dig up streets, access buildings, etc., and once one company does that, there’s not a ton of incentive to do it all over again. On top of that, telecom companies paid what were often super-low fees — maybe enough to create a public access studio — to wire up cities and towns in exchange for, essentially, getting a monopoly. But that’s where the government could come in by regulating the network or forcing the company that built it to lease out parts of it to rivals. As Philippon notes, that’s what happened in France: An incumbent carrier was compelled to lease out the “last mile” of its network — basically, the last bit of cable that gets to your house or apartment building — and therefore let competitors have a chance at also appealing to customers. In 2017, the average monthly cost of broadband in America was $66.17; in France, it was $38.10, and in South Korea, $29.90 In the US, however, just a few big companies, often without overlap, control much of the telecom industry, and the result is high prices and uneven connectivity. In 2018, Harvard law professor Susan Crawford examined the case of, what do you know, New York City in an article for Wired. The city was supposed to be “a model for big-city high-speed internet,” she explained, after then-Mayor Mike Bloomberg struck a deal with Verizon to install its FiOS fiber service in residential buildings in 2008, ending what was then Time Warner Cable’s local monopoly. In 2015, a quarter of New York City’s residential blocks still didn’t have FiOS, and one in five New Yorkers still don’t have internet access at home. “New York City could be in a very different position today if those Bloomberg officials had called for a city-overseen fiber network. The creation of a neutral, unlit ‘last mile’ network that reaches every building in the city, like a street grid, would have allowed the city to ensure fiber access to everyone,” Crawford wro Instead, multiple states (though not New York) have put up roadblocks to municipal broadband to keep cities from providing alternatives to and competing with local entities. It’s an example of lobbying at its finest, so that powerful corporations can keep competitors out and charge whatever they want. And it’s hardly just the internet. Philippon found similar phenomena in cellphone plans, airline prices, and multiple other arenas, due to a lack of competition. In an interview with the New York Times, he estimated that corporate consolidation is costing American households an extra $5,000 a year. “Broadly speaking, over the last 20 years in the US, we see profits of incumbents becoming more persistent, because they are less challenged, their market share has become both larger and more stable, and at the same time, we see a lot of lobbying by incumbents, in particular to get their mergers approved or to protect their rents,” Philippon told me. Incumbents have gotten good at keeping out competitors — and they’ve been allowed to do it The government is supposed to use antitrust law to ensure competition and stop companies from becoming so big that they push everyone else out. Basically, antitrust is supposed to prevent anticompetitive monopolies. In the US in recent decades, regulators, enforcers, and the courts have taken a laxer attitude toward antitrust, which has resulted in more mergers, or companies growing to the point that it’s hard for rivals to stay in the game. “We basically had a whole legal framework prior to the 1970s that was dedicated to making sure that our businesses were protected from concentrated capital, and so producers were allowed to collaborate in a lot of different ways through unions or coops or various associations, and they got help in the form of lending, supports, patents, copyrights, etc.,” said Matt Stoller, research director at the American Economic Liberties Project, an organization aimed at combating corporate power, and author of Goliath: The 100-Year War Between Monopoly Power and Democracy. “Those were all things that were dedicated to protecting the producer from the capitalist, and we just reversed those assumptions.”