Settles: Congress Can Protect High-Tech Innovators

Posted May 28, 2010 at 5:15pm

The media and others have been in something of a tizzy over the Federal Communications Commission’s intent to switch Internet service providers’ classification from “information services” back to telecom companies. The telecom industry lobbyist machinery has gone into overdrive in its “Kill Bill” mode.

[IMGCAP(1)]One interesting approach that’s taken hold is the put-on-a-happy-face tactic: Drown the public and Congress with a flood of facts that “prove” the wireless industry is competitive and innovative. The idea is to stave off needed regulation by showing that all is well.

A recent blog post from industry lobby group CTIA led off with “facts are stubborn things,” a handy Thomas Jefferson quote. A better quote to sum up the impending flood comes from the poet Andrew Lang, who quipped, “He uses statistics as a drunken man uses lampposts … for support rather than illumination.”

The state of broadband — for consumers, businesses and nonprofits — isn’t the rosy picture the industry powerhouses attempt to paint. Ignoring this reality can lead to bad policy decisions and bad legislation.

The purpose in challenging the industry PR machine is not to separate fact from fiction but to separate reality from stated facts and the context of their use.

Take this interesting tidbit from an industry document: “Under proposed revised Horizontal Merger guidelines by the Department of Justice and Federal Trade Commission, the U.S. is the only wireless market among the 26 [Organization for Economic Cooperation and Development] countries not classified as highly concentrated.” Having just co-authored a report on the state of broadband competition in the U.S., I can tell you with certainty there are several ways to factually support a positive or a negative view of competition. However, you can’t escape the reality of market share, particularly when you take data directly from millions of subscribers to determine who uses which providers, as we did.

Most states may technically have 60 to 80 Internet access providers. However, in practically every state, the combined statewide market share of all but the top five or six providers might total 5 percent, if you’re lucky. In at least half of the states, data show the combined market share of the top two providers ranges from 70 percent up to 95 percent. That represents near or actual duopolies, most often with one wireless and one cable provider as the undynamic duo.

Life at the local level, which is where your true subscriber options exist, further challenges the industry’s claim that people have choices. If you count “having choices” as living in an area where several companies advertise broadband service, or consider dial-up speed as broadband, OK.

But go door to door in rural counties and small towns. The reality you often find is one major carrier providing fair to poor service to some and no service to the rest, plus some small local providers with 2 percent or 3 percent market share struggling to provide decent service in the face of endless efforts to smite them from the planet. If you’re in one of the few states with four or five providers that each have statewide market share of 8 percent to 15 percent, it’s likely each provider is concentrated in a portion of the state, creating a local reality that’s worse than state statistics.

Our investments are huge. Our customer satisfaction levels, not so much.

The “we’ve invested billions” argument’s a little silly. First, the fact that incumbent companies invested a lot of money doesn’t change the reality that plenty of your constituents in smaller markets, and in some of the larger ones, despise their service and their service provider options. It doesn’t eliminate the reality that providers don’t and won’t serve many areas that need it the most. If they aren’t investing where broadband is needed now, incumbents’ threat to not invest if you regulate them is a joke. Unserved communities are damned if you do, damned if you don’t.

Also, you can’t sugarcoat the reality that, even with the best service and speeds wireless delivers, businesses, hospitals and consumers want way more speed than incumbents are capable of delivering. When a small rural town in North Carolina with an IT staff of fewer than 12 can build a network offering speeds at least 10 times that of wired or wireless companies’ best offerings, do you really want to brag about spending $20 billion for infrastructure? Could it be they spent well, but not wisely?

Top execs at the big wireless companies like to throw out the fact that the U.S. has more users of third-generation mobile devices than several countries in Europe combined. If 30 million subscribers represent 55 percent of a total population, and 10 million subscribers represent 95 percent of another country’s population (all hypothetical numbers), Country A has numerical superiority, but in reality its broadband adoption rate sucks wind compared with Country B. And why does the industry cite facts about the cost we pay for calling plans compared with other countries when it’s really the price and speed for data plans where the U.S. gets smoked?

Finally, there’s a string of wireless incumbents’ self-congratulatory facts about their innovation. I love how they wrap themselves in numbers such as “240,000 apps from 7 different stores on 7 different platforms” and “more than 257 million data-capable devices.” As if these innovations of others such as Research in Motion and Apple are directly attributable to incumbents. That’s sort of like Amtrak claiming their Northeast Corridor train line is the height of innovation because of all the Ph.D.s New England colleges produce.

Look at 15 years of Internet innovation (Facebook, eBay, Salesforce.com, craigslist, etc.) and you’ll see these came from bedroom offices, garages, small businesses with vision, college dorm rooms, tech park incubators. The arc of broadband innovation bends toward these varied sources that are depending on Congress to protect them from incumbent choke points or detrimental business practices that limit rather than open potential markets. A torrent of stubborn facts about how great broadband is won’t change the broadband realities that are just as stubborn in rural, small-town and low-income urban markets. On the other hand, supporting FCC policies that lead to better, faster broadband services just might.

Craig Settles is an industry analyst, co-administrator of Communities United for Broadband and author of the report “Fighting the Next Good Fight: Bringing True Broadband to Your Community.”