A great number of residents of the Sierra Nevada, like so many rural Americans, remain without adequate, reasonably priced connections to the Internet. Given the dominance of this technology in our economy and culture, and the seeming ease with which others can get connected, it is well worth wondering why high-speed internet is either inaccessible, overpriced, or of low quality for so many people in this otherwise innovative and wealthy country. So what happened?
Broadband in Context
In the decades since its inception, Internet service has grown from a niche market, useful only to a small population of technologically-savvy individuals, into a necessity for most Americans. However, due to the rapid rise in the number of people who use the Internet, and the strange way in which the technology has evolved, regulations in the United States have largely been unable to keep pace. The result has been the increasing dominance of a few very powerful companies, highly-priced service, and a growing disparity between the services available to those who live in major cities and those who do not. Put simply, Broadband Internet, the name we now give to Internet at modern speeds, constitutes the major antitrust issue of our time. This post seeks to remove some of the mystery around broadband, and, by means of a brief historical synopsis, to place it in the context of other, similar industries in the United States.
Antitrust in the United States
Although laws against anti-competitive business practices have existed since the days of the Roman Republic, the legal framework now known as “antitrust law” in the United States had its beginnings in the late nineteenth century. During that time, hundreds of small railroad companies were being bought up and incorporated into larger systems. Given the enormous expense of laying track, building duplicate networks that competed with one another was not economically feasible, and the large holding companies that owned the track developed into regional monopolies. This position as the only entities that could transport certain goods across large areas of the country gave these railroad companies the ability to raise prices to extreme levels, and allowed them to give preferential treatment to major players in other industries for space and pricing on their train lines. This, in addition to separate but similar practices in other sectors, resulted in cross-industry networks of monopolistic cooperation, and gave rise to unprecedented accumulations of wealth and market power. Major players in this cross-sector system included Cornelius Vanderbilt, Andrew Carnegie, and J.P. Morgan.
As a result of this widespread anticompetitive behavior, small and medium-sized businesses were often unable to gain a foothold in the market, and American consumers suffered. To help solve this problem, various pieces of so-called “antitrust” legislation were passed in order to help increase competition and preclude monopolies. The most famous of these, the Sherman Antitrust Act, makes it illegal to attempt to restrain trade or to form a monopoly; this law remains the core of U.S. antitrust policy.
The Communications Act of 1934
The advent of widespread telephone and radio communications in the early twentieth century created a similar situation: the laying of duplicate phone lines by competing firms was cost-prohibitive, and radio frequencies could only be used by one broadcaster at a time in a certain geographical area.
The case of telephones in the early years of the twentieth century is the best analogue available for broadband today: telephone companies built wired networks in highly-dense areas in order to gain the best return on investment per mile of copper wire, raised prices for their customers because it was prohibitively expensive for a competing company to build a new network over the existing one, and ignored rural or poor customers who could not promise the same rate of return as their urban or wealthy counterparts.
The Communications Act of 1934 was passed in order to address this problem in a comprehensive way. Under Title II of this Act, “telecommunications companies” were allowed monopoly status but, in order to be allowed to maintain this status, were required to submit to pricing regulation and to build out their networks to any and every customer who requested it. This law also created the Federal Communications Commission, the independent government agency responsible for communications-related regulation. This act is the reason that generations of Americans have enjoyed universal and moderately-priced telephone service.
The Arrival of the Internet
The evolution of the Internet created unforeseen challenges to this doctrine of universal service. The very earliest communications that could be referred to as “Internet” took place over copper telephone wires. As this was existing infrastructure, there was no reason to regulate the Internet as a new form of communication. Fairly quickly, however, providers of cable television service entered the market for Internet connectivity, competing directly with telephone providers. Cable television, unlike telephone service, did not fall under the purview of Title II of the Communications Act of 1934, as it was considered neither a telecommunications service nor a necessity for most Americans.
This situation, direct competition for a single product between two separately-regulated industries, left regulators in a difficult situation. In order to maintain a fair business environment, they would have to decide whether to include cable Internet in the “telecommunications” category with phone service, or deregulate Internet over phone lines so that cable companies would not have the regulatory upper hand.
A concurrent change in telecommunications law cemented this state of affairs. At around the time that the Internet was first becoming widespread, President Clinton signed the Telecommunications Act of 1996. This new law was meant to update telecommunications policy for a new era in which the copper telephone wire no longer reigned supreme, and it opened the communications market to so-called “media cross-ownership.” According to the FCC, the goal of the law was to “let anyone enter any communications business, to let any communications business compete in any market against any other.” In other words, cable companies and telephone companies were now permitted to compete against each other in the same markets. If the two markets in question had only been telephone service and cable television, this likely would not have become a major problem: telephone service would have remained highly regulated, regardless of the company providing it, and television would have remained largely unregulated, even if telephone companies had chosen to enter the market.
In 1996, however, it was difficult to predict the speed with which the Internet would become many people’s primary mode of communication. The fact that, by technological happenstance, it fell into the same largely unregulated category as TV, combined with new federal permission for anyone to compete in that market, largely undid the universal service provisions of the Communications Act of 1934. Universal service would remain the federal policy for telephones, but the age of the telephone was drawing to a close.
Today’s Broadband Market
As a result of this odd regulatory history, the condition of the twenty-first century broadband market is much more similar to that of the 1880’s train or telegraph market than to that of the telephone market for most of the twentieth century. Due to unpredictable technological and legal circumstances, the Internet remains the last major “unregulated utility,” and the result has been a return to the anti-competitive business practices of the Age of Steam. Most providers of Internet service, particularly wired service, do not seek to compete in the same geographical markets as other providers, due to the high cost of building physical infrastructure. Rather, each Internet service provider generally seeks to gain infrastructure dominance in a particular geographical zone, and to deter the construction of competing networks. Providers are also not incentivized to build in areas that have low housing density or low-income customers, as the rate of return in those areas on their infrastructure investment is low and competition from other providers does not push them into those relatively low-return markets. It is for this reason that so many residents of the Sierra, and of the country at large, have only one service provider from which to choose. This, in turn, has resulted in high prices and slow speeds.
So what can be done? First of all, laws can be changed. With the increasing importance of the Internet in modern life, it is highly likely that, in the not-too-distant future, politicians will realize that “Internet as a utility” is a winning issue. When that happens, and the Internet becomes subject to the same regulations as telephones, providers will be required to build it out to every home that requests it, and at reasonable rates. In the meantime, however, there are some very interesting local strategies that have been employed across the United States to increase competition in otherwise monopolized and lack-luster markets.
Some communities, such as the town of Ammon, Idaho, have begun building their own municipally-owned fiber networks to break up the monopoly power of private providers. Other municipalities have implemented so-called “Dig-Once” policies. The main obstacle to building a new network to compete with an existing one is the cost of digging trenches in order to lay cables; Dig Once policies require any company that digs a trench in the ground to allow other companies to lay their own equipment in the trench while it is open, rather than digging their own (with the cost of digging the trench then shared between the companies that use it). At the end of the day, the goal is to increase competition: the more competing firms exist in a market, the better the product and the lower the price for consumers. If we can get more firms to compete in the same areas, the better the Internet will be, and the broader the access to it in rural areas.