Meanwhile, Google made an announcement that they are looking to expand their unparalleled, speedy 1 gigabit internet service (100 times the national average) to 34 more cities. This would be a massive expansion of their service, as currently it is limited to three cities: Provo, Kansas City, and Austin (announced just last year).
All this maneuvering between Comcast, Time Warner, Netflix and Google is important because, in our fast-paced and modern society, we are wholly dependent on the internet for nearly everything we do now. However, the increasing prominence of the internet in our lives has not been matched by respective increases in quality and efficiency of the products used to deliver it. In fact, the products being offered by these telecommunications companies in the US are simply inferior compared to those offered in the rest of the world. Citing a recent study by Ookla, John Aziz of The Week writes that the US ranks 31st in download speeds and 42 in upload speeds, behind Estonia and Lesotho respectively. So much for American exceptionalism. However, the lackluster nature of internet service in America is far out shined by the dismal management of it.
In 2013, Business Insider evaluated data from the American Customer Satisfaction Index (ASCI), ranking the worst companies for customer service. Of the fifteen companies evaluated, four were internet service providers: ATT, Century Link, Comcast, and Time Warner (Charter and Cox made it on the list for their TV service). The telecommunications companies also did not fare much better in the Consumerist's "Worst Company in America" poll for 2014. Not only did Comcast win, but ATT, Time Warner, and Verizon were also ranked.
These statistics are relevant as, generally the shortcomings with the products and services provided by these companies would eventually be remedied by superior products and services of other competitors. So where is the competition? An analysis of the testimony from the executives of Comcast and Time Warner, who testified last week to the Senate as to why their proposed merger should be allowed, offers more insight into the practices of the industry as a whole. In their Joint Statement, executives David Cohen (Comcast) and Arthur Minson (Time Warner) made several very dubious, eyebrow-raising claims to say the least.
"First, Comcast and TWC do not compete for customers in any market - either for broadband, video, or voice services. The transaction will not reduce competition or consumer choice at all. Rather, the transaction will enhance competition in key market segments, including advanced business services and advertising. (page 3)."The executives assert since the two companies don't directly compete, the merger will not have an affect on competition. That very idea is the reason why every American should not only be worried about the state of the telecommunications industry in the US, but downright furious. In the eastern portion of the US, while the two companies are not directly competing, their markets are literally interspersed among one another, all along the coast line (chart below taken from page five of the Joint Statement):
If the two companies were following the traditional model of accumulating market share, sooner or later two such titans would come to blows, would they not? That is the exact reason why the statement is so preposterous. Just because they do not compete now, doesn't mean they eventually would not down the road. The merger will essentially eliminate a suitor for competition. Frankly, the business acumen should be in question of anyone, not to mention two industry executives, making the argument that the loss of a competitor in an industry will actually "enhance" competition. A glance at the map also makes one wonder, how are these two companies, with their markets so close to one another, already not competing?
The answer is quite simply that they do not have to. According to the FCC, 30% of American households have only one choice for internet service (Hello data caps!). Why endure the capital costs of expanding fiber optic networks as well as reduced profits due to increased competition in new markets, when you can just sit back and have your business defaulted to you? Verizon's decision to simply stop its FIOS expansion is further evidence of this. Essentially, companies like Comcast, Time Warner, and Verizon have carved out their own hegemonies and have abandoned the age-old business rite of success-by-market-share (images of the Second Triumvirate carving up the map come to mind).
As if the arguments before the Senate could not get any more absurd, our two friends double-down on their "less competition means more competition" fairy tale several times throughout their joint statement (pages 36, 37) and even had the gall to say that improving customer service is a top priority (page 28). How can this merger help these two companies enhance their customer service, where as mentioned earlier, their historically abysmal customer service track record shows they didn't care much about it before this transaction? They even cite the expansion of Google Fiber as a reason to approve the merger (page 41), essentially implying that because Google is competing, the market must be competitive. The utter irony of two noncompetitive industry giants citing a competitive upstart as a reason for their merger to be approved is astounding and downright disingenuous.
The very reason such a statement is disingenuous is that these industry leaders have waged a punitive anti-competition campaign for a decade. Earlier this year, industry lobbyists submitted Senate Bill 304 to the Kansas State Legislature with a goal of banning community broadband service across the state. This is a direct response from the industry to Google Fiber, as Google partnered with Kansas City to launch it service. Interesting how, the answer from the industry to Google is not to innovate, but to try to pass a bill to limit competition. So after getting their butts kicked in the Kansas City market their answer was to legislate instead of innovate. Not very competitive and also nothing new from the industry. In fact, there are already 20 such laws nationwide. It is quite clear now that Google has become the driver for competition in the industry. In fact, ATT announced their own fiber expansion in Austin, only after Google launched their service, of course.
If the hypocrisy of touting the benefits of competition to the Senate while having pursued nearly a decade's worth of legislation limiting such competition is not bad enough, the industry players have also been forcing out competition by other means: frivolous lawsuits. In an interview with Ars Technica, Michael Wagner, former engineering chief of Falcon Broadband, describes the company's woes to launch their service:
"They did not want anybody else to come into their territory because they wanted to have that monopoly with their franchise agreements," Wagner told Ars. "What they started to do was file frivolous lawsuit after lawsuit to try to basically bankrupt us so we couldn't compete." Wagner recalled about 10 lawsuits from Adephia, and later Comcast, who took over Adelphia's operations in 2006.So despite Cohen and Minson's best efforts, it is quite clear that the industry is nowhere near as competitive as they are spinning to the Senate, with frivolous lawsuits just being another tool used by industry giants to smother potential new competition.
At the end of the day, there really is not much for the American consumer to do, unfortunately. Our only recourse is to really bide our time for the Google bogeyman to expand its reach and bring more competition to the industry. It is reassuring that, despite Google Fiber's immense popularity and demand, Google is not resting on its laurels, but developing even faster internet than its already-fast fiber service. In time, this may bring change to a stagnant industry, all because the industry giants themselves have legislated and litigated to remain noncompetitive and block new competition. In America, where we espouse the benefits capitalism and the competition it creates, it is quite clear the opposite is true for our telecommunications industry leaders.
References:
http://www.nytimes.com/2014/01/16/opinion/a-disappointing-internet-decision.html
http://corporate.comcast.com/news-information/news-feed/time-warner-cable-to-merge-with-comcast-corporation
http://www.usatoday.com/story/money/business/2014/02/23/netflix-comcast-deal-streaming/5757631/
http://www.nytimes.com/2014/03/21/business/media/netflix-chief-alters-view-on-net-deal.html?_r=0
http://arstechnica.com/business/2014/03/google-fiber-expansion-moves-fast-san-antonio-approves-construction/
http://business.time.com/2013/04/08/google-fiber-reportedly-coming-to-austin-tx-as-cities-race-to-boost-web-speeds/#ixzz2Q7YyUMPL
http://www.businessinsider.com/companies-with-worst-customer-service-2013-5?op=1
http://www.dailytech.com/Comcast+Voted+Worst+Company+in+America+for+2014+/article34678c.htm
http://theweek.com/article/index/257404/why-is-american-internet-so-slow
http://bgr.com/2014/03/14/home-internet-service-competition-lacking/
http://www.wired.com/2013/12/verizon_fios/
http://www.judiciary.senate.gov/imo/media/doc/04-09-14CohenMinsonJointTestimony.pdf
http://www.kansas.com/2014/02/01/3262071/proposed-bill-to-outlaw-community.html
http://bgr.com/2014/04/01/google-fiber-locations-spreading-isps-react/
http://arstechnica.com/business/2014/04/one-big-reason-we-lack-internet-competition-starting-an-isp-is-really-hard/
http://www.wired.com/2014/02/100-gigabits/
