Minimizing Competition, Maximizing Extraction

A few things I read recently strike me as good (make that “painful”) examples of how the dominant incumbent ISPs are continuing their quest to minimize competition and thereby maximize financial extraction.

The first relates to anti-competitive developments in the political and legislative sphere.  The second relates to the ongoing trend among dominant ISPs to either merge or cooperate in ways that reduce competition and maximize financial extraction.  The third relates to the integration of “content” and “distribution,” as exemplified by Comcast’s recent acquisition of NBC Universal.

Taken together, these three developments highlight a multifaceted trend toward consolidation of market power in the communication sector, and how this trend is threatening the health of an Internet ecosystem that has been a vehicle for massive innovation, entrepreneurial activity and economic growth, and has enhanced the ability of citizens to exercise their First Amendment rights and engage in voluntary association and self-organization.

Buying anti-competitive state legislation

On the political/legislative front, the example I’ll cite is the recent passage of legislation in South Carolina placing harsh restrictions on the ability of local communities to build and operate their own broadband networks.

[Note: for readers interested in more in-depth coverage of the SC law and related issues, I recommend the Community Broadband Networks blog, including posts here and here].

The key point I want to make about the SC law is that it restricts community-owned broadband networks in ways that make it virtually impossible to undertake such networks in the state.  And while the restrictions are less onerous (at least in theory) for some very rural areas, to qualify for less restrictive treatment a community network would have to target an area where at least 90% of households (or more than 75% in a “persistent poverty county”) lack access to Internet service that can deliver at least 768 kbps speeds (which I’ll generously characterize as as “barely broadband.”)

So, the message to SC citizens and businesses from AT&T, CenturyLink and Time Warner Cable (through the state legislators whose political careers they help finance) is: “if more than one out of ten households in your area have access to 768 kbps ‘barely broadband’ service, we’ve taken away your right to build a community broadband network that satisfies your needs for connectivity in the digital age; you and your fellow citizens don’t get to decide how fast (or affordably) you connect to the Internet; we do, and the chief criterion we use is what protects our ability to extract monopolistic levels of profit (which in turn helps finance our continued investment in lobbyists and legislators).”

The giant ISPs get away with this (nearly 20 states now have some such restrictions) because they’ve got lots of cash and political expertise acquired from decades of monopolistic financial extraction and political maneuvering, and are well aware that in our political system, “money talks.”

The sad reality is that profits invested in what I’d call “legal political corruption” generate very high returns for large corporations seeking protection from competition and other political favors.

Promised competition turns into anti-competitive collusion

The second development I want to cite is the spectrum sale and co-marketing agreement involving Verizon and the leading cable operators (for more details and insight see the excellent analysis by GigaOm’s Stacey Higginbotham herehere, here and here).

This multi-part deal will, among other things, reduce or eliminate the once-hoped-for competition between Verizon and the major cablecos (in both wireless and wireline broadband), as envisioned in the 1996 Telecom Act.  It will also provide them a vehicle for anti-competitive collusion that leverages their market power in the key arena of technology development.

(Content + Conduit) * (Monopoly Market Power) = Captive Audience

The third development is discussed in a recent blog post by Susan Crawford, law professor and author of an upcoming book entitled Captive Audience.  The post and the book relate to Comcast’s uniquely powerful position in the industry, as the nation’s largest cable and broadband service provider and, following its acquisition of NBC Universal, also one of the nation’s largest content suppliers.

The post starts by noting that:

Comcast “aggressively outbid” Fox and ESPN to pay $4.3 billion (more than a billion more than the next highest bid) for the TV rights to the Olympics through 2020…[and will] aggressively cross-promote Olympics content across all of its content properties – MSNBC,CNBC, NBC Sports – on all screens.

The reason for all this cross-promotion is to drive everyone and everything into the TV Everywhere umbrella. That’s the idea that “online video” is what you get online when you’re already a cable subscriber.

Crawford, who has spent lots of time studying Comcast and its strategies, then goes on to consider how the company might use the Olympics to tighten the competitive screws on Netflix and other online content packagers that pose a threat to Comcast’s cable TV revenues, yet must rely on the cable giant’s broadband networks to reach the 40 million homes in its service area.

[I]magine the most beloved content possible:  the next tiny Romanian gymnast battling against tremendous personal deprivation. Imagine that incredible global human story is available online or through your smartphone or tablet. Convenient! Imagine, finally, that you show it online only to people who subscribe to cable. All those cable subscribers will get used to the idea that online video is “free.” It’s free as long as you’re a subscriber. That makes Netflix or any other “virtual” programming distributor that tries to charge for its stuff look expensive, additive, luxurious, unnecessary.

Crawford concludes her post with:

For most Americans, their only choice for wired access at the speeds they’ll need for 21st century life will be the local cable operator. Those operators don’t face any real competition.  

And now they’ve got Nadia.

To repeat a paragraph from the start of this post:

Taken together, these three developments highlight a multifaceted trend toward consolidation of market power in the communication sector, and how this trend  is threatening the health of an Internet ecosystem that has been a vehicle for massive innovation, entrepreneurial activity and economic growth, and has enhanced the ability of citizens to exercise their First Amendment rights and engage in voluntary association and self-organization.

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