Denying Competitive Substitution is Weakest Link of FCC’s De-Competition Policy

May 31, 2011

In order to justify broadband price regulation in the Open Internet and Data Roaming orders, the FCC and FreePress must continue to undermine Congress’ competition policy by denying the increasingly obvious and incontrovertible facts that users competitively substitute broadband services between various broadband technologies like copper networks/DSL, cable modems, fiber, WiFi/WiMax, wireless broadband, and satellite.

  • Today the Pew Research Center released a new¬†reportthat 24% of adult Internet users have placed calls online, the equivalent of 19% of all American adults.
    • “On Any given day 5% of Internet users are going online to place phone calls.”
  • This is on top of the well-respected CDC research seriesthat estimates that:
    • More than one of every four American homes (26.6%) had only wireless telephones…” and
    • “…nearly one of every six American homes (15.9%) received all or almost all calls on wireless telephones despite having a landline.
  • Even in the face of this overwhelmingly obvious evidence of users competitively substituting services across technologies, the FCC in its seminal FCC Qwest Phoenix Forbearance Order in mid-2010 refused to acknowledge that wireless phones compete with wireline phones!
    • FCC: “Although the leading mobile wireless providers have ubiquitous networks… we cannot conclude on the basis of the record that residential mobile services fall within the same relevant product market as wireline services.
  • With all the evidence and common sense experience of most every consumer, why does the FCC ignore everyday reality and the facts?
    • The sad answer is that the “expert” agency here has a powerful conflict of interest.
      • If the FCC admitted that convergence, the Internet and competition policy actually works (like everyone else knows), and acknowledged consumers in fact choose between competing technologies for their broadband services every day, then the FCC would have to face the unpleasant reality that the FCC is ripe for reform and downsizing over time– to better synch up limited government resources with the public’s rapidly diminishing need for FCC price regulation expertise.
        • It is clear the FCC is in competition denial, and as I described last week, the FCC is desperately in search of relevance in the broadband competition era.

The indefensibility of the FCC’s denial of competitive substitution is that in the December Open Internet Order, the FCC classified competing broadband technologies as providing the exact same Broadband Internet Access Service (BIAS).

  • How can the FCC logically claim that competitive Broadband Internet Access Services that for regulatory purposes all do the same thing — provide broadband Internet access services — are not also competitively substitutable?
  • How is what is good for the goose not good for the gander here?

This ignoring of obvious marketplace evidence that any consumer can see clearly for themselves — that different broadband technologies enable the same competitively substitutable Internet, voice and video applications — is a quintessential example of arbitrary and capricious behavior by a regulatory agency.

Unfortunately, the FCC has a powerful self-interest to be “competition deniers” — i.e. bureaucratic survival.

As long as Congress, the courts, industry, and the public allow the FCC to keep their technology-silo blinders on, and only see intra-industry competition within technology-silos, and remain blind to inter-industry, cross-technology broadband competition, that was the core purpose of the Telecom Act and Section 706, the FCC will continue to deny effective broadband competition exists.

In sum, what’s badly needed now is much more research, surveys, and data-driven evidence that show consumers and businesses competitively substitute different broadband technologies routinely in the marketplace, so that the FCC cannot continue to deny effective broadband competition exists in stark opposition to reality, the law, and the real public interest.

 

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