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Timothy Karr

Timothy Karr

Posted: March 11, 2010 10:48 AM

Communications Breakdown

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Too often in Washington, words speak louder than actions. Tuesday, however, was not one of those times.

As lobbyists for the largest Internet providers gushed over a National Broadband Plan designed to deliver fast and affordable Internet services to Americans who are currently priced out of the market, one of the largest providers, Comcast, informed customers that it planned to raise its rates even higher.

For those in Comcast's service area, the news couldn't have come at a worse time. Some 35 percent of the country is still stuck on the wrong side of the digital divide. Their main obstacle to access is cost. Surveys by the Pew Internet & American Life Project, the Federal Communications Commission and others find that most of those without broadband say "the price would have to fall" before they can afford to connect.

But Comcast won't go there. Instead, the cable giant opted to jack up rates for access to all of its broadband services, including prices for its most basic offerings.

Inclusion Illusion

But don't let that news stop Comcast's top lobbyists from talking a good game about digital inclusion.

"Getting more Americans connected to broadband -- it's a critical goal that we should all support," Joe Waz, Comcast's Senior VP of External Affairs, wrote late last year. The FCC's national broadband plan is a "real blueprint for how we address the nation's true broadband priorities," he added in January.

Still, the company seems unwilling to explain the rationale for its latest price increase.

Landel Hobbs, the chief operating officer for Time Warner Cable, offers his perspective. During a meeting with investors, Hobbs said his company can raise broadband prices simply because it can get away with it: "Consumers like it so much that we have the ability to increase pricing around high-speed data."

Not quite. It's not that consumers like pricey cable services like Comcast and Time Warner Cable; it's because they have few to no other choices in the marketplace.

Market Failure

There are 11 major Internet service providers in America (companies with more than a million customers), according to market research by ISP Planet. But those numbers can be deceiving. Most communities that have high-speed Internet access are only served by one cable and one telephone company. A significant number of rural communities lack any broadband options. And alternatives to phone and cable, like wireless Internet and broadband transmitted over power lines, still fail to offer viable competition.

All told, this phone and cable duopoly controls more than 95 percent of broadband connections to the home in the United States. Americans have few choices but to pay far too much for Internet connections that are much slower than what's available to consumers in developed countries in Europe and Asia.

Spiraling broadband prices are a key indicator of this marketplace breakdown. While the costs for providing connections to homes are declining, Internet providers keep hiking their rates. It's an arrangement that benefits local cable monopolies well, while emptying customers' wallets.

As a result, cable operators' record obscene profit margins. Craig Moffett, an industry analyst for Sanford C. Bernstein & Co., noted that the margin for Comcast's broadband service is on the order of 80 percent. In other words, Comcast charges customers $40 for something that costs the company $8 to supply.

Highway Robbery

On Wednesday, FCC Commissioner Mignon Clyburn said in a statement that price increases like those announced by Comcast are "an issue we must examine closely going forward."

"Just as we are in the process of proposing steps to ensure that more people are comfortable signing up for broadband service, providers of that very service are raising prices," Clyburn said. "Across-the-board price increases, especially on those who can least afford it, should raise a red flag for the Commission."

This is a good sign. The FCC has long avoided confronting the competition problem, leaving American consumers at the mercy of phone and cable executives whose only interest is in overcharging customers to boost their margins.

The resulting competition failures are why America continues to lag our global counterparts in every measure of broadband success.

"We hope that the FCC follows Commissioner Clyburn's lead and confronts these issues directly," Free Press Policy Director Ben Scott said in a statement. "American consumers need the market to work for them, not against them."

The public will take the industry's rhetoric about closing the digital divide more seriously when it walks its own talk.

 

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