Tax Reform

Is Broadband a Monopoly?

Broadband is often described as the “core” of the Internet ecosystem—little more than the basic infrastructure across which users interact, and subject to heavy-handed government regulations that reflect this assumption. However, AEI visiting scholar Jeffrey Eisenach challenges this assumption, arguing instead that broadband is an integral part of the Internet ecosystem and should be subject to a light-touch regulatory framework like what governs the Internet.

The Internet is widely recognized as a dynamic and competitive industry. On the Internet, people can choose from among multiple, constantly improving products and services to suit their needs. As such, the Internet is subject to relatively light regulation by government. Broadband, however, is often portrayed as a monopolistic highway system distinctly separate from the Internet ecosystem. Some argue that there are insufficient choices in broadband providers and consumers suffer as a result. Disassociating broadband from the Internet ecosystem and branding it as a monopoly has ensured that the market remains subject to preemptive, heavy-handed government regulation.

Yet, research shows that broadband is not, in fact, a monopoly in need of heavy-handed regulation. A majority of homes are able to choose between one or two wireline providers and three or more wireless providers, and consumers are well aware of their broadband options. In fact, according to the FCC, more than a third of all consumers switch wireline broadband providers every three years and between a fifth and a third of all wireless subscribers switch carriers each year.

In a paper released earlier this month, Eisenach makes a compelling case against burdensome regulation of the broadband sector. According to Eisenach, broadband markets are economically indistinguishable from other IT markets—especially with regards to dynamism; companies in a 21st century digital economy compete by making dramatically different products, rather than just lowering prices for existing products.

Generating new, innovative products requires broadband and IT companies to invest—a lot. Eisenach describes this process as a “causal chain” whereby companies invest large sums, differentiate their product, and then use the profits to reinvest. The cycle of dynamic innovation reveals the similarities between IT markets and broadband; Facebook makes a risky investment like purchasing Instagram, while Verizon takes a chance investing in FiOS.

Eisenach is not alone in identifying this similarity in market behavior. In fact, that Federal Communications Commission (FCC) acknowledges that broadband includes a variety of markets like network services, devices, applications, and content. Despite the data, the FCC maintains authority to preemptively ban certain conduct in broadband that is ordinary practice for other industries and unlikely to harm consumers, and broadband continues to be regulated as a monopoly.

Eisenach’s report on broadband competition is relevant to policymakers who wish to see broadband providers continue providing customers with highly-valued services. Private sector investment has played a significant role in rapidly evolving broadband technology. Since February of 2001, the number of American households with broadband access has increased from 4% to 99%. Expansion of this magnitude was largely the result of private sector investment. According to data compiled by U.S. Telecom Association, National Cable & Telecommunications and CTIA-The Wireless Association, broadband providers have invested amounts equal to $2,000 per American household in the past four years.

Policies designed for monopoly telephone services slow private sector growth and should not be applied to a 21st century industry broadband industry that is vital to Americans’ economic opportunity. Policymakers cannot expect that broadband providers will continue to expand access and provide consumers with highly-valued services if private investment continues to be saddled with burdensome regulations. There is great opportunity in the proliferation of broadband services, but only pro-competition policies will keep the industry competitive and free to innovate.

In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A…

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