Monopolies Suck
A short piece in which I continually widen the scope of the issues addressed.
The fact that I have precisely one choice for high speed internet in the capital city of Minnesota irks me to no end. For someone who will return to higher education and is currently freelancing doing webdesign, high speed internet is a need, not a want. So, I must pay what Comcast asks, and I have no other choice. As I said in the title, this sucks. Could it get any worse? I’m stuck as a customer of a coercive monopoly so… of course it could get worse. Read on.
As a practical, not hypothetical example, take a look at the media colossus that is Time Warner. This company includes AOL, Home Box Office, New Line Cinema, Time Inc., Time Warner Cable, Road Runner Cable, Turner Broadcasting System, The CW, Warner Bros. Entertainment, Cartoon Network, CNN, and DC Comics. Now, pick out two of those companies: Home Box Office (or more commonly, HBO) and Road Runner High Speed Internet. Buckle up, now it gets interesting.
Does anything about the relationship between these two companies, HBO and Road Runner Internet, strike you? Examine their business models: HBO sells premium cinematic and live content to home viewers, on demand. Road Runner Internet sells high speed access to the internet. OK, no overlap, no problem! But what if we described Road Runner Internet as a conduit to something like the Apple TV service, where you could rent premium cinematic content, on demand. Well now then, there seems to be some overlap, doesn’t there?
Put yourself in Time Warner’s shoes — users of their services can either buy HBO content at large markups or rent movies over Road Runner at reasonable prices. With HBO, Time Warner makes money… but with Road Runner, they lose money. In response to this conflict, Time Warner will not evolve their services to be more competitive, they will only raise prices to account for the data moving over their networks. How much data? Using the information from the Apple TV tech specs page, we can calculate that a movie like Ratatouille is about 2.4 gigabytes. How big is this? Well, consider that Time Warner is running a pilot program in Texas that limits monthly bandwidth usage to 5 gigabytes. That’s two iTunes rentals a month, provided you do almost no other internet browsing. Want 10 gigabytes a month? Pay more! In this way, Time Warner leverages its monopoly to raise the effective price of iTunes movie rentals. Diabolical, no? Steven Levy, writing in the Washington Post, recently articulated this same point:
Clearly it won’t just be inductees to the LimeWire Hall of Fame who are hit with excess charges.
Those penalties could be rough. Bell Canada, which meters service in some plans, charges customers who go over the limit $7.50 per additional gigabyte. (The Canadian dollar is worth about as much as the U.S. version these days.) That would jack up the $2.99 iTunes rental fee for “The Magnificent Seven” by 10 bucks.
Levy continues discussing the issue with an interesting factoid, on a topic dear to my heart:
Time Warner’s move illuminates some of the troubling issues facing the United States in the Internet era, where, in terms of penetration, we are in 24th place — behind Estonia — in the international broadband competition.
The truly sad state of internet access in the U.S. becomes even more glaring with a few more facts:
In the United States, where the Internet was born, we pay higher prices (seven times what they pay in South Korea) for slower speeds. (Japan’s users surf 13 times faster.) Though President Bush promised affordable broadband for all by 2007, tens of millions are still stuck with dial-up.
I wonder if, as Levy seems to articulate, internet devolution in the U.S. is merely a symptom of a greater problem — a stasis in innovation and government investment in driving science and industry forward. Let’s hope we don’t look back at this time and, with the benefit of perspective, see our country make stupid decision after stupid decision, condemning us to industrial, technological, and intellectual insignificance. Let’s hope crappy movie rental options are one of the larger concerns in this information age mess. Otherwise, we may be going nowhere rather quickly.
Comments
yoshi
Broadband penetration rankings are meaningless. Especially when you consider that the populations of places like Japan and Canada live mostly in a small number of dense areas where the population of the US … well … doesn’t.
Btw where I live in Minneapolis - I have five options for internet access. If this job is so important - may I suggest moving?
Alexander Micek
I disagree, but thank you for your opinion — it has clarified my own stance: broadband penetration is meaningful. Here’s why:
Broadband penetration is generally represented as a statistic, the number of people per 100 that have access to a high speed connection. You are arguing that, due to their densely packed urban centers constituting the majority of their populations, countries like Japan and Canada can offer broadband at a lower price, increasing penetration (more people per 100 have access). However, I encourage you to look at the statistics at <oecd.org>; of the top 8 countries with the highest broadband penetration, half have population densities that are less (sometimes much less) than the United States:
Broadband Rank | Country | (population density)
#1 Denmark (129/km^2)
#2 Netherlands (395/km^2)
#3 Switzerland (181/km^2)
#4 Korea (328/km^2)
#5 Norway (12/km^2)
#6 Iceland (3.1/km^2)
#7 Finland (16/km^2)
#8 Sweden (20/km^2)
#15 United States (31/km^2)
Of course, one might say “well the population of a place like Finland is really concentrated in one area, so they can cheaply supply one urban area and still have a low overall population density!” This type of person would feel that broadband penetration is determined by population density. The counterexample to this is India, with a population density of 329 people per square kilometer: at 3%, it ranks below Mexico in broadband penetration.
So, broadband penetration is meaningful because it shows us that there is something more than geography going on here: that something is government regulation. These countries with such low population densities have such high broadband usage rates because their governments had the foresight to guide the development of an environment where high speed internet could reach the greatest number of people at the most competitive price. My point (and this is what I thank you for clarifying) is: had the United States regulated in a different way, our internet access could be almost ubiquitous, paving the way for higher quality access in the future.
Source: OECD “Broadband subscribers per 100 inhabitants (June 2007)”
Nils +1
If your ISP limits your data flow and you want to rent movies, why not leave your house and go to a video store? Why not get a Netflix membership? Or Blockbuster’s version of Netflix service? I guess my own opinion is that renting/buying movies on iTunes is stupid. If I’m paying for a movie, I don’t want to be limited to watch it on a computer. I also love special features, behind-the-scenes featurettes to no end. Does iTunes provide those?
And if freelance web design is your shtick and is important to you, maybe moving to an area that offers more internet options would be the way to go (as Yoshi suggested).
Also, is broadband penetration more important than plain internet penetration? What percentage of the US population does not have access to the internet these days? I think that number is pretty small.
But, I agree, monopolies suck.
Richard +1
Blockbuster is shutting down their Netflicks like service due to not being able to compete with Netflicks on a cost level.
Whats more disappointing than the state of land line broadband is the state of wireless communications. The US is pathetic when it comes to wireless technologies.
The foundation of all this stems from collusion. The officials in a position to do something about these monopolies receive large amounts of donations from the telcos (telecommunication companies) to support their campaigns and other endeavors (aka yachts). In addition to direct donations, telcos have an army of lobbyists and marketers. Since they are in control of the media to begin with, it’s not hard for them to produce a campaign that gets your average American thinking that concepts like net neutrality are bad for you.
As a student of economics I understand the need for a free market and the removal of government regulations. However, unlike the telcos would have you believe this is not a perfect competition. There are steep entry fees (infrastructure installation, government applications, etc.) that prevent startups from being remotely possible.
In regards to the actual technological state of broadband, it’s all about money. Why upgrade your infrastructure when you can make a large profit off the existing infrastructure? Like Alex said, there are no companies to induce competition and force the telcos to better their product.
The bottom line is that until we get some “clean” politicians or perform a mass user strike, there will be nothing that persuades the telcos to market their products to the end user. That means dark ages broadband and wireless for years to come. I’m getting fed up with this country. It’s time to learn a different language and find a better standard of living.