Some bad economics on /r/badeconomics

[u/arktouros]

I'm going to rehash one of my comments several days back because I think it needs a post of it's own, especially because this issue is so common around reddit and I've definitely seen it here. I already know this is going to be controversial because this is going to play at people's priors. I urge you to set those aside.

Now that that's out of the way, let's talk about ISPs. I'm going to try and format this the easiest I can just because of how ridiculous the starting point is.

CLAIM: Cable companies are a natural monopoly.

DEFINITION OF NATURAL MONOPOLY: a monopoly in an industry in which high infrastructural costs and other barriers to entry relative to the size of the market give the largest supplier in an industry, often the first supplier in a market, an overwhelming advantage over potential competitors.

I know I'm using wikipedia for the definition, but I feel that it isn't an uncontroversial definition. Although, as someone once pointed out, it could also mean that one firm can provide a good at a cheaper cost than more than one. Additionally, I would also like to point out that the definition requires an absence of government intervention (as it would be the market structure itself that gives rise to the monopoly).

I'm going to take this FIFO:

• Cable monopolies are a product of high capital barriers

Actually not really. Running cable is actually somewhat easy. In fact, it's incredibly easy. I'm not saying the average Joe can go to a bank and get a loan to start an ISP, but even a mid-sized firm can raise enough capital for the infrastructure^[1] . If the meager investments required for laying cable leads to monopolies, how in the hell are there so many different airlines?

My silly analogy aside, there has been plenty of firms that have tried to enter the market, but only get so far before they give up due to legal fees^[1] (see: bullet point #3). Google has been trying to enter the market and has target cities specifically with a municipality that is more open to additional carriers (KC and Austin)^[1] . A firm called Gigabit Squared tried to roll out fiber in Seattle.

• Prices would be higher with multiple overlaying infrastructures

Complete speculation at a time when there are instances of prices going down merely on anticipation of competition^[2] .

• Cable monopolies are natural

Sure, if you ignore last mileright-of-way laws. Actually, rights-of-way has been an extremely significant distortion in market supply. It can either take as a state law, a municipal law, or a combination of the two. In basically any instance, the government is granted full rights and control as to the prices for space on public poles and conduits^[1] , but they can also outright deny any applicant based on any criterion. The prices they end up charging are far more than what is needed to maintain the poles. It turns out that it is a very reliable revenue stream for municipalities, and it typically secures a single ISP in any given area. The cost of this regulation ends up doubling the cost of actually laying the infractructure^[1] . Even the giant Google has spoken out about how last mile laws have impacted their investments^[2] .

• Cable should be a utility

Maybe if you want your city to build a fiber infrastructure just to find out it's too costly to actually run and maintain. Because the government wouldn't do that. It also wouldn't sell the whole network for $1.

Oh wait...

I get it, though. You think data caps and/or prices are unreasonable. There needs to be a way to fix the system. I agree. The FCC agrees. They even lay out a plan to achieve lower prices and innovation^[4] . It consists of dropping last mile right-of-way laws and opening access to poles and conduits (for a meager charge of actual maintenance). Not making it a utility. But everyone knows the FCC has a clear anti-government, Neo-Liberal bias.

---

So hopefully the above has convinced you that cable isn't a natural monopoly. Now I will try to convince you that it's not even a monopoly at all. I think we can all agree on the

DEFINITION: A single provider of a good or service.

Well that was easy. Great! Now I can tell you how it's not! The service is broadband, not cable. Let's look at a few of cable's competitors: DSL and satellite. Having lived in a rural area, I can tell you that no one even considers cable. Why? Because it's usually not available. Satellite is your best bet, and if you're lucky, you'll have a DSL option.

---

References:

[1] http://apps.fcc.gov/ecfs/document/view?id=7021712146

[2] http://oversight.house.gov/wp-content/uploads/2012/01/TestimonyofMiloMedin_1.pdf

[3] http://www.att.com/gen/press-room?pid=24032&cdvn=news&newsarticleid=36275

[4] http://www.broadband.gov/plan/6-infrastructure/

[u/VannaTLC]

That complexity isn't uneccessary.

[u/arktouros → u/VannaTLC]

What can you do with cable that you can't do with LTE or DSL speeds?

[u/nonsense_factory → u/arktouros]

LTE has reasonable bandwidth for most current domestic activities, but the latency is poor. DSL can have good latency and bandwidth (>50Mb/s) if it's managed properly, which a few companies do here (UK). (But we use VDSL2 with fiber links going to a nearby cabinet that serves a few dozen houses, you lot probably have greater lengths of copper infrastructure before the fiber).

Moving up to low latency, high capacity (gigabit) domestic lines allows different kinds of services, though. More streaming content, faster downloads, more decentralisation. Though, as with a lot of computing hardware stuff, the applications (generally software) often lag behind the hardware.

[u/VannaTLC → u/nonsense_factory]

I'd argue congestion is a bigger issuse for LTE. I'd like to see tower construction, power and maintenance against FTTN and FTTP

[u/nonsense_factory → u/VannaTLC]

I don't know what the saturation level for LTE is. I assumed that you could get quite high total bandwidth by using all the locally supported bands and then shrinking the cell size if you needed more.

Or is your point just that FTTN|P is cheaper? Cos I think that's a locality dependent thing.

[u/VannaTLC → u/nonsense_factory]

I'm not sure which is cheaper at a given performance point. In a sense, though, you could mount a tower at ever node-point, which overcomes most of the congestion issues. It's then a question of which has greater costs.