The Internet Needs Regulation

Internet

The U.S. invented the internet, and every advance it has seen. However, it has nowhere near the fastest speeds in the world. Various other countries used all the advancements and incorporated them into their systems. Now the U.S. is not even in the top 20, the country is lagging behind Hungary and Uruguay. The internet service providers were unregulated in 1996, citing a need for competition as the reasoning.

After the ISPs were unregulated, all of the smaller startup companies that specialized in providing one service to the internet, were eaten up by well established telecommunication and cable companies, who quickly took over the still emerging market. This did not allow for smaller companies to break into the market. After taking over the market, the now larger conglomerates redistributed the market, allowing them to reign supreme from the very bottom of customer satisfaction rankings. So now these companies can change prices and services at whim without leaving the consumer any power of negotiation. This type of business model is called a “monopoly.”

Though, it is not exactly monopoly, per se. Technically, it is a government sanctioned oligopoly on the outside. While under the surface a semi-monopsony is dictating market price. In other words, the government created a system where a few companies could control the last mile of distribution, with the only competition coming from one another. While unseen to the average user, America’s entire internet backbone is made up of only two companies, Cogent Communications and Level 3 Communications. These two companies distribute all the content from websites to the ISPs, they then sell the content to consumers. Those two companies have massive clout in the market. They can both charge high traffic content providers extra money and regulate transaction speed if so inclined. They could potentially rule the market, there is nothing stopping them, theoretically.

Many consumers would retort, if they are getting the service and can afford it, why should they care? Valid point, except that these companies have no incentive to improve or innovate their products. In that vein, the FCC (Federal Communications Commission) is considering redefining the term broadband. The current definition is over 4 Mbps (Megabits per second), which is very much in the favor of ISPs, but the new definition could possibly be up to 25 Mbps. This would be very bad for ISPs as the average internet speed in the U.S. is about 24 Mbps and change. This could encourage companies like Verizon, who stopped using fiber optics in their infrastructure in 2010, because it was too expensive, to step up their game. Verizon, by the way, is worth at least $130 billion as are most other large ISPs, more than enough to update their infrastructure to current European levels.

In a study conducted by the College of Communications, professors compared the ISP markets of the U.S. and South Korea. The results were indisputable. South Korea, who had a much younger regulated market, had faster speeds and lower prices. South Korea needed more ISPs to enter the market. Market regulation allowed smaller ISPs to fill the void, this addressed the need for competition, which manifested itself in lower prices and faster internet speeds. The U.S. on the other hand has almost no competition nor does it allow smaller ISPs to get a foothold inside the market. The only company that has successfully entered the market was already a powerhouse to begin with.

Google Fiber has been the only new source of competition in the market. In the few areas that Google Fiber has gotten a foot in the door, other ISPs have had to shape up quickly. Still, the places in which Google Fiber is introduced they dominate the market, because less innovative companies simply cannot keep up with their Fiber optic speed or prices. Now Verizon has introduced Fios, which presumably proves that they had the money to upgrade, just not the proper incentive. Seems nothing drives innovation quite like watching customers leave.

Advocates of a free and fair internet may have gotten their saving grace, by way of a Democratic piece of legislation called, The Online Competition and Consumer Choice Act. This bill is in retaliation to the FCC’s, proposed rules drafted by Tom Wheeler. The most controversial of which was the proposed fast lane that would allow ISPs to give preferential treatment to companies that pay extra for faster service. However, the bill is still likely to face fierce opposition, from Republicans with the support of both cable and telecom lobbyists. Regulation alone may not be the universal answer U.S. internet needs, but it has been proven effective in other places.

By Eddie Mejia

Sources:
CNet
The Week
Academia
Venture Beat
CNet

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