FTC Urges ‘Thorough’ Competitive Analysis in Broadband Plan

The broadband plan “should facilitate the operation of the free market process to the greatest extent possible consistent with the Recovery Act,” the FTC said. “It should maximize incentives for businesses to enter, deploy risk capital, and compete for customers, keeping barriers to entry as low as possible.”

Consumer choice in broadband is limited, the FTC said. More than 80 percent of consumers could use only one or two providers, it said. “Currently, relatively large market shares for fixed, wireline broadband services are typically held by a single incumbent cable operator and a single incumbent telephone company in each geographic area and relatively large market shares for mobile broadband services held by the four largest wireless carriers.” However, the FTC said the observations don’t reflect every local market, and called for a “thorough review.”

The broadband plan should also tackle consumer protection issues, particularly data security and disclosure of terms of service, the FTC said. Terms that may be “material” and need to be disclosed include “data transmission speeds, use limitations, broader network management policies, and the existence of any preferential business arrangements with content or applications providers,” the agency said. Those terms “may become more important to consumers over time, as increasingly powerful network management tools allow network operators to monitor, aggregate, and analyze data from Internet traffic.”

Companies with large market power may have incentive to use network management “to degrade or block competing content or applications delivered over its network,” especially in times of network congestion, the FTC said. However, broadband providers also have “countervailing incentives” to provide consumers all the applications they want, the agency said. “More competition among broadband Internet access providers is likely to check many of the potential network management practices that might reduce consumer welfare, through the threat of losing customers to another network operator.”

The FTC urged the FCC to “develop a firmer understanding of the facts relevant to network management practices and their effects on consumers.” Among other suggested questions, the FTC asked what network management practices are used when network capacity is and is not constrained, if there are alternatives to network management to remedy congestion, and if network operators have incentives to limit network capacity. The FTC also asked how content providers pay operators for network use, how network management is used “in conjunction” with that use, if content providers may obtain “preferred transmission of their data,” and how aware consumers are of any such practice.

Just counting providers doesn’t show “how competitive markets are or how well consumers are served,” the FTC said. “An analysis of price and market share information for broadband services in properly defined product and geographic markets … can help illuminate existing entry barriers and identify appropriate regulatory responses to protect against the exercise of market power that harms consumers.” A broadband service can be considered adequately competitive if consumers would turn to it if “their existing providers increase price or reduce quality,” it said. Wireless may be considered a competitive alternative to wired broadband if it “appeals to a sufficient number of marginal cable modem or DSL broadband consumers to constrain the provider’s pricing activity,” it said.

The FCC should also assess competition on middle-mile and backbone connections, including special access circuits, the FTC said. “Competition in these segments ultimately can affect competition in the last mile, for example, by affecting the entry of new providers of last-mile services.” Looking at market share “is often just the starting point” for more-sophisticated competition analysis, the trade agency said. Regulators should consider “the ease with which firms can increase supply to the market. … If entry is easy, it likely will deter or counteract any competitive concerns.” In a competitive market, new companies should be able to enter within two years from planning, it said.

“The U.S. leads the world in facilities-based broadband choice for consumers,” said a USTelecom spokesman. “Unlike most other countries that have just one national infrastructure for broadband, American consumers have unprecedented choices and genuine alternatives not only among companies, but also technologies and service offerings.”

CompTel supports the FTC’s recommendation that “measures to promote competition should be the foundation of the national broadband plan,” Assistant General Counsel Mary Albert said. “Competition will make services more affordable, encourage introduction of new, innovative services and increase overall subscribership.”

“The FCC should bring a rigorous antitrust-type jurisprudential competition analysis to bear on the broadband market, along with an understanding that the market is much more dynamic than most,” said Free State Foundation President Randolph May.