Levers to Intensify Broadband Competition -- Part III

Blair Levin, who oversaw the development of a National Broadband Plan, recently spoke at length on broadband competition. We're sharing excerpts of his remarks. Today, Blair’s third question: Given the current market, what are the appropriate government levers to intensify competition at this part of the cycle?

Given the current market, what are the appropriate government levers to intensify competition at this part of the cycle? Earlier, I explored spectrum policy and improving the economics of a telco upgrade. Now let's look at a third lever.

My understanding of a third lever to intensify competition stems from discussions with my friend David Morken, the CEO of Bandwidth.com. In the summer of 2011, he suggested his company could use its existing assists to launch a Wi-Fi based mobile service. I first thought he was crazy but became a convert. A few months later, the company launched Republic Wireless, which is today the largest Wi-Fi first mobile company in the United States.

One reason I thought he was crazy was that everything Bandwidth could do, cable could do and with superior economics for all of the inputs. David suggested that while cable would eventually enter the market, there would always be a niche that would be profitable for Bandwidth.com and that cable would take a long time to enter and would price its product differently.

As to his first assertion, time will tell but so far, so good. As to his second, he is certainly correct. While Republic and others have launched and operated Wi-Fi based mobile competition, cable, other than a, frankly, weak effort by Cablevision, has yet to do so.

To be fair to cable, a company like Comcast cannot afford to make the kind of mistakes that Bandwidth could. The product launch has to be close to perfect. But David was right for another reason, which goes back to the prisoners’ dilemma, with a bit of the classic innovator’s dilemma thrown in.

Its not logical that a company with a couple hundred employees in North Carolina can develop and deliver a product that a company with tens of thousands has not yet done until you consider motive. Why would Comcast attack a market that might cause a counter attack and potentially reduce prices throughout all broadband markets? In this light, the logical path is not to attack, but to focus on harvesting until one is forced to attack.

And that brings us to the third lever. If there are sufficient forces threatening Cable’s existing revenue streams of multi-channel video and broadband, it will, as it did when DBS threatened its revenue, attack new markets. Alternatively, if enough players like Republic enter the space and the wireless providers seek new revenue streams by aggressively pursuing cord cutting in the broadband market, Cable will enter the mobile market, as the game is already afoot. And, with Verizon and AT&T ramping up the competition in the video market and OTT threatening as well, Comcast is now more aggressively pursuing its mobile strategy.(1) That, in turn, will intensify competition in all three broadband markets.

Making sure this lever can continually drive competition, I think, requires two elements. First, the government should assure the current regime of unlicensed continues to have sufficient spectrum and does not suffer degradation.(2) Second, the cellular market structure should be sufficiently robust to have market forces drive a wholesale market.(3)

In short, government policy ought to assure all three submarkets have the means, motive and opportunity to enter the adjacent market, as that will create a competitive virtuous cycle that drives toward bandwidth abundance.

• What do we want broadband competition to accomplish?
• Where does broadband competition come from?
• Levers to Intensify Broadband Competition -- Part I Spectrum
• Levers to Intensify Broadband Competition -- Part II Telco Upgrades

1. Comcast Said to Be Planning Wireless Push With Verizon's Network (http://www.bloomberg.com/news/articles/2015-10-21/comcast-said-to-be-planning-wireless-push-with-verizon-s-network)
2. This raises the issue of whether LTE-U threatens Wi-Fi. For an explanation, see http://www.wetmachine.com/tales-of-the-sausage-factory/my-insanely-long-field-guide-to-the-lte-u-dust-up-part-i-spectrum-game-of-thrones/ and http://www.wetmachine.com/tales-of-the-sausage-factory/my-insanely-long-field-guide-to-the-lteu-dust-up-part-ii-a-storm-of-spectrum-swords/.
3. In this regard, the speeches by Wheeler, Sallet and Baer were all correct in taking a victory lap for several government efforts to assure that the market structure continue to have four national players. This was a mixed blessing for Republic as the rejection of the AT&T/T-Mobile deal lead to T-Mobile becoming more aggressive on pricing, thereby reducing the attractiveness of Republic’s pricing plan. Nonetheless, without a wholesale option, Republic would not exist.