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“Monopolist” assertions devoid of facts or economic understanding – Part 18 of Broadband Internet Pricing Freedom Series
Submitted by Scott Cleland on Wed, 2013-10-02 18:59
In a Washington Post piece, neither labeled as opinion or news analysis, author Timothy B. Lee, charged that “These charts show Comcast acting more and more like a monopolist,” but badly failed in backing up that highly pejorative “monopolist” assertion.
Mr. Lee reprinted charts provided by Comcast to rebut a previous unsupported assertion by Mr. Lee that American “broadband speeds were stagnating.”
Mr. Lee’s attempted gotcha in his latest piece failed as a result of a demonstrably poor understanding of economics, competition, business and capitalism.
First, Mr. Lee concedes: “The charts show that Comcast’s service really has been getting faster.” But what Mr. Lee failed to acknowledge here is this remarkable industry-leading steady increase in broadband speeds is not characteristic of a monopoly market, but only of a highly competitive one. No monopoly would have spent the billions of dollars in risk capital over the last decade that Comcast did, without the very real and constant pressure of actual and potential competition.
Second, Mr. Lee then imagines he has discovered a coup de grace insight in the net neutrality/broadband pricing debate. “But there's a striking pattern to Comcast's upgrades: while every tier of Comcast service is faster than it was a decade ago, the rate of progress has been dramatically higher for customers who pay the most. Comcast's entry-level "Performance" tier has seen much slower speed increases in recent years than higher tiers.”
The market segmentation and differentiation that Mr. Lee tries to brandish to convict Comcast as a “monopolist” is actually exactly the outcome one would expect and get in a competitive, innovative and consumer-driven market. Economics 101 teaches that monopoly markets tend to produce static, one-size-fits-all, non-innovative, offerings because there is no market pressure or need to respond to different consumer needs, wants, or means – because no other player can supply them.
Third, Mr. Lee starts to channel Professor Crawford’s opposition to profit maximization in the provision of broadband. He goes on to say: “Today…, Comcast is the undisputed speed king in many parts of the country. That has freed the cable giant to focus on maximizing its own profits, without worrying very much about improving the experience of the average customer.”
After “improving the experience of the average customer” more than anyone else by successfully delivering faster speeds more broadly than any facilities-based broadband provider, in the most highly competitive broadband market in the world, of course Comcast would profit maximize – that’s the purpose of business, market competition, and capitalism. Comcast is able to profit-maximize because they have satisfied their core “average customer.” What’s going on here is precisely the market reward that fuels capitalism.
Fourth, Mr. Lee is channeling the uneconomic imaginations of the Save-the-Internet net neutrality coalition that all bits should be treated equally and that the business economics of differential or usage based pricing, or that slow versus fast broadband lanes, are somehow wrong, discriminatory, or anti-free-speech. He says: “The last five years have seen an extreme divergence between Comcast's low-end and high-end speeds.” … “There's no technical reason Comcast couldn't provide 105 Mbps service to everyone currently subscribing to the cheaper 50 Mbps and 20 Mbps tiers.”
But Mr. Lee, there are perfectly legitimate economic reasons for it.
Comcast and other broadband competitors have invested a trillion dollars in private risk-capital to build multiple, competitive, national broadband facilities and they must deliver a market return on their private risk capital investments. Without the market freedom to charge what the competitive market will bear, especially in the high-end, business or consumer luxury broadband market, there would be little economic incentive to continue to fully invest. Without economics and competitive broadband pricing, America’s broadband infrastructure would become static and dysfunctional like Europe’s broadband infrastructure has become over time.
Mr. Lee also ignores the market reality that higher speed broadband tiers are geared toward those who want, need, and have the means to pay more for more speed. And economics 101 again teaches us that high-end, business, or luxury segments of any market are naturally more price inelastic and hence where businesses can sustain the highest prices and profits. Simply, Mr. Lee doesn’t have a problem with Comcast, he apparently has a big problem with capitalism overall.
Lastly, Mr. Lee summarizes his uneconomic view of competition. He says: “Comcast's strategy only works because Comcast faces limited competition in many markets. If Comcast had more competitors, they would pressure Comcast to cut the price of its highest speed tiers and raise the speed of its cheapest offerings.”
Mr. Lee’s dim view of capitalism spills over to a dim view of competition. His distaste for profits leads him to imagine that there can be, or should be, more competitors in a market than the economics of that particular market can support. It appears he subscribes more to the uneconomics of an Internet commons, than the economics of a competitive broadband marketplace.
In sum, Comcast’s charts show a vibrant and competitive marketplace where consumers have a wide range of choice to get most any broadband speed that they are willing to pay for.
These charts show Comcast acting like the broadband competitor that it is.
Broadband Internet Pricing Freedom Series
Part 1: Netflix' Glass House Temper Tantrum Over Broadband Usage Fees [7-26-11]
Part 2: Netflix' Uneconomics [9-6-11]
Part 3: Debunking the Carping Over Broadband Usage-Pricing [3-1-12]
Part 4: Is Netflix the AOL of Web Streaming? [3-9-13]
Part 5: Consumer Groups' Advocacy Hypocrisy [4-25-12]
Part 6: “Leaf” Vision & Broadband Usage Caps [4-27-12]
Part 7: Broadband Pricing is Naturally Evolving to Usage Tiers [5-17-12]
Part 8: Obsolete Analysis Will Doom DOJ's Antitrust Probe of Cable [6-14-12]
Part 9: Video: Scott Cleland Discusses Netflix' DOJ Complaint [6-19-12]
Part 10: SCOTUS Indecency Ruling's Effect on Net Neutrality [6-20-12]
Part 11: U.S. Net Neutrality Movement in Retreat [7-9-12]
Part 12: FCC Creates “Abundant” Uncertainty [9-17-12]
Part 13: The Real Motive behind Opposition to Broadband Usage Based Pricing [11-14-12]
Part 14: The Uneconomics of Data Cap Price Regulation and Legislation [12-20-12]
Part 15: Wireless Plan Innovation Benefits Consumers & Competition [5-13-13]
Part 16: America's Private Video Market Success [5-16-13]
Part 17: Defending Google Fiber's Reasonable Network Management [7-30-13]