By Susan Crawford
July 22, 2013 Bloomberg - Earlier this month, Neelie Kroes, vice president of the European Commission, announced that she would soon release a proposal to create a single market for data communications in Europe. The goal, Kroes says, is to “deliver a competitive, connected continent. Where operators can smash barriers and think big. Plan, bid and invest on a large scale.”
That sounds good. Unfortunately, details of the plan that have leaked out suggest it amounts to a deal with network operators -- both cable and wireless -- that repeats the same mistakes the U.S. has made. Consumers get reduced mobile roaming charges -- not an insignificant achievement. But in exchange, Kroes is encouraging consolidation and enabling abusive monopoly behavior by network operators, with no regulation to stop them.
This is not a deal she should make.
Kroes may not understand how thoroughly cable operators control American markets for wired data distribution these days, and how willing telephone companies are to cooperate by ceding the wired field to cable and retreating to their own profit-rich mobile wireless businesses.
She assumes instead that Europe will have “infrastructure-based competition,” a concept that has been fashionable in the U.S. for the past 10 years, even though it hasn’t materialized. We have assumed that telephone companies would compete with cable companies to provide high-speed data access, and that this competition would obviate the need for regulation. We have been wrong. The U.S. market for fixed high-speed data distribution has become overpriced and uncompetitive.
As John Malone, the cable billionaire who controls Liberty Global Plc (LBTYA), told shareholders in 2011, when it comes to distribution of data over wires, “Cable is pretty much a monopoly now.”
Verizon Communications Inc. (VZ) has seen how much cheaper it is for cable companies to upgrade their wires than it is for phone companies to dig up their own copper wires -- over which they provide digital-subscriber-line, or DSL, services -- and replace them with fiber, which has potentially unlimited capacity for downloading and uploading data. (Cable systems are designed to favor downstream usage.) In March 2010, Verizon stopped expanding its FiOS fiber-optics services. As a result, Americans have switched to cable for wired Internet access in droves. Now the U.S. has a collection of regional cable monopolies that face neither competition nor oversight.
In the past few years, an important change in the telecommunications landscape has been the “emergence of high-speed connectivity as the king of services, driven by more and more over-the-top content,” according to Malone. He’s delighted that everyone in the data, media and information businesses will require “a terrestrial presence” -- a wire -- in order to deliver their services. And he’s hopeful that in many European and American markets, that wire will be sold by a cable company that will probably be owned by him.
Last month, Michael Fries, president and chief executive officer of Liberty Global -- already the largest cable distributor in the world, with 25 million subscribers -- told shareholders that the company was in a “great position to be opportunistic” about acquisitions. If Kroes’s plan goes through, the company will have enormous power in negotiations with program suppliers, other connecting networks and technology suppliers. Kroes’s plan, which would allow unlimited consolidation and let cable data distributors use their advantages of scale to keep competitors from emerging, particularly in urban areas, would make Liberty Global’s dreams come true.
Kroes’s draft proposal appears to be driven by a white paper funded by Liberty Global. This report asserts, among other things, that the current European Commission goal of covering the entire European Union with speeds of 30 megabits per second for both uploading and downloading is “overkill” -- perhaps because cable networks aren’t built to provide fast uploads. The paper also promises that cable will be cheaper than fiber optics for many European countries and that its presence will encourage phone companies to build fiber-to-the-home networks. Exactly the opposite has happened in the U.S.
It’s clear from Kroes’s speeches that cable operators have promised her that they will build high-capacity data infrastructure in Europe if she reduces the risk of regulation. She also appears to believe that allowing network operators to make deals about the terms under which they will connect to other networks will encourage greater investment and competition. She needs to learn some American vocabulary: She is being suckered. Where consolidation is possible, competition is impossible.
(Susan Crawford, a contributor to Bloomberg View and a professor at the Cardozo School of Law, is the author of “Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age.” Follow her on Twitter at @scrawford.)
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