I have been reading a book recently called Captive Audience, by Susan P. Crawford.
It covers various topics, but mostly it is about Comcast and how they have come to have a dominant, entrenched monopoly position as both a platform for Internet connectivity and as a content provider.
It is a long story, and the book is a bit dry, but I think it is important. Follow me over the fold for some details.
A crucial point came in the early 90s, when a decision was made to not regulate the emerging Internet providers under the same rules that had been applied to telephone companies. Telephone companies were considered to be "common carriers," and were subject to a variety of regulations, including especially the obligation to provide service to all subscribers on a non-discriminatory basis. Their rates were also subject to review. The basic idea was that telephone systems were natural monopolies. It didn't make economic sense to have multiple ones in a single location. So in return for having a monopoly position, telephone companies were highly regulated. (As the book makes clear, there are many parallels here with railroads, which were major economic powers in the 19th century, and also were abusive monopolies until tamed by regulation; in fact "common carrier" rules were first applied to them).
It was clear that if common carrier rules were applied to Internet companies, some aspects of the rules may not have been applicable and it was going to be complex to sort out which ones to enforce and which not to. Still, the decision taken to basically not regulate them at all would have far-reaching ramifications.
Because common carrier rules do not apply to them, Comcast is under no obligation
to provide the same level of service to all types of content, or all users on their
system. The whole debate about "net neutrality" would not exist if they were regulated
as a common carrier. As it is though, there is a lot of concern that Comcast will
throttle some content, especially from competitors. Netflix was recently experiencing bad service from Comcast and was forced to negotiate a special deal that gives them a more direct connection to Comcast's network, at a cost. They are unhappy about it.
(Netflix is an example of a competitor Comcast tolerates, but only if they keep in line. Netflix for example is basically shut out of providing current sports and entertainment: it is basically a service for non-current content, what used to be called "reruns").
For a considerable time there was competition among Internet providers. Telephone companies got into the business through DSL technology, which allowed transmission of Internet content over their wires. But cable has emerged as the dominant means of delivery. DSL is not as reliable or fast. Many people of course get Internet on mobile devices through WiFi or through their phone wireless networks. Verizon and AT&T have a virtual duopoly over that business (and by the way, as Internet providers, are not subject to common carrier regulation, either). But these are not really competitive with Comcast. Wireless is not nearly as fast as wired access and cable is now the main high-speed transmission vehicle in the U.S. for wired systems.
On the other hand, this is not a state of the art Internet content delivery system. Cable systems have limited bandwidth and they offer more bandwidth for download than upload. If you are using something like an online backup service that requires a lot of upload traffic, then this is not a good system. A good part of the world is moving to fiber optic cable, which is much, much higher bandwidth, but rollout is slow in the U.S. Private companies such as Comcast which have an existing network have no real incentive to rollout a costly new parallel one.
There has been a lot of consolidation in the cable industry. Currently there are two main companies in the business: Comcast and Time Warner Cable. They have effectively agreed not to compete: they have largely non-overlapping territories and each is the dominant player in their territory. A recent development, after the publication of Crawford's book, is that Comcast is now proposing to buy Time Warner Cable, and if approved this merger will basically lead to one single company owning most of the wires that deliver Internet, nationwide.
Comcast's monopoly power in Internet delivery gives them a lot of pricing power. Costs are relatively low for plain Internet service, but Comcast's prices are quite high and they earn stellar profit margins from Internet customers. There is really nowhere else for consumers to go, so they are stuck with the high prices.
Comcast though is more than an Internet provider. They also are basically a broadcaster.
They actually own sports teams, and accordingly the rights to broadcast their
games. They acquired NBC Universal some years back and with that came a large
library of content. The NBC broadcast network itself is a shadow of its former self, but
NBC Universal also owns and has rights to movies, sports and other content.
For content Comcast doesn't own, they license it for delivery over their cable system.
When the NBC Universal merger was approved, the argument was made that this didn't
reduce competition, because NBC was in the content business and Comcast was in the
delivery business; it was a so-called vertical merger and these have generally
been approved more readily than a horizonal merger of similar businesses.
But the fact that Comcast is in both the content and delivery businesses gives
it a lot of leverage. They can, and have, refused to license content they own to
competitors. When they go to license content themselves, they can pay lower prices than competitors have to, because their huge cable network is a very desirable delivery platform. If the companies they license from don't play ball, Comcast can punish them in various ways, such as relegating their content to a higher cost and less distributed package. (As is well known, cable companies are very big on bundling content into packages, so that consumers have to purchase channels they don't want along with channels they do. As with Internet service, monopoly power has led to a situation where millions of people pay higher costs for content than a really competitive system would require).
We got to the current situation we are in through a gradual process. Each regulatory
decision, and each merger, may have seemed relatively benign at the time. But now
we are in a situation where a crucial technology--Internet access--is basically
held hostage by a single very powerful corporation, whose only goal is profit.
It is not clear how we get out of this situation, but a good first step would be
a hard second look at how Internet access is regulated, especially in regards to
net neutrality. This is a very hot topic at present and the crucial question is whether phone and cable companies are going to prevail over consumers and their few remaining competitors. And maybe that Comcast/Time Warner Cable merger is not the best deal for consumers.