broadband internet

Blocking Comcast-TWC will not fix America's Internet monopoly

April 10, 2014: 11:23 AM ET

While the Senate discusses the rising cost of cable TV, the real debate should be over how to provide fast, reliable, and affordable access to the Internet.

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FORTUNE -- Most Americans can commiserate with Senator John McCain -- our cable bills are rising fast and we're fed up with it. We don't want to pay for channels we don't watch, and we certainly don't want to pay ever-increasing prices for poor customer service and Internet speeds that don't come close to those offered in places like Latvia and Romania.

This is why the nation's collective jaw dropped in February when America's two largest cable providers announced they were going to merge. Many Americans have very little choice when it comes to accessing high-speed Internet and cable television, and they were understandably outraged at the prospect of even less competition in the space.

The funny thing is, the merger won't really change much as Comcast (CMCSA) and Time Warner Cable (TWCdon't compete against each other in local markets.

This fact made the Senate Judiciary Committee hearing on the merger a very unsatisfying affair. As Vermont Senator Patrick Leahy put it, "[Consumers] want to know why their cable bills are going up. They want to know why they do not have more choice of providers. Consumers are trying to find out whether and how this merger is good for them."

Did the hearing answer any of these questions? No.

Sure, representatives from the cable companies lobbed jargon-laden explanations on how the merger would help bring down costs for Comcast and TWC, which could potentially be passed on to consumers, as well as descriptions of the intense competition these companies face from both content producers and Internet service providers like Verizon (VZ) and, increasingly, Google (GOOG).

MORE: Why the Feds won't be able to block a Comcast-Time Warner merger

But what the companies couldn't explain is why the service they provide to Americans is so expensive and so poor compared to what is offered in other countries. And they couldn't explain how, merger or no, this would change in the future.

That's because there isn't really any competition in the broadband Internet market, and there hasn't been for many years now. As Susan Crawford, law professor and proponent for an increased government role in promoting broadband access, has put it:

Years of deregulation and a wave of mergers had left America with neither competition nor adequate oversight when it comes to high-speed Internet access. Based on how people actually use these connections and how much they are required to pay, we are being gouged: We are all paying too much for services that are both uncompetitive and second-class, and not enough Americans are being served adequately by reasonably priced, world-class services.

Indeed, numerous studies have shown that average Internet speeds in America are slower and costlier than in other developed nations. Furthermore, there's plenty of evidence that the big providers of cable and high-speed Internet are behaving like monopolists. Here's Crawford:

None of the large companies (AT&T, Verizon, Comcast, Time Warner Cable) has any incentive to invest in a fiber upgrade for the country: They have made their capital investments, divided markets ("you take wireless, I'll take wired"), and are in harvesting mode.

Verizon's wired capital spending as a percentage of revenue declined from 28% in 2000 to less than 16% in 2012; wireless, from more than 30% in 2000 to less than 12% in 2012. AT&T's capital spending as a percentage of revenue is now at 15% (wires) and 16% (wireless). Comcast's comparable percentage is 12% of revenue, down from 37% in 2001; Time Warner Cable has seen the same pattern.

Nothing the government does vis a vis the proposed merger between Comcast and Time Warner Cable will change that dynamic. Only competition will motivate Internet service providers to lower prices or increase the quality of their product.

But it isn't entirely clear what the government should be doing to promote more competition. Critics like Crawford argue that the U.S. should regulate the Internet just like it did with telephones, subjecting them to "common carriage" regulations and regulated pricing. But opponents of regulation say this will stifle the incentive for innovation. After all, the high price Americans pay for Internet access is an enticing reward for companies looking to undercut the incumbent players. And there's evidence that the telephony industry in America suffered for years from a lack of innovation because of the regulation of AT&T's (T) monopoly.

MORE: How Amazon and Netflix can take on Apple in the TV streaming biz

Opponents of government action, like University of Pennsylvania Law School's Christopher Yoo (who testified at Wednesday's committee hearing), argue that innovations in wireless broadband and DSL could help Comcast competitors give the cable giant a run for its money in coming years. But predicting where technology will lead us is a fool's errand. The thought of there being alternative means to accessing the Internet beyond the expensive infrastructure already deployed by incumbents is an alluring and convenient one, because it would remove the need for the government to regulate Internet service like a monopoly -- eliminating all the headaches that come with natural monopolies.

But we should be wary of utopian visions of the future in which centuries-old problems like natural monopolies are rendered moot by technology. If the tools to promote real competition for Internet access doesn't arrive soon, the government will need to build the infrastructure for affordable and plentiful Internet access. That might come in the form of partnerships with companies like Google to lay fiber optic cables in cities, or local governments simply building public utilities themselves.

The Comcast-TWC deal should be reviewed carefully by Congress and the Justice Department, but blocking it isn't going to lead to cheaper Internet or video content. Addressing that problem will be far more complicated than just saying "no" to Comcast.

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