Here’s Proof That ISP Monopoly Power Threatens Consumers

Source: Thinkstock

Source: Thinkstock

If you’re one of those people who was on the fence about things like net neutrality, and don’t really understand why it’s important to have a healthy, competitive marketplace for Internet service, then it’s time to pay attention. As with any industry, a lack of competition leads to higher prices. Since many areas in the U.S. are serviced by a couple, or sometimes only a single Internet service provider, it paves the way for big businesses like Comcast or AT&T to inflate what they charge customers.

It’s essentially a monopoly for these companies — by design, mind you — and as a result, customers are feeling the crunch. Such is the case in Cupertino, California, where AT&T recently rolled out gigabit fiber Internet service to interested consumers. According to Ars Technica, prices start at $110 for the service.

That’s all fine and dandy, but here’s the thing — the $110 price is $40 more in Cupertino than in other cities where the same service is being offered. Why? Because in other cities, AT&T actually faces competition, in the form of Google Fiber and other companies. So, because AT&T effectively has a monopoly on service in Cupertino, it can charge whatever the hell it wants, and customers can’t do a thing about it. It’s basic economics, really, but represents a microcosm of what’s truly wrong with the industry as a whole.

Through a series of non-compete deals and cozy relationships with local leaders and politicians, companies like AT&T and Comcast have been able to secure these types of monopolistic environments in communities across the country. These corporations themselves even admit to it, in certain ways. Think back to the proposed Comcast-Time Warner Cable merger discussions of last year. One big worry was that the new company would reduce competition and raise prices. But as Comcast leadership said, TWC and Comcast don’t compete in many areas. That’s by design.

Now, in AT&T’s defense, just because a place like Cupertino doesn’t have any competition for gigabit Internet service right now doesn’t mean that that will always be the case. AT&T is simply the first company to offer such a service there, and is trying to recoup its investment. In fact, Cupertino is one of only a handful of cities across the country to have received AT&T’s special treatment thus far, so perhaps consumers should feel privileged.

Clearly, Cupertino’s political figures are happy. “We are proud to be the first city on the west coast to launch the AT&T GigaPower network, bringing the speed of fiber to homes and businesses,” said Cupertino Mayor Rod Sinks, per an AT&T press release. “People come to Cupertino from around the world, and want to connect with families and culture in their home countries, as well as with work colleagues and customers worldwide.”

So, while AT&T saw demand for a service and is filling it, that doesn’t mean that they aren’t sticking it to consumers in Cupertino. We’ve seen this play out in similar fashion before in other cities. According to The Huffington Post, AT&T likes to charge inflated prices in certain areas until they’re forced to bring the bar down when a rival enters the fray. As an example, the publication points out that while prices in Cupertino for gigabit service fall at $110 per month for AT&T subscribers, identical service in Austin, Texas is only $70.

The difference? Google Fiber is an option for customers in Austin, and Google charges $70 per month for its service. Obviously, when AT&T gets the chance to take advantage of a lack of competition, it’s doing so.

Is it wrong? Not really. Again, it’s simple economics. The real problem is the lack of healthy competition in the industry, and that’s why consumers should be wary of increased consolidation, and especially unspoken-but-effective non-compete agreements with other ISPs and politicians. The real question is, who can we blame when ISPs are able to create these monopolies? The FTC doesn’t seem very reliable at keeping anti-competitive behavior in check, and it’s not like any entrepreneur can simply start a giant telecom company to compete with AT&T and Comcast.

The answer is probably some sort of regulatory measure, though it’s likely impossible to say what form that would take. But until that happens, consumers are still at the mercy of the ISPs, and their monopoly power.

Follow Sam on Twitter @Sliceofginger

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