Amerika

As the Left advances its narrative, it likes to blame “capitalism” for many of the problems with consumer services. Looking at internet broadband, it becomes clear that the critics have a point, but have blamed the wrong source.

American broadband is notoriously slow compared to the rest of the developed world and often costs a good deal more than faster services in other countries. In most areas, people have a choice between only a few providers, most of which are content to be equally bad, knowing that as with cellular phone service, users will bounce between them but never like them.

When one does a little digging, the reason for this situation becomes clear: a lack of broadband competition because local regulations make it prohibitively expensive for new competitors to enter the market:

Broadband policy discussions usually revolve around the U.S. government’s Federal Communications Commission (FCC), yet it’s really our local governments and public utilities that impose the most significant barriers to entry.

This seems counter-intuitive because broadband across the country shares the same conditions. Local authorities have enacted very similar rules originally designed to prevent too many firms from laying wire:

States have given municipalities the authority to offer broadband but made it difficult with tons of bureaucratic requirements, he said. “The bottom line is some states have created thickets of red tape designed to limit competition,” he said. Local residents and businesses are the ones suffering the consequences, he argued, pointing to members of the two communities in the audience.

Cities and towns fear a situation where fifteen different cable companies will run lines to homes, disconnecting each other’s wires and making a mess of the backyards and public utility poles they must share. Out of that fear, these municipalities limited utilities and tended to make them public or regulate them heavily, as did the federal government, giving the illusion that this regimen of laws was working.

Instead, the collaboration between federal, state and local governments created markets where regulatory costs make it impossible for new businesses to enter the market and make a profit, which effectively limits competition to whoever got the original cable and telephone (from which DSL lines originate) contracts in the area:

And whose fault is that? Well, that would be the government’s fault. It regulated the cable TV business with a heavy hand since its infancy, giving monopoly rights to operators to string cities with coaxial cable. Those policies have been relaxed, so now it’s easier for a new provider — like telephone companies or fiber-upstarts like Google — to create broadband competition. But the market power of entrenched cable operators and the remaining regulatory hurdles still deter new entrants, suppressing the sort of competition that would make broadband companies more mindful of the needs of customers.

It is expensive enough for a new company to physically run the lines. Regulation introduces many secondary costs: there is paperwork to file, inspectors to pay, and possibly city bureaucrats who must be hired to oversee the process. In addition, the possibility of legal action brought by cities or other companies on the basis of these regulations requires the hiring of lawyers and compliance experts, which also drives up the cost.

In many American industries, we see the same pattern. Capitalism is shoved aside in favor of government, which solves one problem and creates a dozen more. Somewhere in the middle — between raw capitalism and the regulatory state — there could be a flexible zone where informal leaders, like local aristocrats, could make principled exceptions and deliver people the bandwidth they desire.

Tags: broadband, capitalism, internet access, local laws, regulations, regulatory state