The current business model for telecommunications and cable TV services in virtually every country is based on a century old system of government licensed monopolies.
These monopolies were slightly deregulated into oligopolies in most western countries in the 1980’s and 1990’s, but the model has not significantly changed in the 100 years since the dawn of telecommunications.
In the twentieth century telecom monopolies were a necessary evil. As depicted in the picture above, competing carriers in the early 1900’s littered cities with telephone poles and wires. The systems were often incompatible and the infrastructure was an eyesore. Consolidation quickly followed as it became apparent that more money could be made by controlling the market.
By the 1930’s government agencies like the FCC were born to regulate these monopolies.
Anti-competitive behaviour by these monopolies is nearly as old as the telephone itself. In the 1930’s the newly formed FCC found AT&T and Western Electric had abused their privileged position by charging too much.
Little has changed. Modern day telecom companies engage in many tricks to gouge consumers, such as throttling Internet traffic (giving preferential network access to companies that pay a ransom for better treatment on a network) and provide substandard service in markets where they have limited competition.
Recently mergers and acquisitions have reduced consumer choice, unraveling the efforts of regulators to introduce competition in the 80’s and 90’s. (An excellent breakdown of the rise and fall of competition in the United States can be found at Technologizer.com.)
Changes are beginning to occur.
The Last Mile
In several cities around the world “last mile” access to the Internet is being offered free of charge by the municipality. Cities around the world, like San Francisco and more recently Bangalore, are offering free Wi-Fi, allowing everyone free access to the Internet.
As free Wi-Fi services grow in popularity and the technology becomes more powerful, a lot of pressure will come to bear on mobile service providers who have begun to overcharge for data services as the revenue from voice calls has dropped off.
The Long Haul
Perhaps not surprisingly, the most ambitious project to circumvent the traditional telecom companies is currently being rolled out by Google. Google has quietly bought and constructed thousands of miles of fiber optic networks and has set up it’s own undersea trans-pacific cable.
In Kansas City Missouri and Provo Utah (Austin Texas is coming soon), Google is offering Gigabit Fiber service (100 times faster than the average American currently receives) for $70 per month.
Not only does this Gigabit Fiber service vastly exceed the speeds available to consumers in the rest of the country, but Google’s fiber optic backbone provides end users with seamless access to all of the services connected to Google’s network – eliminating the possibility of throttling by a third party phone company if the user access a Google service.
Google’s Cloud computing platform also offers software companies the ability to have their services natively hosted on this network.
These are early days in what could be the beginning of a new wave of innovation and competition in the telecommunications market.
There is the hope that increased competition will result in better service and pricing for consumers. However these improvements won’t be sustained if we trade one monopoly for another.
Our best hope as consumers lies in more companies entering this market to provide innovative solutions. Government regulators should take care to foster these new entrants by lowering regulatory barriers to entry and by realizing the potential of non-traditional players in this market to shake things up.