Americans really love their TV. They love it so much that cable-TV penetration is still substantially higher than broadband penetration. As a result, any new broadband company will not be competing against the standalone cost of broadband from the cable operators: instead, they will be competing against the marginal extra cost of broadband from the cable company, for people who already have — and won’t give up — their cable TV.
If you’re a cable-TV subscriber, the cost of upgrading to a double-play package of cable TV and broadband is actually very low; what’s more, there’s a certain amount of convenience involved in just dealing with one company for both services.
And yet Salmon argues that the lack of competition in offering broadband Internet is a problem. I am not sure why.
It has always seemed to me that what holds back penetration of broadband Internet is that there are a lot of “want-nots” among American consumers. The penetration rate for cable TV is somewhere north of 90 percent, and as Salmon points out, the marginal cost of adding broadband is low. So if more Americans wanted broadband Internet, they could have it.
The other technology that Americans really love is cell phones. My guess is that going forward the marginal value of bandwidth is much higher in wireless than it is in cable. Worrying about cable monopolies reminds me of the days when the government pursued an antitrust case against IBM for its monopoly in mainframe computers. In hindsight, that monopoly does not appear so formidable.
Pointer from Tyler Cowen, who is on my side, but for somewhat different reasons.
“It has always seemed to me that what holds back penetration of broadband Internet is that there are a lot of “want-nots” among American consumers.”
I wonder how the age distribution of “want-nots” compares to the population at large. Are they people of an older generation that spent much of their lives without the Internet? I don’t see, based on my anecdotal perceptions, young “wants” growing into older “want-nots.”
But I agree that we’ll probably see wireless carriers becoming the main way people access the Internet for most home use. I very much look forward to this development so that I can drop my monopoly broadband provider like a bad habit.
“So if more Americans wanted broadband Internet, they could have it.”
I think a better way of putting this is “So if more Americans wanted broadband Internet (access) enough to agree to increasingly draconian strictures and pay increasingly higher prices, they would have it.”
If we’re speaking solely about cable internet access, then you do need to take into account the fact that Comcast and Time Warner don’t compete, and therefore can get away with higher prices and restrictive demands. In fact, I just left Comcast because the $170/month was too much, the service itself was too sporadic, and the support was nearly non-existent.
Now, I’m with AT&T and even if the second two problems exist with them, my total bill is less than half what it was with Comcast. I can’t help but think that more competition would create plans and services more attractive to consumers. In turn, wouldn’t that increase the number of people using the services?
The problem being cable does not want to undercut its tv offerings by providing superior internet. I am sure the marginal value of wireless is much higher, but it lacks the capacity to provide much tv. So we have cable tv competing with satellite tv and cable internet competing with wireless, tv being expensive due to originators, and internet being expensive to prevent loss of tv, and wireless internet being expensive due to infrastructure. The issue is more of originators though. As more move to unbundled internet access, there may be more incentive to shift from tv to internet and improve internet, but they won’t make this shift unless they expect to gain, or more likely, lose less, than by staying with tv.
Electricity poles, the big wooden things. They are magic and can hold many more cables.
Arguing about sheathed wire seems kind of frusyrating but imho THE problem is that all the technology for perfect TV exists but no one can bundle it into a user-friendly turnkey package.
I am in rough agreement with your conclusion that there’s significantly less unserved demand for basic Internet than people assume. However, analyzing the last mile in terms of the technical marginal cost as you do (“as Salmon points out, the marginal cost of adding broadband is low. So if more Americans wanted broadband Internet, they could have it.”) seems invalid to me. The technical marginal cost of opening new medical schools is manageable too. In the last mile as in the practice of medicine, cases the legal environment is so far away from freedom of contract and free property rights and so forth that it’s unsafe to apply the usual simplifying approximation of markets; it’s like “analyzing” internal trade in prerevolutionary France while pretending the internal trade barriers don’t exist. The legal obstacles are often far more important than technical questions of cost or feasibility questions.
Two aphorisms along those lines… Long ago I learned from David Rabson “we no longer have the legal technology to solve this problem” for situations like an inability to construct toll booths for less than the cost of the original bridge. And when I was a contractor at Nortel, I would hear “our customers’ [mostly telcos] core competence is lobbying.”
Felix’s point was marginal cost may be low but price is not.