The Center for Business and Public Policy at the Georgetown University McDonough School of Business held a panel discussion on May 9 titled, “The Impact of Broadband Competition on Consumer Welfare, Innovation, and Productivity in the United States: A Policy Forum.”
The event, held at the U.S. Congress’ Rayburn House Office Building, covered the effects of Internet competition on consumers, including the effects of the FCC’s 2015 Net Neutrality order on broadband competition and ways to improve competition and investment in the future.
Panelists were: Michelle Connolly, Professor of the Practice of Economics, Duke University; Larry Downes, Project Director and Senior Industry and Innovation Fellow, Georgetown Center for Business and Public Policy; Michael Mandel, Chief Economic Strategist, Progressive Policy Institute; John Mayo, Professor of Economics, Business, and Public Policy at Georgetown’s McDonough School of Business and Executive Director, Georgetown Center for Business and Public Policy; and Michael Rollins, Managing Director at Citi Research, Telecom & Communications Infrastructure Services, North America.
Michael Mandel noted that while retail wages over the past few decades have largely remained flat, regional “fulfillment centers” operated by Amazon and other online retailers have been an exception. Mandel said,
“Now what we have is the accession of broadband-driven e-commerce, and fulfillment centers that get you what you want within a day…these fulfillment centers are generating well-paying jobs in states like Kentucky, and Indiana, and Oklahoma, and Ohio, and Texas, and Pennsylvania, places that were left, that are not tech hubs, that were left behind by the boom, and that in fact these jobs pay substantially more, substantially more than the retail jobs that people held before and guess what, at least so far, there’s more of them. There’s a net gain in what workers are being paid, there’s a net gain in productivity, there’s a net gain in consumer welfare. This could not be done without broadband.”
Michael Rollins pointed out a major trend among broadband providers – customer spending patterns relative to data usage, or the disconnect between expanding data use and revenue. Companies are having a hard time effectively monetizing the exploding rate of mobile data usage, he said. Further exacerbating competition between providers like Verizon is the recent trend of consumers replacing their phones less often. In years past, according to Rollins, consumers would replace their mobile devices ever 24 to 36 months. Now, however, consumers go 31 months or longer between replacing devices. This affects revenue growth. Rollins believes that the shift to 5G may accelerate competition for home broadband, but this is still a nascent development.
Michelle Connolly discussed the expansion of broadband service in the United States, citing what she believes is a flaw in the way the number of households with access to broadband service was calculated. The federal regulators who conducted this research set a higher bar for upload and download speeds than is realistic for many people. This creates the perception that there is an access problem. Connolly discussed how broadband capital expenditures have fallen over the past few years, and she cited Georgetown Professor Hal Singer’s research that showed a 5 percent decline in broadband capital expenditures from 2014 to 2016. Connolly later stated that many regulations intended to expand rural investment in broadband infrastructure, for example the Open Internet order, have been counterproductive.
Connolly further discussed the reasons why consumers who do not have broadband service, citing a 2015 Pew Research Center study. The study noted that for those who do not have broadband service, cost of service and cost of a computer are the biggest barriers, rather than simply access to a broadband service that operates in their area. A total 43 percent of respondents indicated that either the cost of service (30 percent) or the cost of a computer (10 percent) were factors in their not having broadband. 12 percent stated that they felt their smartphone was sufficient. In addition, a majority of people, 75 percent, who have never before had broadband service are not interested in getting it in the future. According to Connolly, this study casts doubt on the prevailing notion that many who do not have broadband service don’t have it because they cannot (because they live in a rural area where they are not served) and that the majority do want broadband service.
Larry Downes pointed out that in the modern Internet era, it doesn’t take much for buyers to exert significant influence on companies (he used Uber and United Airlines as examples) and a global society also means that suppliers have big influence too (for example, Apple and Foxconn). Hornes also noted the difference between “effects and ecosystem” holding that how the number of competitors is measured can be partisan or political (for example, Connolly’s example of a too-high cutoff for broadband service rates) and that it is also the wrong metric, in his opinion. He said that effects are more important than the number of players in measuring competition – for example, the speeds that consumers are getting and the amount they are paying for them. Downes later advocated for “hippocratic oath” for regulations – a pledge to do no harm by pursuing regulations that may be counterproducctive or based on incorrect assumptions.
Georgetown University’s Center for Business and Public Policy will also be holding an event on July 12 on policy and competition in consumer video, through its “Georgetown on the Hill” program. To learn more about the Georgetown on the Hill initiative, click here.