Everyone Hates Their Cable Company. Can New Tech Provide Competition?

Why are there so few choices for broadband in many markets? Is Internet service a natural monopoly? Will it always be?

(This article covers wired connection options: DSL, cable, and fiber, mostly. In an upcoming article I’ll discuss wireless connection options, and positive government regulation, too. Really: Some government regulation encourages competition.)

Wiring a city is a natural monopoly. (I’m going to ignore the libertarian arguments against this term; feel free to discuss.) The costs to string power, telephone wire, cable, or fiber to a neighborhood are high. For a new subdivision or apartment building, these costs are ultimately borne by the homeowner/renter. Everyone pretends “the developer” pays them, but they’re all passed along. Adding new services, like fiber Internet, to existing housing is even more expensive, and adding buried services can be two to three times more expensive.

Unless a buildout is likely to be profitable, no company will spend the money to install it. This is a classic natural monopoly, as compared to a government-granted monopoly.

And not all wire is equal: Cable Internet is much faster than DSL, because coaxial cable carries a much broader band of signal than phone lines. In a nutshell, that’s why many addresses only have a single affordable high-speed option: Cable Internet is fast enough to carry Netflix, DSL isn’t.

(I’m using the 2015 FCC definition of broadband: 25-plus Mbps down, 3-plus Mbps up.)

Scale and density count, too. South Korea plans to connect every household with 1Gbps or faster broadband, which is a lot easier to do for 50 million people living in an area making up 1% of the landmass of the lower 48 U.S. states. Also, half the population lives around Seoul. A lot of “American broadband speed is awful” reporting ignores this basic reality.

Estimates for pulling fiber to 90% of U.S. housing range from $11B to $140B; my money’s on the high end.

Considering those figures, is there another way to increase competition for wired services?