As the Internet grows more and more ubiquitous in our lives, it’s about time that legislation is finally catching up. Much has been made of net neutrality lately, so how did we get here? A recent article for The New York Times says that it might have nothing to do with technology and everything to do with economics.
As Claire Can Miller writes in her piece, “Why The U.S. has Fallen Behind in Internet Speed and Affordability,” it’s the lack of competition or regulation to drive a fierce market that keeps the cost down on consumers. For high-speed Internet (which Miller places at 25 mbps) she writes that 75 percent of homes have only one option at most, typically “Comcast, Time Warner, AT&T, or Verizon:”
“It’s just very simple economics,” said Tim Wu, a professor at Columbia Law School who studies antitrust and communications and was an adviser to the Federal Trade Commission. “The average market has one or two serious Internet providers, and they set their prices at monopoly or duopoly pricing.”
…The situation arose from this conundrum: Left alone, will companies compete, or is regulation necessary? In many parts of Europe, the government tries to foster competition by requiring that the companies that own the pipes carrying broadband to people’s homes lease space in their pipes to rival companies. (That policy is based on the work of Jean Tirole, who won the Nobel Prize in economics this month in part for his work on regulation and communications networks.)
In the United States, the Federal Communications Commission in 2002 reclassified high-speed Internet access as an information service, which is unregulated, rather than as telecommunications, which is regulated. Its hope was that Internet providers would compete with one another to provide the best networks. That didn’t happen. The result has been that they have mostly stayed out of one another’s markets.
When New America ranked cities by the average speed of broadband plans priced between $35 and $50 a month, the top three cities, Seoul, Hong Kong and Paris, offered speeds 10 times faster than the United States cities.
It’s a messy situation, and one that may not have an immediate response. According to Miller, the fastest Internet in the country comes when the “incumbent companies are not providing the service.” As Miller says (and cites) multiple times throughout her piece, the issue comes back to a lack of antitrust laws for the Internet providers.
While media outlets, the New York Times and others, lament a lack of laws and regulation around ISPs’ and the anticompetitive environment this breeds, it’s important to remember a Supreme Court decision from last year—one which dealt quite a blow to consumers’ ability to join forces and fight back under the existing laws.
That case was Comcast Corp v. Behrend, which was filed on behalf of two million current and former Comcast subscribers, and alleged that Comcast had, between 1998 and 2002, entered into unlawful agreements and monopolized (or attempted to) Philadelphia’s “designated market area.” Andrew Trask of Class Action Countermeasures explains it concisely:
Behrend in a nutshell: The plaintiffs filed a class action accusing Comcast of monopolizing the market for cable services in Philadelphia, driving up prices. (This was a violation of Section 2 of the Sherman Act.) During the certification debate, they offered expert testimony that showed the effects of four different practices on cable prices, although the report did not disaggregate those effects. The trial court certified a class based on only one of the four challenged practices, referred to as “overbuilding,” in which the company provided more infrastructure than demand supported, driving prices down and keeping out competitors. When Comcast objected that plaintiffs had not provided classwide evidence that overbuilding had led to the price increases they challenged, the lower court held that the expert report was sufficient to serve as classwide proof, and delving any further would be an impermissible merits inquiry. The Third Circuit affirmed.
It took nearly ten years to reach SCOTUS’ reviews, and it didn’t go over well: 5-4 decision against the consumers. The Supreme Court went against the lower court’s decisions, reversing the certification of the antitrust class action lawsuit, providing a crushing blow for similar. Max Kennerly of Litigation & Trial recently looked back on the case, voicing a harsh rebuttal to a recent assertion by Ninth Circuit Chief Judge Alex Kozinski that class action lawyers tend to “buy themselves off” in cases like Behrend, driving up the cost for consumers:
Of course, in the Comcast case, the five vehemently anti-consumer Justices of the Supreme Court ruled against the consumers, chopping up the case with the outrageous speculation that, “for all we know, cable subscribers in Gloucester County may have been overcharged because of petitioners’ alleged elimination of satellite competition … while subscribers in Camden County may have paid elevated prices because of petitioners’ increased bargaining power vis-à-vis content providers … while yet other subscribers in Montgomery County may have paid rates produced by the combined effects of multiple forms of alleged antitrust harm; and so on.” It was more than a bit disingenuous for the Supreme Court to muse about “for all we know” while preventing consumers from actually answering that question with a jury trial, but the case soldiered on, in fractured pieces.
Two weeks ago, the plaintiffs’ lawyers and Comcast announced an anemic proposed settlement in which Comcast will pay $16.7 million and provide services “worth” $33.3 million. It’s a joke, but — despite Judge Kozinski’s complaints — there’s no use in blaming the plaintiffs’ lawyers here. They’re not “buying themselves off.” They fought the good fight, were dealt a crushing blow by the Supreme Court, and in the end salvaged the best deal they could, while Comcast walked off with an iron grip over the Philadelphia cable market, a gargantuan building, and a quarter-billion in profit to spare.
Now Comcast is building a new tower, too, right next to the first one, at a cost of $1.2 billion, another gleaming monument to the failure of American antitrust law. Next time you wonder why your cable bill, or your cell phone bill, or any of your other consumer expenses are so high, don’t blame a class action lawyer, blame the Supreme Court.
As we move forward, it’s important to look back. Kennerly asserts earlier in the piece that “Comcast wasn’t competing on price, and it didn’t grow that way by dramatically improving its services…Instead, it was buying entire cable companies within the Philadelphia area and swapping customers with other cable systems, like Time Warner.” Now, instead of doing this in the Philadelphia area—like Comcast had more than a decade ago—the stakes are infinitely larger.
So while consumers will push and push for laws that create a more competitive internet marketplace, one that breeds better service and affordability, it still all comes down to the courts ability to enforce those laws—and so far, they haven’t been kind to consumers.