Competition could cost US ISPs $24B a year, says report

With rumors of Verizon seeking to sell a significant chunk of its wireline assets and as the government continues its review of Comcast’s attempt to take over Time Warner Cable, which could lead to further consolidation in the broadband market, a new report out from a U.K. research firm has some shocking news for U.S. ISPs. Point Topic, which gathers worldwide data on broadband prices, said that if the U.S. market were truly competitive, its ISPs would lose $2 billion in revenue a month. Currently, U.S. customers spend $5.27 billion a month based on Point Topic’s report.

The report is mostly a thought exercise instead of a reaction to a definitive policy change, but it does make a compelling argument that U.S. consumers pay the price for the current broadband duopoly we have in most markets. It also noted that the U.S. is no longer the largest broadband market — that distinction now belongs to China, which is what the analyst is comparing the U.S. market against.

The report makes the assumption that this competition would come in the form of the government forcing ISPs to open up their networks by making them sell access to their pipes for a regulated price, as well as from competing municipal broadband networks. Open broadband networks exist in other parts of the world such as as in the Netherlands, where Amsterdam’s fiber network is open to any provider, or in the U.K, where the government forced open the networks and set some pricing.

Point Topic acknowledges that no one in the U.S. is discussing forcing open networks at the moment. Even Google, which had talked about opening up its network at the beginning of its fiber journey quickly backed off that positioning as it built out its networks. But competition is coming, even if it isn’t as drastic as the regulatory opening up that came in the U.K., which is what Point Topic used to get its numbers.

[blockquote person=”” attribution=””]If we drop the tariffs to $173.76, $43.14 and $8.63 per month which is equivalent to the UK, then we see a drop of over $2 billion a month in subscription revenue. Whether the industry in the US could bear this is questionable but it seems, at the moment, likely that some version of increased competition will drive prices down in the next five years.

Missing out on subscription revenue makes it difficult for the supplier companies. Decreasing revenues are particularly hard to handle when a sector has adjusted to super-normal profits which certainly seems to be the case in the US.[/blockquote]

The thought exercise ends with a pretty damning conclusion — that the lack of competition and subsequent high price for broadband has hindered adoption above and beyond where it should be compared to other wealthy countries where broadband is cheaper.