Two very American stories about high-speed internet access are colliding right now, and the dissonance is striking. One is like a five-minute Shakespearean tragedy, neatly telling the story of what a high-priced local cable monopoly does (and doesn’t do). The other is a hopeful narrative of intelligent, effective government intervention.
For the brief but evocative tragedy, you probably can guess who the high-priced local cable monopoly is: Comcast. In Vermont, this litigation-happy monolith is suing the state Public Utility Commission, claiming, among many other things, that its First Amendment rights have been violated (because the company is unhappy about the terms under which it is obliged to provide service there).
Comcast took in more than $200 million in Vermont last year. According to the state commission, it has “overall scale and ubiquitous presence” throughout Vermont. No other cable operator in the state reported more than $18 million in revenue in 2016, and only one reported making more than $8 million. That’s a nice summary of the situation in many places in the country: There’s usually just one very large cable operator.
We got into this mess of local cable monopolies throughout the country because Comcast and Time Warner Cable, the two giants, have grown by acquiring companies and swapping systems between themselves to ensure that they avoid competition in particular regions. And because they’re so big, they can spread their costs across zillions of customers, making it difficult for any new provider of service to do it more cheaply than they can.
Comcast’s history in Vermont is a case in point. In 2005 the company bought the now-defunct Adelphia Cable’s Vermont business. That was quite a deal—the Green Mountain State systems were a tiny part of a mega-arrangement that had Comcast and Time Warner Cable both buying up parts of Adelphia and trading millions of subscribers between themselves.
Take a deep breath before you decode this next sentence. Time Warner Cable got Adelphia’s systems in the Carolinas, and swapped its systems in Minneapolis, Memphis, and Jackson for Comcast’s holdings in Dallas, Los Angeles, and Cleveland. Time Warner became the largest cable provider in Los Angeles and New York City. Comcast got new customers in Washington, D.C. and Boston.
In the decade since the Adelphia deal and the swaps, both companies have gone from strength to strength: Comcast is the biggest ISP and pay-TV company in the country, as well as one of the handful of major US media content companies. Time Warner Cable, now branding itself as Spectrum after its acquisition by Charter, is similarly enormous.
Along the way, Comcast has continued to operate in the leafy, hilly, thinly populated, freezing cold state of Vermont. Adelphia hadn’t done a great job, and so as a condition of allowing Comcast to buy Adelphia’s systems, the state regulator required Comcast to fulfill Adelphia’s preexisting obligation to extend its lines to unserved areas of the state.
Now Comcast’s franchise in Vermont is up for renewal, and the state wants that line extension work—an obligation to which Comcast agreed when it bought Adelphia—to continue, with Comcast duty-bound to build out 550 additional miles of cable over the next 11 years. Comcast can choose where to do the work so that it’s most cost-effective for the company, but it has to keep that work going, bringing lines carrying high-speed internet access (as well as, if desired, pay TV) to people who don’t currently have it.
Comcast is spitting mad. It says what the regulator is doing is “arbitrary, unprecedented, and will ultimately harm local cable subscribers by resulting in millions of dollars in increased cable costs.” That’s perplexing to the utilities commission: All that’s going on is that obligations based on the Adelphia conditions, to which Comcast agreed in order to consummate that mega-deal a decade ago, are continuing in the franchise renewal. And Comcast’s costs and margins are within its control; whether or not it chooses to pass along higher costs to consumers in Vermont (where the public already sees Comcast prices as high and rising) is up to Comcast. (Which, by the way, is valued at more than $180 billion.)
Comcast says it’s a “recognized provider of protected speech under the First Amendment and, as such, may not be singled out for undue burdens that infringe on such rights.” What’s the singling out here? Well, the regulator is saying that Comcast is the biggest operator in the state and can afford to extend its lines, in areas the company chooses, over the next 11 years. There’s a “large number of currently unserved communities in Comcast’s service area,” the regulator says. Comcast’s response? It says, essentially, that being called “biggest” amounts to “singling out”—choosing a particular speaker whose speech the state wants to constrain. Wow.
Comcast wants to use its own internal “line extension policy,” and charge whatever it wants for lines running to particular houses. It is arguing that the commission has to show that any particular extension will pay for itself. But that’s not the state policy, or indeed the way that telecommunications ever works. There are always thinly populated areas where the high upfront costs of building infrastructure are cross-subsidized by more thickly populated regions of subscribers. That’s what you have to do if you want everyone to be served.
This litigation is going to go on for a while. It will be painful. Vermonters shouldn’t hold their breath. Comcast, which Wall Street knows is essentially an unregulated public utility for high-speed internet access in the areas it covers, has unlimited resources to fight off this public-spirited regulator. As Wall Street’s Craig Moffett puts it, “Cable operators are not media companies, they are infrastructure providers. Their infrastructure is still advantaged.” Although there are many efforts in Vermont to provide fiber (including ECFiber), they’re still small: Comcast isn’t feeling any pressure to upgrade its lines to fiber. And, as Moffett has reported, Comcast from now on will be growing through price hikes, not through building new lines. It’s done with building new lines.
The whole thing is dispiriting.
So for a little uplift, here’s my second American story. Take a look at how well we’ve done wiring up schools and libraries. Since the Obama administration announced in 2014 that every school and library should be connected to fiber, with a minimum of 100 Mbps of service for every student, we’ve now reached nearly 40 million students and 2.6 million teachers in tens of thousands of schools. About 97 percent of schools are now equipped for digital learning.
How did we do this? Federal subsidies, for one thing. But two other elements were crucial: All the subsidized wires had to be fiber optic, infinitely upgradeable into the future; and the prices charged by operators to schools had to be public. That price data broke the market open: Across the country, schools that used to be paying $22 per Mbps as recently as 2013 are now paying $4.90, just because they can pick up the phone and point out that other schools are paying less for the same services.
We’re not done. 6.5 million students still need these fiber connections. Prices in some areas are still unspeakably high. The Trump FCC is moving incredibly slowly on applications for funding. The money is available only until 2020, and, as reported by Government Technology, about half of schools haven't accessed funds yet. The risk is that the Ajit Pai FCC will undermine or destroy the program.
But our success with schools and libraries shows that industrial policy supporting a fiber upgrade is possible. A first, key step is getting granular service and price data out into the open, just as the schools and libraries did. Right now, that kind of information isn’t available to Americans. All parts of the country—every home and business, not just schools and libraries—should have the same supported freedom to get out from under their local cable monopolies (where these exist) or chart their own fiber-based futures.
This can be done without having the government directly involved in selling services. All the government has to do is subsidize and require unlit fiber connections running everywhere. We’re capable of great things, and a public fiber option could be one of them. We’re also capable of bad things—like letting Comcast run amok in the hills of Vermont.
