Competition Works in Broadband

Published April 1, 2004

One of the primary purposes of the Telecommunications Act of 1996 was to promote competition in telecommunication markets, but wire-based competition has not developed as fully as expected. However, a new kind of entrant, called broadband service providers (BSP), offers an alternative wire-based option for local telephone, subscription television, and high-speed Internet services to consumers in the markets they have chosen to enter. …

… BSPs focus on a core business strategy of building a new fiber-optic network over which they can provide three services to consumers: local telephone, subscription television, and high-speed Internet services. The BSPs we interviewed attempt to entice subscribers to take more than one service, and they have specific targets for the average revenues that they hope to obtain per subscriber. In order to encourage subscribers to take more than one of the three services they offer, these providers offer significant discounts for purchases of packaged services.

On the basis of 12 markets we examined, it appears that BSPs’ entry into a market benefited consumers in the form of lower prices for subscription television, high-speed Internet access, and local telephone services. Incumbent cable operators often responded to BSP entry by lowering prices, enhancing the services that they provide, and improving customer service. Incumbent local telephone providers did not appear to have responded as much to BSP entry as was the case with cable providers; these local telephone providers told us that certain federal and state laws limit their ability to respond to new entrants.

The combined effect of BSP entry and incumbent companies’ response provides significant benefits for consumers. The rates for telecommunications services were generally lower in the six markets with BSPs than in the six markets without a BSP. For example, expanded basic cable television rates were 15 to 41 percent lower in five of the six markets with a BSP when compared with their matched market. The prices were also generally lower in markets with BSPs for local telephone and high-speed Internet services. In some cases, the lowest price in the BSP market was that offered by the BSP, while in other cases the lowest price in that market was that offered by the incumbent provider.

Some of the rate impacts that we found may be due to factors other than the BSP entry, such as population density.

Excerpted from Wire-Based Competition Benefited Consumers in Selected Markets, General Accounting Office, 04-241 (February 2004).