Natural Monopoly in North Carolina: The Need for Community Networks and Competition

As the North Carolina Legislature considers HB129 and S87 to greatly limit community broadband networks (we analyzed the bill here), it is worth taking a step back to understand why companies like Time Warner Cable provide broadband that is unreliable and comparatively both slow and costly without having other companies come in to offer a better product. The problem is basic economics: the problem of natural monopoly. Ever wonder why you generally don't have a choice between two major operators like Comcast and Time Warner Cable? They have carved up the market due to the costs and difficulty of directly competing with one another. Some folks have a choice of cable companies -- RCN and Knology, for instance, have been successful overbuilders in a few regions (though they went through troubles far worse than most public networks that have been termed "failures"). But for the most part, overbuilding an incumbent cable company is all but impossible -- especially for a private sector company looking for a solid return on investment inside a few years. In the face of a new cable entrant, massive companies like TWC start lowering prices, offering cash or other enticements, and lock both residents and businesses into contracts to deny the entrant any subscribers. Companies like TWC can do this because they have lower costs (through volume discounts for gear, content, and even marketing synergies as well as because they long ago amortized the network construction costs) and can take losses in one community that are cross-subsidized by profits from non-competitive areas. New entrants, both private and public, have higher costs as well as a learning curve. 

This is why we have so little broadband competition. Without competition, the few providers we have invest less and charge more, which is other countries are rapidly surpassing us (not because we have large rural areas, nonetheless a popular straw man). In the face of this reality, communities have built their own networks for a variety of benefits, including creating competition or changing the dynamic of a duopolistic "market." Massive incumbent providers responded by claiming competition from communities was unfair and using their lobbying power to pass bills in many state legislatures to preempt local authority to build this necessary infrastructure. For years, North Carolina has dealt with these arguments but the recent election has convinced TWC lobbyists that 2011 is their year to finally get rid of community networks -- the only real threat of competition they face. 

The Legislature, ignoring the fact that community fiber networks offer the best broadband in the state, appears poised to deliver a de facto monopoly to TWC. Stop the Cap! debunked TWC's claims here. Fortunately, a flood of phone calls to Legislators has slowed the process and may result in a less one-sided bill. Unfortunately, the promised negotiations may not be in good faith. In the House, the Committee on Public Utilities will discuss this bill on Wednesday, March 2, 2011 at Noon in 643 LOB. Please continue encouraging people in NC to call-in on this bill -- Stop the Cap! has all the contact information you need. Encourage your local leaders and organizations to pass resolutions calling for no new barriers to community networks -- you can use language from this petition, which you should sign also! If you have any such resolutions, let us know and we'll publicize them as well as pass them on to those locally working on the issue. It is worth recalling an interview Brian Bowman did about Greenlight in Wilson, NC. 

  And finally, for those who want to really go deep into some of the ways this bill protects existing private incumbents at the expense of competition, the North Carolina League of Municipalites has studied the bill and created an enlightening chart.