Water, Internet Access and Swagger: These Guys Are Good

When news broke that regulators had approved the Comcast/NBCU mega-merger in January 2011, I was at the annual State of the Net meeting on Capitol Hill. I missed most of the conference to hole up in my hotel room and write about the deal; the monster transaction would have more impact on the state of Internet access in America than any panel discussion at the conference.

 

Here’s why: With the addition of control over NBCU’s wildly profitable cable channels (and NBC sports programming) to its existing commanding lead in territory for the provision of high-speed internet access, Comcast can make it just too expensive for any private-sector wired competitor to show up as a cheaper distributor of information, entertainment, data, and voice services.

 

High-speed Internet is the stuff of modern life and the infrastructure America needs to thrive as a global competitor. But many of America’s great cities are now Comcast country when it comes to wired high-speed Internet access. (And if you’re not in Comcast country, you’re probably in Time Warner or Cablevision country — these companies don’t enter each other’s territories.) The consumer’s bank account is suffering and we’re lagging as a nation, but Comcast is doing well.

 

Last December, the other shoe dropped: Verizon Wireless and Comcast agreed to market each other’s services. Verizon waved a white flag, implicitly agreeing not to compete with Comcast on the wired side of high-speed Internet access by recognizing that the moat around Comcast’s (and Time Warner’s) business was just too wide to cross. (As a practical matter, only Verizon’s FiOS can compete with Comcast’s DOCSIS 3.0 services, but in 85% of Comcast’s footprint there are no FiOS services. Because it’s too expensive to rip out copper and install fiber, Verizon isn’t going to expand, leaving Comcast customers with no choice.)

 

Comcast was also implicitly agreeing not to build its own wireless facilities, making Verizon Wireless’s business plans more certain.

 

And so the private providers of Internet access in America are dividing the market — “you take wired, I’ll take wireless” — which is all to the good for their shareholders, but not so great for the rest of us.

 

Now that it faces no competition from other private wired providers and is conceding that wireless was always a complementary service — not a substitute for its wires — even Comcast has to be just slightly worried that someone will notice that it is selling an essential commodity with zero oversight. It’s as if a single company was providing water or electricity in your town and could choose whom to serve and how much to charge — not something most Americans would think was a good idea.

 

To forestall even the possibility of a hint of a suggestion of regulation, Comcast is trumpeting its voluntary $9.95 “Internet Essentials” product, proposed by Comcast as a condition of last year’s merger and officially launched last September in Washington, D.C as a digital divide measure.

 

You have to hand it to them. These guys are good.

 

Last month, Comcast issued an update on this voluntary program. Here’s how it works: Until August 2014, a family with a child receiving a free (and, in the future, a reduced-price) lunch at school can call a number and ask for an application. Childless and elderly people aren’t eligible. Neither is anyone who has been a Comcast customer within the last 90 days.

 

The application will be mailed back to them. Then the family will send in its eligibility information. And then the family waits, again. Sometimes the forms take months to arrive. (“This program would really help but what am I supposed to do without Internet for 90 days?” writes one Comcast forum poster).

 

After all this, the family gets 1.5 Mbps download speeds (Comcast says this will be going up at some point to 3 Mbps), and up to 384 (in the future, 768) Kbps upload, with free installation, for $10 a month. Plus “the opportunity to purchase a netbook-style laptop computer [that] supports wired and Wi-Fi Internet connectivity [and] includes Windows 7 Starter operating system and Internet browser software” for $149.99, along with Norton Security Suite and “parental controls.” Comcast also provides free Internet training — online, in print and in person.

 

There are obviously a bunch of good things about this program. It gets people online for the first time (albeit slowly) and it recognizes the importance of digital literacy to adoption of Internet access.

 

But think about it: It’s hard to apply for these paltry speeds, and, so far, only about 160,000 people have signed up — or just two percent of the eligible school lunch population in Comcast’s territories, by the company’s own estimate. In Philadelphia, where Comcast estimates there were 150,000 eligible families, only 463 have enrolled — an underwhelming 0.3 percent adoption rate.

 

When the program ends, families have to choose between dropping the service or signing up for whatever Comcast wants to charge them. If customers walk away they will have nowhere else to go for truly high-speed Internet access. Most importantly, because it’s a voluntary program, the company can (again, implicitly) ensure that the FCC won’t even try to do anything that might make it unhappy. Threaten to regulate? Goodbye program.

 

The prospects Comcast are targeting with Internet Essentials aren’t customers it wants in the long run; the program, in a sense, filters out people who can’t pay by readying them to pay later. And in the meantime the regulator’s hands are tied. That’s the state of the net in America today.