The rise of Comcast and the future of Internet access

If you follow telecommunications and technology policy, one of the names you’re probably acquainted with is Susan Crawford. If you don’t know her, you should – she’s a professor at Cardozo law school at New York’s Yeshiva University, a fellow at the Roosevelt Institute and a former ICANN member. In 2009, she also co-led the Federal Communications Commission’s transition from the Bush to Obama administration. She’s also a regular contributor to Wired and Bloomberg. When it comes to tech and telecom, she knows her stuff.

Crawford’s recently released book, provocatively titled Captive Audience: The Telecom Industry and Monopoly Power in the New Gilded Age, documents the rise of Comcast from its roots as a humble, family-owned cable provider to the effective “owner” of the internet in the United States.

I recently spoke with Crawford about her book, the state of the U.S. market and its similarities to Canada, and wrote that up in a story, here.

Much of that conversation didn’t fit into the story, of course, so here it is in full:

Q. What did you do while you were an adviser to President Obama?

A. Well, I don’t want to overstate my importance because I was only there for a year. I was brought in to co-lead the FCC transition between Obama and Bush. I was not a political person and this call came out of the blue, but I took it on extremely earnestly. I told the transition team that I didn’t want a job, which is apparently the secret to getting a job. I ended up on Larry Summers’ staff. There are two policy councils that advise the president right inside the White House office. One of them is the domestic policy council and the other is the national economic council, so Summers was the head of the national economic council. I was his staff member on science, innovation and technology policy.

This was the beginning of 2009, so the world was falling apart. The country was falling into an abyss so everybody was very busy figuring out what to do with the banks and the car industry. I think it’s fair to say that technology policy wasn’t high on the ranking of issues at that moment. But Congress, in the stimulus bill, provided $7.2 billion to be given out in grants and loans for broadband in America. The bill’s language was very broad and the amount of money provided wasn’t large enough to make a difference for the country. The other thing that happened was that the money was split between two agencies, the department of commerce and the agriculture agency. So I decided it was very important to make sure those two agencies worked very closely together and make sure the grants were as thoughtful as we could make them. I didn’t want to just sprinkle money across the country for crappy wireless access, but actually finding out what better middle-mile fiber could do to improve the country’s internet access infrastructure.

I worked on that and on the digital television transition, which was just happening. The Bush team had done a pretty poor job getting the country ready for that. There was no permanent chairman at the FCC and no one permanently in charge on the political side at the Department of Commerce, so for a good part of that first I was just helping to co-ordinate activities. It’s amazing – when you first come into a new administration, there is no government. It takes a while to get everybody in, so I just viewed my role as being as helpful as possible in that interim period.

Q. Okay, so fast forward to your book: how do you describe it to people?

A. The way that captures most people’s imaginations is that the same thing has happened to high-speed internet access in America as happened to electricity [many years ago] in that people view high-speed internet access as a luxury and a very few private companies in a completely deregulated context control the pricing and availability. Just as with electricity, it’s going to take leadership, a lot of political will and great citizen involvement to change this picture so that everybody in the country gets reasonably priced, globally relevant high-speed internet access, so that just as today we can rely on turning on a light switch in our home.

Q. In the book, you spend a good deal of time explaining why Comcast is the big problem in this issue. Can you briefly summarize why it’s that company and not someone like AT&T or Verizon that’s the bigger problem?

A. That’s a great question and the book is pretty dense, so I applaud you for reading it. I really wanted to explain where this whole story came from. The reason I focused on Comcast is that for somewhere north of 75 per cent of Americans, their only choice for wired high-speed internet access is their local cable monopolist. For most of America’s big cities, that actor is Comcast. AT&T and Verizon are retreating almost entirely into wireless access and have ceded the field to the cable guys.

Q. You talk a lot about vertical integration. There are other big, vertically integrated media companies in the U.S. – where does Comcast stand in that pack?

A. Among the network access providers – and by that I mean Time Warner, Comcast, AT&T and Verizon – Comcast is by far the deepest into programming and distribution. It’s the most vertically integrated provider in America. Time Warner Cable split off from the Time Warner, the media megalopolis. They do have some programming holdings and they made life very difficult for Google [Fiber] in Kansas City because Time Warner Cable there owns the local sports rights. But Comcast is much more deeply into programming than the other guys, and it’s been very effective. Comcast is now bigger in terms of revenue and market cap than McDonald’s, Home Depot and some other giant businesses. They’ve been able to use this vertical integration with programming to make it more expensive for anyone to show up and compete with them. Americans demand programming as well as internet access, so anyone who wants to compete has to come into both markets at once. That’s a great upfront investment that’s just about impossible.

Q. I had just finished your book when I saw the news about Intel possibly launching a television set with a la carte channels. Given what you wrote, I couldn’t help but think, ‘That’s not going to happen.’

A. [Laughs] It just plummets its face against these licensing issues.

Q. You also write that Comcast owns the internet in the U.S. That’s of course technically not true, but you do explain the various ways in which it has a sort of de facto ownership. Can you explain?

A. You can think of this as everybody has a pipe into their home and, for most people, that pipe is controlled by their regional cable monopoly. And for many Americans, that’s Comcast. Comcast can turn so many dials on that pipe that it makes life very uncertain for any new business that’s a high-bandwidth business. Take Netflix, for example. Comcast can impose usage caps that make it more expensive for anyone planning to substitute Netflix for their Comcast package. It can make Netflix’s video more uncertain as it reaches consumers, it can raise Netflix’s programming costs in league with the other programming providers. It has a thousand dials to spin that make life uncertain for other online businesses. It has the ability to raise prices for internet access at will, it can place restrictions on that access with no oversight and it can make the terrain uncertain for any new over-the-top service.

Q. How much does regulatory capture play into this?

A. I think it’s pretty clear from the book that I’m not saying anybody’s actually corrupt. Everybody is doing the best they can in a very difficult political situation. Comcast is very well connected politically to municipal, state and national leaders. From a regulatory standpoint, absent public uproar, it’s just too hard to do anything about the situation.

Q. If Verizon and AT&T are pulling back from wired internet access competition and aren’t going to compete with Comcast, it almost seems logical that they’re setting themselves to be acquired by that company. How likely is that?

A. I think [Comcast CEO] Brian Roberts was telling the truth when he said that Comcast is now strategically complete at this point, following the NBC Universal acquisition. Acquiring a telephone company would be a bridge too far for Comcast, it would focus more attention on this issue than Comcast would like. Besides, Comcast doesn’t really need to acquire anybody. They can offer their own wi-fi services in most large American cities and they’ve made common cause with Verizon. By co-operating with Verizon Wireless, Comcast gets all the benefits that it might get by acquiring Verizon Wireless. You can think of these guys as giant actors, each one of which is too big to acquire and each one of which is too big to compete.

Q. I also got the idea from reading your book that Comcast, if it wanted further vertical integration, could acquire Google. Is that unlikely for the same logic you just suggested?

A. I don’t think Comcast is going to be buying any of the other giant players. Each one of these giant players has carved out its own niche and they don’t face any real competition in that niche. Verizon and AT&T are doing fine in the wireless world, Facebook, Apple and Google are all doing fine in their corners. They may jostle up against each other, but none of them is going to acquire any of the others. The contrast is so amazing. I was speaking to someone here [in Seoul] yesterday and they said, ‘If you ran an apartment in Seoul, you have the choice for fiber access – 100 megabit symmetrical access – from three or more providers and it costs $30 a month. That’s pretty different.

Q. The counter to that, however, is that while internet access may be cheap in a place like South Korea or Japan, the cost of things like fruit is through the roof.

A. That’s true. There are definitely trade-offs. But people today are likely to give up their fruit before they’ll give up their cellphone contract, so when it comes to essential needs, it’s like electricity. You can’t survive in the world without it.

Q. One last question about possible Comcast acquisitions. You mention 30 Rock a few times in the book: how about a couch maker for full vertical integration of the living room, as on the show?

A. Ha! Slightly different from that but also interesting is that Verizon was said to be seeking a patent on a DVR [with a camera] that would allow them to watch the living room and see what you were most interested in. All of that is definitely possible. The screen can also be a sensor network that is aware of your reactions to everything you watch. Notice that Comcast is also deep into the home security business. They’re going to continue to look for more ways to make more money from the same number of people. To the extent that that’s based on knowing more about you, that’s a good direction [for the company] to go in.

Q. Is vertical integration cyclical? It seems like competitors are always destined to consolidate and become monopolies, only to eventually be broken up. How is this situation going to shake out in the long run?

A. In the long run, for America to be successful as a country, we’re going to need to take this policy problem head on. We’re going to need a basic fiber utility for all Americans that’s reasonably priced. To get there, we’re going to need to carry out some divestitures, some structural separation, dividing content from conduit, to make sure cities can do this for themselves and that it’s legal for them to do so. You need to make sure that local and national governments have oversight power over this utility. All of these steps are necessary. Right now it seems politically difficult, but my guess is that in the next five years, the public will be sufficiently exercised about this that change will occur.

Q. People complain about prices creeping up slowly in everything from gas to internet service, but they don’t do much about it. What do you think needs to happen to instigate this sort of public revolt?

A. There are already a lot of Americans who are angry that these bills are so high and that they’re cutting into their paycheque. It’s just a matter of connecting those people to each other. A movement already exists, it’s just a question of making it more visible to itself. I don’t think we need a crisis for that movement to spring into action, you just need more connected tissue.

Q. Do you have any idea as to what the President thinks about all this, or is he just busy with other things?

A. I don’t know. I think he’s probably being told that this is a luxury item and not something he should be focusing his energies on. But he’s being told that by people closely tied to the telecommunications industry. My hope for Obama 2.0 is that he will see this issue as the fundamental problem that it is for America. Just as we need a functional banking system and a functioning housing system, we need a functioning communications system. This should be high on his radar screen. As well, Congress is not exactly co-operative, but FDR took on the private electric companies for decades and that’s what changed the electricity picture in America. Similarly, this could be a legacy project for the president.

Q. You talk a bit about Bell Canada and usage-based billing in the book. How boned up are you on Canada?

A. Canada, if anything, looks worse than America. With the power of the cable companies, it seems to be unrestricted. The ability of new Canadian companies to address very large markets at very high speeds is being constrained by the current communications picture. From everything I read, it seems to be even worse.

Q. On a personal level, do you find this stuff depressing or does it make you angry?

A. Ha! Neither. Life is short. I have no commercial ties to this question so I can speak plainly. I think I’m lucky to be in a position to explain what’s going on. It’s not depressing. Americans are smart and energetic and they can understand the public good. I’m actually optimistic about this.