Broadband Plan: Competition in industries with high fixed costs


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FCC – Building broadband networks—especially wireline—requires large fixed and sunk investments. Consequently, the industry will probably always have a relatively small number of facilities-based competitors, at least for wireline service. Bringing down the cost of entry for facilities-based wireline services may encourage new competitors to enter in a few areas, but it is unlikely to create several new facilities-based entrants competing across broad geographic areas. Bringing down the costs of entry and expansion in wireless broadband by facilitating access to spectrum, sites and high-capacity backhaul may spur additional facilities-based competition. Whether wireless competition is sustainable in driving innovation, investment and consumer welfare will depend on the evolution of technology and consumer behavior among many other factors.

The lack of a large number of wireline, facilities-based providers does not necessarily mean competition among broadband providers is inadequate. While older economic models of competition emphasized the danger of tacit collusion with a small number of rivals, economists today recognize that coordination is possible but not inevitable under such circumstances. Moreover, modern analyses find that markets with a small number of participants can perform competitively; however, those analyses do not tell us what degree of competition to expect in a market with a small number of wireline broadband providers combined with imperfect competition from wireless providers. In addition, as the Department of Justice (DOJ) describes the issue, the critical question is not “some abstract notion of whether or not broadband markets are ‘competitive’” but rather “whether there are policy levers [around competition policy] that can be used to produce superior outcomes.”
http://www.broadband.gov/plan/4-broadband-competition-and-innovation-policy/

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