The Cure for High Prices is High Prices

Some observers worry that the growing cable operator market share in consumer internet access means higher prices are coming, as telcos increasingly are relegated to almost-marginal roles.

In a new research note, New Street Research analyst Jonathan Chaplin says cable providers controlled 65 percent of the overall consumer internet access market at the end of 2016, possibly growing to as much as 72 percent by 2020.

Of course, the concern about higher prices assumes new challengers, or new methods of competing, cannot arise. That is likely an unwise assumption. In virtually all markets that are open to competition, high prices and high market share are invitations for competitors to attack.

“The cure for high prices is high prices,” a commodities industry adage suggests. In other words, high prices encourage more production, which leads to lower prices.

To be sure, many observers of the communications might deny that can happen with the commodity known as internet access, but history suggests the internet access commodity will respond to competitive forces in the future, as it has in the past, bringing additional supply to a market that concentrated, and also featuring “higher prices.”

In principle, several conceivable lines of attack exist. New platforms and new providers both are coming. Though some might doubt the amount of share that can be taken by new challengers on new platforms, several new platforms are coming, ranging from fleets of low earth orbit satellites, possible use of balloon fleets, unmanned aerial vehicles, fixed wireless and 5G mobile substitution.

Some of those platforms will come to market because new providers (Facebook, Google, OneWeb) are sponsors of the new platforms. In other cases, existing providers (mobile operators) will compete with fixed network providers.

What seems clear is that the era when telco fixed internet access networks based on digital subscriber line were competitive with the cable TV platform has largely past. Fiber to the home will be a choice in some cases, but the business case has gotten harder as cable has gained more share (stranded investment risks are far higher as the addressable market shrinks).

That likely means the future competition will come from new platforms and providers (mobile substitution as well as new competitors).

That might seem unlikely with the pause in Google Fiber deployments. Longer term, a big and attractive consumer market with rising prices, where one contestant has 70 percent share, will be attacked. The only issue is “by whom?”