The FCC is examining whether AT&T, Verizon, CenturyLink and other incumbent telephone companies have market power in the market for business data services (also known as “special access”). To hear their competitors like Level 3 and Windstream tell it, incumbent telcos have “locked up” the business broadband market and exercise “overwhelming control … to dictate terms and conditions” in that market. According to a recent study by Anna-Maria Kovacs at Georgetown University, however, these competitors’ services “are far more profitable” than services provided by incumbent telephone companies.
If incumbent telcos could actually exercise market power, they could unilaterally increase their profitability by either (1) charging monopoly prices (i.e., prices that are higher than would occur in a competitive market) or (2) lowering the quality of their services (e.g., by forgoing maintenance or investment in new network capabilities). These results of market power — artificially high prices or lower quality services — are what competition laws are intended to avoid.
Yet the evidence presented in the Georgetown report and the recent, sworn testimony of FCC Chairman Tom Wheeler show that the way incumbent telcos are behaving in the broadband marketplace is the exact opposite of how firms with market power are expected to behave. Read More