AT&T can use the extra towers to improve reception in very crowded metropolitan areas, but the decrease in competition and likely resulting increase in price is a big problem.

People who sell a product charge what the market will bear, but if the market isn’t fully competitive—if customers have few options to take their money elsewhere—then customers can’t punish high prices or poor service, and providers charge more for less.

The wireless market is already not competitive for two important reasons. First, providers lock in customers with a combination of contract law and technology. They claim contracts and handset locks are necessary to recoup the costs of subsidized handsets, but why don’t they all charge less for month-to-month service on unsubsidized handsets? (T-Mobile is still alone in offering such a discount.)

Second, the industry is already an oligopoly, with so few major competitors that they already have the power some power to charge inflated prices. The standard measure of an industry’s competitiveness is the Herfindahl–Hirschman Index, or HHI.

To calculate an HHI, you take the square of the percentage of each firm’s market share. A firm with 20% share adds 400 points (20 x 20) to the HHI. According to Department of Justice antitrust guidelines (which, unfortunately, the DoJ and FTC have stopped following), if the HHI is over 1,000,  the market is moderately concentrated—that is, not fully competitive. If the HHI is over 1,800, the market is highly concentrated and thus non-competitive. If a market is already over 1,000, then any merger raising the HHI by 100 points or more is presumptively a problem for competition.

To see how bad things are already, and how much worse they would be after the proposed merger, we should calculate the HHI for the wireless industry, both before and after. First, here are the ComScore market shares for each carrier as of March 2010:

Table 1: Market Concentration in the Wireless Industry, March 2010

This is what a noncompetitive oligopoly market looks like. We already see this in a lot of important ways—suboptimal cell service, attrocious customer service, stubbornly high prices, and charges that are often exponentially larger than the marginal cost.

The prices for text messaging in particular are a great example of “price gouging” and illustrate the industry’s tacit collusion (pdf). The cost for the network provider of handling a text message is virtually zero, since the messages are small enough to fit into the “control channel,” or the tiny bit of data that your phone and cell network are exchanging even when you’re not talking or using mobile data.

In a truly competitive wireless market, a customer would drop a provider who charges up to $20/month for something that’s actually nearly free to provide. Imagine if McDonalds sold hamburgers at their current prices but charged $0.20 for each french fry—or $20 for all the fries you can eat. Potatoes are cheap, so we’d be offended and take our money elsewhere, because the fast food market is highly competitive.

In mobile telephony, however, there almost is no “elsewhere” to take our money, especially if you need reliable nationwide coverage. The number of players is small enough, and customers are locked in enough, that there is little opportunity to punish this price gouging.  (Thankfully, free messaging-over-data via services such as Google Voice allow customers some opportunity for arbitrage, but expensive data plans and technological know-how limit this opportunity to to the most economically and technologically well-positioned customers.)

So the bad news of an uncompetitive market is already here. Now, let’s see what the market might look like after an AT&T/T-Mobile merger. Here’s that table, assuming that all T-Mobile customers stay with AT&T (and most will have to for some time, thanks to their two year contracts):

Table 2: Approximate Market Concentration Following AT&T/T-Mobile Merger

A substantial number of T-Mobile customers will switch to Verizon or Sprint, but the HHI would still be in the mid-2000’s, and no scenario makes this market more competitive than today’s market. In short, customers and regulators should be worried.

Now imagine what happens when it’s specifically T-Mobile that goes away. They have long been the cheapest option, offering the worst service among the big four in exchange for much cheaper prices. They’re the only company that has experimented with discounted pricing for month-to-month customers. Inexplicably, they’re still the only major US carrier to deploy UMA, which allows voice calling over wifi. (I’d love to use my Verizon minutes to make and receive calls over my home wifi router; instead, I’m forced to take the chance that I’ll drop yet another call in my first-floor apartment. Can you hear me now?)

T-Mobile offers several unique features in the otherwise troublesome wireless market, and AT&T is unlikely to keep many if any of them. Ma Bell just wants the customers, towers, and spectrum. If they wanted to sport UMA or cheaper pricing, they could have offered them years ago.

The current cell market is already highly concentrated, so we get service that is overpriced, with limited features and a quality of service that does not justify what we pay. If federal regulators allow AT&T to buy T-Mobile—which, unfortunately, is practically a given—the market will be even less competitive.

This merger means less choice and still-higher prices for something like the service we’ve long since been promised. If you have a lot of stock in the telecom industry, however, it’s a big win.

Academic associations tend to be politically conservative.

I don’t mean they revere Ronald Reagan and Milton Friedman, though plenty of scholars do. Rather, each group–representing a field’s professors and graduate students–tends to evade controversy, rarely taking a public stance on an issue that might divide the membership.

Thus, it is remarkable that the Association for Education in Journalism and Mass Communication (AEJMC) has declared its support for network neutrality.

The issue is too important to stay on the sideline any longer.

AEJMC represents a diverse group of scholars who research and teach nearly everything related to mass media. Based on our research–and, in some cases, years of industry experience–we know the media business, and letting ISPs pick online winners and losers is bad policy.

Nearly all revolutionary internet ideas–from Amazon and Google to Skype and Twitter–came from cash-strapped outsiders. Somewhere in the world right now, another tinkerer is developing what might become the next big idea. Before it catches on, though, ISP demands for a broadband toll might strangle this idea in its crib.

Also, some of the best stuff online never turns a profit. Imagine if, in 2001, Wikipedia had to pay through the nose just to compete on a level playing field with Encarta. It may have stalled, and even today, forcing Wikipedia into the slow lane would harm and might kill the project.

AEJMC is also concerned about the slow death of the daily newspaper’s business model. We embrace the internet age, but we also hope to ensure financial viability for “print” journalism. ISP tolls would make this much harder.

MSNBC and FoxNews could afford to pay extra for the rapid delivery of rich, interactive media. Most newspapers could not, forcing them to choose between deeper debts and worse user experience. Citizen journalists and exciting nonprofit experiments would also be muted by ISPs.

In addition to concern about the media system in general, we also have a selfish motivation to support network neutrality: Our roles as scholars and teachers. Academics in all disciplines depend heavily on the internet, and most of the educationally valuable content is not backed by big corporations.

If ISPs choose winners and losers online, the online content we professors assign would not often win. Would ISPs bend over backward to ensure my students’ access to the PDF of James Boyle’s Creative Commons-licensed book? Or the Internet Archive audio of WWII-era radio broadcasts?

Boyle and Archive.org are great, but I don’t expect them to pay off Verizon just to make my students’ downloads faster. This means my students have less access to educationally valuable content, they learn less, and the educational value of the internet drops. The same will be true of my research productivity.

As students of the media system and as researchers and educators, we have deep value and respect for the neutral internet. It is a privilege to have contributed to the drafting of the AEJMC statement, and I thank AEJMC President Carol Pardun for having the courage to lead this charge.

P.S. As if ISP profiteering weren’t enough, other interested parties are muddying the issue. The copyright industries, for instance, are desperately trying to force and cajole ISPs into serving as the copyright cops.

P.P.S. In the interest of full disclosure, I am the co-author (along with Minjeong Kim of Colorado State) of a research project examining the online framing of network neutrality. This project won a competitive research grant from AEJMC, though this is in no way related to my long-established opinions on this issue.

I’m not opposed to tiered pricing in principle, though TW appears to have handled it rather badly, and it still fails to solve the root problem of weak competition in the wireline ISP market. Also, I’m skeptical that it’s necessary–rather than a way for TW to keep maintenance costs down and prices up in a market where consumers have few other options.

I really appreciate Topolski taking on the ever-invoked myth that the internet is about to become so choked up as to become unreliable. This is the threat that the “Internet Tubes” will get full, invoked by then-Senator, now-convict Ted Stevens was threatening all the way back in 2006.

Basically, this threat is still a bogeyman and looks to be so indefinitely. Last year, Telegeography concluded, “Internet traffic is growing fast, but capacity is keeping pace.”

Further, DSL Reports debunks the “exaflood myth” in their typical sharply opinionated style.

For a more detached, scholarly view of internet traffic, see the Minnesota Internet Traffic Studies (MINTS) site. Chief investigator Andrew Odlyzko and company are doing great work here. He also suggests that, if anything, the rate of growth in wireline broadband traffic is decreasing. The most recent MINTS post cites a Cogent estimate of 30% growth in internet traffic in Q4 2008 versus 2007.

Last February, Odlyzko argued that, at least as far as the network industries are concerned internet growth may be too slow. This was even based on higher estimates of growth; Odlyzko’s estimate at the time was that internet traffic grows at about 50% per year.

The key is that the cost of managing a network declines by about one third per year. Even exaflood believer Lawrence G. Roberts adopts the latter estimate, following Moore’s law.

If the cost of managing network traffic next year will be roughly 2/3 of this year’s per-bit price, and total traffic is around 3/2 of this year’s total, network providers spend about the same year-over-year for network maintenance (2/3 * 3/2 = 1) and thus make the same profit per subscriber.

Of course, it’s very un-sexy to tell your stockholders that per-subscriber profits will be the same as last year, especially considering the ever-decreasing potential for new subscribers in a broadband market that is approaching saturation.

Thus, dare I suggest: Maybe the exaflood threat is actually about broadband providers leveraging their way into a new business model–whether the Tony Soprano business model of “Charge Google,” or the wireless carriers’ model of tiered pricing.

To draw a comparison with the wireless industry is instructive; even when wireless data transmission is more than doubling every year, wireless carriers keep charging lower prices for better service and rolling out every more reasonably priced all-you-can-everything plans.

Where there’s even modest (and far from ideal) competition, customers come out far better than in the duopoly-at-best home broadband market.

But then again, maybe “global traffic will exceed the Internet’s capacity as soon as this year.” That is, if you listen to Phil Kerpen’s commentary at Forbes–from January 2007.

He also posted a PDF of the relevant section. See the highlighted portion on page 9 for the nondiscrimination requirements.

In a 5-0 decision, the Commission issued a ruling allowing anybody to transmit messages in white spaces, within fairly limits on the generation of interference. By declaring the spectrum open to unlicensed experimentation, they’ve green-lighted the development of new technologies that some describe as “wifi on steroids.”

Unsurprisingly, Google is happy, and unless you’re invested in one of the incumbent industries on Wired’s list of losers (see first link), you should be, too.

Visit today’s FCC Daily Digest, where you can see the FCC press release and the five Commissioners’ statements.

The hearing was held at Harvard’s Berkman Center for Internet and Society. When Catherine Bracy, the Center’s administrative manager, opened the door to the hearing at 7:15 am, “none of the 35 to 40 people waiting to get in appeared to know what the hearing’s subject matter would be,” the AP reports. She also saw a couple of the ringers sleeping in the front row during the hearing.

So far, this means that Comcast has:

*Blocked most BitTorrent traffic by adding fraudulent bits to transit streams
*Claimed that it was doing no such thing
*Once confronted with two different studies (one by the EFF, the other by the AP) proving as much, admitted that they do indeed block BT traffic
*Described its actions as “delaying” BT traffic when the goal and effect is to stop most BT transfers
*Pretended this was all no big deal
*Changed its ToS to reflect the blockade

And now, we add:

*Hired ringers to reduce public access to a hearing into these practices

Let’s hear it for Philadelphia’s own cable giant, Comcast!

(For more on the hearing, check out Berkman’s FCC hearing linkfest.)

The company’s recent discrimination against peer-to-peer traffic is the cause of the hearing. Last August, Comcast denied the charges (which were first documented on… drumroll please… a blog), but now the company has stopped fighting the clear and convincing evidence, instead changing the Terms of Service to reflect the fact that they are willfully throttling BitTorrent traffic.

Now, they claim:

Network Management is best left to the sound, good-faith judgment of the engineers and proprietors who run and own the networks and who are best able to remedy customer service issues promptly, rather than to regulation. The self-policing marketplace and blogosphere, combined with vigilant scrutiny from policymakers, provides an ample check on the reasonableness of such judgments.

There’s only one problem: whatever market pressure and public criticism can be leveled has already come to pass, and Comcast still has not changed direction. Could this have something to do with the market failure in the broadband market? After all, a duopoly is rarely the sign of a healthy market.

At least one prominent blogger and vocal Comcast critic finds the argument laughable.

On DRM-related sidenote, somebody (presumably Comcast) put a password on the PDF, preventing the wholesale one-step copying of text. Yet further evidence that the company is deeply committed to an open dialogue on net neutrality.

(Link from Lok)

For more, see SaveTheInternet.com or CNet.

The company also admits that they will kick off end users who use (what they determine to be) too much bandwidth:

The Service is for personal and non-commercial residential use only. Therefore, Comcast reserves the right to suspend or terminate Service accounts where bandwidth consumption is not characteristic of a typical residential user of the Service as determined by the company in its sole discretion.

Harold Feld has a great explanation of why Comcast blocks p2p and boots the heaviest users: they don’t want to invest in the infrastructure to improve capacity, and they don’t want to use tiered pricing.

If only we could get network neutrality legislation…

(Link via Marvin Ammori (who ROCKS), guest blogging for SaveTheInternet.com)

End users with an exceptional understanding of the underlying technology provide pretty damning evidence that the broadband service provider is deliberately degrading certain kinds of internet traffic.