Cable Modems and DSL: Broadband Internet Access for Residential Customers

Abstract

To date, most residential customers to the Internet have used dial-up modems with a top speed of about 56.6 kbps [kilobits per second]. In the past two years broadband access has become available via cable modems offered by the local unregulated cable provider and via digital subscriber lines (DSL) offered by the local regulated telephone company (the incumbent local exchange carrier [ILEC]) and competitors who resell DSL using the ILEC facilities. Cable modems and DSL offer access speeds about 10-30 times higher than dial-up access and are termed broadband Internet access. Although Federal Communication Commission (FCC) regulation required ILEC's to sell the use of their facilities to competitors at below-cost prices, no regulation of cable companies has occurred. This outcome is curious given that cable companies have a significantly greater incentive to distort competition as a result of their unregulated monopoly profits from their cable operations. This asymmetric regulation by the FCC has led to the open-access debate. The open-access debate involves the question about whether the cable providers should be required to provide access to competing broadband Internet service providers (ISP's) or whether cable providers can use exclusive contract with their affiliated ISP's.Here, we consider the economic incentives and actions of the providers of broadband access with respect to limiting the usage of broadband access, including the potential competitive effects for cable television, a sector of the economy where, to date, system operators have been able to exercise significant market power. We answer the question of whether the price of narrowband Internet access constrains the price of broadband Internet access. We reject the hypothesis that the price of narrowband access does not affect the price of broadband access (transport) and ISP service is not rejected. Our finding is that lower narrowband access prices do not constrain the prices charged for broadband access.