The two kinds of Internet-access carriers, wired and wireless, have found they can operate without competing with each other. The cable industry and AT&T-Verizon have divided up the world much as Comcast and Time Warner did; only instead of, “You take Philadelphia, I’ll take Minneapolis,” it’s, “You take wired, I’ll take wireless.”
At the end of 2011, the two industries even agreed to market each other’s services. Comcast and Time Warner Cable will bundle Verizon Wireless services with their own, and by 2015 the cable companies will have the option of selling mobile services under their own brands.
The deal came about because a cable-industry joint venture primarily owned by Comcast, with Time Warner Cable and Bright House Networks (another cable distributor) participating, controlled a substantial portion of public airwaves that the companies had licensed during a Federal Communications Commission auction in 2006; Verizon Wireless gets that spectrum for $3.6 billion in exchange for intertwining its business with that of Comcast and Time Warner.
This made eminent sense. In most of the areas served by Comcast and Time Warner, Verizon’s FiOS — the only real competition for wired Internet access — isn’t present. (Comcast and FiOS overlap in only 15 percent of Comcast’s physical market; Time Warner and FiOS overlap in just 11 percent of Time Warner’s.) By cooperating, Verizon Wireless implicitly promises not to spread FiOS service any farther, and Comcast and Time Warner promise to stay out of the wireless business. Meanwhile, much-smaller Cablevision will have to keep competing: It overlaps with Verizon FiOS installations in 40 percent of its market.
Both the wired and wireless Internet-access businesses are concentrated and highly profitable. AT&T and Verizon Wireless together control two-thirds of the wireless marketplace and generate 80 percent of its revenue, while enjoying profit margins of about 40 percent. Sprint and T-Mobile trail far behind, and the barriers to entry for any new national player are probably insurmountable.
The major wireless carriers, like the major cable distributors, have enough market power to raise prices at will: AT&T and Verizon often increase fees in concert, as in early 2010 when they required all their customers using feature phones to adopt data plans. In 2011-12, first AT&T and then Verizon Wireless ended unlimited data plans for new users and instituted overage penalties. AT&T and Verizon subscribers who bought Apple iPad tablets found that they were using up their monthly data allotments within hours and paying hefty additional fees.
Devices are central to this story. By 2012, about half of American mobile subscribers had a smart phone. In an ideal world — one that followed the classical model of Internet access — they could all be used like little computers to contribute to the creativity and invention that is the Internet.
This model of communications is based on a tradition of nondiscriminatory transport of information. In the 1970s and 1980s, the FCC, worried that phone companies might control nascent data-processing services, drew a line between transport (conduit) and content, and instructed the phone companies to stay in the transport box. Any devices meeting published technical standards had to be allowed to attach to the network without asking permission from the network-service provider. This model made the Internet and World Wide Web possible.