Washington, D.C. — Today the Consumer Federation of America released an analysis of competition and public policy in the Business Data Services (BDS) market, showing that the powerful oligopolies at the center of the communications market must be regulated to protect competition, innovation, speech, and, ultimately, consumers.

“The policy failures and lack of competition we’ve seen in Business Data Services epitomize the challenges of building a dynamic, competitive communications sector in the digital age,” said Dr. Mark Cooper, CFA’s Director of Research. “While the growth of BDS embodies the immense progress that has taken place during the digital revolution, these services exhibit ongoing problems in market structure, conduct and performance that have made BDS a key chokepoint in the communications sector.”

The report, entitled Business Data Services: Another Failure of Free Market Fundamentalism to Promote Competition or Prevent Abuse of Market Power, proposes a conceptual and empirical framework to analyze core concerns about market power both for Business Data Services and beyond. It shows that the early deregulation of the BDS industry was based on erroneous theories of contestable markets and sufficient competition that did not play out in reality. These theories continue to drive free market fundamentalism to this day, culminating in the Federal Communications Commission (FCC)’s “Flip-Flop” order in 2017, which reversed the 1996 Communications Act’s emphasis on competition in favor of abandoning federal oversight.

The report argues that this decision was an enormous policy failure that will have disastrous effects for consumers, deregulating the key chokepoint where the ocean of data flowing through the digital communications sector becomes a stream delivered to individual customers.  The sector is dominated by a “tight oligopoly on steroids” where the market power that results in high levels of concentration is magnified by strategies of geographic separation, technological specialization, and product segmentation that all of the dominant firms use to diminish rivalry by avoiding head-to-head competition.

“The evidence is clear that two firms are not enough to ensure competition. Sometimes six firms is not enough to ensure competition,” said Amina Abdu, CFA’s Antitrust Advocacy Associate. “And yet, we’ve allowed a handful of companies to control this crucial bottleneck in the digital economy because of a notion of potential competition that never materialized. That’s a problem.”

“Local phone companies used their control of the network inherited from the franchise monopoly period to raise prices, increase profits and undermine competition,” concluded Cooper. “Antitrust and regulatory oversight must be restored in the communications sector. This is not just a problem with Business Data Services, but a larger problem of abuse of market power in tight oligopolies across digital markets.”

Contacts:

Mark Cooper, 301-384-2204

Amina Abdu, 202-656-1282