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GAO Report On Broadband Service Providers: Don't Judge A Book By Its Cover
The Government Accounting Office recently issued a Report on Broadband Service Providers and their impact on local telephone, subscription television and high speed Internet service. The Report is entitled Telecommunications: Wire-Based Competition Benefited Consumers in Selected Markets. This title is misleading given the actual content of the Report, which concluded that "the long-term viability of these [BSP] providers is not clear." In other words, based on the GAO Report, there is no reason to believe that BSPs will be around long enough to really benefit consumers in any market.

BSPs offer alternative, wire-based telephone, television and Internet service. They substantially discount bundled services over the prevailing market rate for other already established providers. To no one's surprise, the heavily discounted BSP bundled service occasionally causes short-term price reductions by their competitors. The problem is that there will probably be no long-term for BSPs because, unlike the established providers, BSPs cannot live long on their discounted rates. It is a basic law of economics that, unless you work for the Federal Government, you cannot survive if you don't make a profit. In fact, all of the BSPs examined by the GAO are experiencing serious financial problems, and there is no reason to believe they will be around much longer.

In addition, most BSPs won't even try to enter "large metropolitan cities because they believe serving such markets might prove difficult." Consequently, even if BSPs were economically viable, they would only survive in a very small niche. By contrast, there is a fierce competition between Direct Broadcasting and cable television in most markets, and Winston gets at least one phone call a week from rival telephone companies wanting him to switch service.

Despite its title, the inevitable inference from the GAO Report is that you should go with other options if you want to make sure that your telephone, subscription television and Internet service will be there when you need and want them.

The Senate Subcommittee on Antitrust, Competition Policy and Consumer Rights held hearings on "Competition and Overbuilds in the Video Market," a subset of the BSP issue, on February 11, 2004. Winston understands that the tenuous status of BSPs was a major point made during the hearings.
  • Click for GAO Report on BSPs.
  • Click for Robert Sachs Testimony at Senate Subcommittee Hearings.
  • Click for Michael Willner Testimony at Senate Subcommittee Hearings.
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