Monopolies and competition

A recent article by James Surowiecki for the MIT Technology Review, entitled “The wait-for-Google-to-do-it strategy”, looks at the clear competitive supremacy of private companies over government in terms of meeting infrastructure needs, illustrating his argument with initiatives such as Google Fiber, which has had a much bigger impact on the broadband market in the three areas where it was rolled out than the FCC’s National Broadband Plan.

Up until February 2010, when Google called on several US cities to put themselves forward to become testing grounds for Google Fiber, the United States was not only falling behind countries like Japan, Sweden, or South Korea in terms of the number of homes with broadband access, but the monopolies and duopolies enjoyed by telecoms and cable companies in their markets, seemed unbreakable.

Five years on, Google Fiber is available in three areas, and is due to be rolled out in five more, with five other candidates to be announced. The telecoms and cable companies, seeing that Google is about to enter high-demand markets, have been obliged to lower their prices if they don’t want to be pushed out into lower-profit areas.

This is basically the same competitive effect that the creator of the cellphone, Martin Cooper, outlines in this video:

The government was doing nothing stimulate competition, so Motorola decided to set up its own (very basic and unreliable) cellular network, forcing competitors and the government itself to make cellular telephony a reality. I think Cooper hits the nail on the head, and that his ideas for the future, such as personal servers that connect the various devices we carry about with us, or artificial intelligence managing the different apps are also interesting.

On a very different scale was Google’s launch of Gmail on April 1, 2004 with one gigabyte of storage: before Gmail, Microsoft’s Hotmail or Yahoo! Mail were only offering a maximum of 20 megas, which were spam and advertising infested, and offered little incentive to compete.

It’s possible that Project Fi will end up having a similar effect: entering a market to change it from within:

I recently simulated a situation for my International MBA students at IE Business School that required them to advise Spain’s Telefónica on how to respond to Google Fi launching in its home market. Spain is almost a case study in discouraging competition, and the arrival of new competitors, and all the more so if they are “atypical” could help create an environment that would lead to users getting better and cheaper services.

Such a situation would certainly raise questions: what happens when the low-hanging fruit has been picked? Who is going to open up less profitable areas and provide the necessary universal access? What should the state’s role be in situations when helping generate healthy competition is essential for the country’s overall development?

(En español, aquí)

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