Broadband Race. A Case Study on the Status of Connectivity in the United States

Master's Thesis from the year 2015 in the subject Business economics - Miscellaneous, University of Warwick (Warwick Business School), language: English, abstract: The purpose of this paper is to present a clear and complete image of the current status of wireline broadband connectivity in the United States.

By reviewing the existing literature, this paper gathers the necessary data to capture an image of the US wireline broadband industry and its market structure. The study also examines the relevant academic concepts and theories that could provide an explanation for the higher broadband prices and lower broadband speeds in the country.

A customized research methodology is used to carry out the research project. Primary research in the form of a consumer survey is used to specifically address the research questions by collecting the relevant primary data. Secondary research is conducted to collect and synthesize data produced by others to grasp the realities of the U.S. broadband industry and its business environment.

The focus of the primary research is to verify the industry and market structure by viewing it from the consumers' point of view and to investigate the immediate impacts of higher prices and lower speeds on consumers. The secondary research is carried out to analyze and discuss the underlying causes for the current low level of competition within the industry.

This study finds that two strategic groups - namely Telco and CATV, currently dominate the US broadband industry classifying it as a highly concentrated oligopoly. Nevertheless, the broadband competition in the United States has a duopoly nature since each customer has at most access to two access providers - typically one in each dominant strategic group.

The current level of internal rivalry in the industry is low. This is due to the fact that firms with "spheres of influence" meet each other in multiple geographic markets simultaneously, which leads to the phenomenon of "mutual forbearance". Mutual forbearance can result in lower intensity of competition, higher prices, and lower data transfer speeds.

Furthermore, high levels of natural and strategic entry barriers makes entry to the industry possible only for the financially strong firms that can realize the required economies of scale and scope. Yet, even the potential entrants become extra cautious about entry if they consider that because of growing demands market might become contestable. Therefore, they search for markets with lower demands but also lower probabilities of future rivalry.