Here’s why ISPs are not monopolies:
For the most part, there are two reasons why an internet service provider isn’t broken up for being a monopoly.
One reason is that there really is competition, so antitrust laws don’t technically apply.
The other reason is that the ISP might be considered a utility or a type of protected monopoly.
So if you want to learn all about monopolies and why internet providers are not monopolies, then this article is for you.
Let’s delve into it!
What Is a Monopoly?
Let’s start by clarifying what a monopoly really is.
In layman’s terms, a monopoly is often thought of as a big business that can set prices or buy up competition, and that’s actually pretty close.
But if we really want to pin down a definition, we can be slightly more specific.
Generally speaking, a monopoly is a business that has so much dominance in a market or sector that it can control that market directly.
There are usually two examples of how this might work.
If the company can set prices and people have no alternatives so they have to pay whatever price is set, that’s a monopoly.
As an example, if there’s only one gas station in a town, people who want gas have to pay whatever price is set at that location.
There’s no alternative, and people need gas to even try to drive somewhere else to buy it. It’s a simplified example, but you get the point.
The other way a monopoly can work is when a company has the ability to prevent or exclude competition.
So, if one business buys up all of the other businesses that would compete with it, you have a monopoly situation on your hands.
What many people don’t realize is that monopolies are not always illegal.
In fact, a large number of monopolies in the world are not just permitted by governments, but they are established or even encouraged by governments.
Here’s a common example.
Wherever you live, there is probably only one option for water services to the building. If you want tap water, you have to go through your local utility.
It’s the only game in town, and it is by all working definitions a monopoly.
This is pretty normal around the world, and it’s an example of a government-supported monopoly.
In most cases, such monopolies are classified as some type of utility, which is something we’ll circle back to later.
With all of these ideas in place, it’s easy to see that monopolies might not have a super concise or static definition.
In fact, the definition depends heavily on where you live.
So, let’s look at how monopolies are defined and managed in a few prominent places around the world.
In the United States
In the U.S., it can get pretty convoluted, but the FTC regulates monopolies across the country.
The gist of it is that a company is a monopoly if that company has monopoly power. Thanks for the circular definition, FTC.
Put another way, a company that has and exercises the power to prevent competition in a market is a monopoly.
Most of the time, a business isn’t considered a monopoly unless they control a majority of the market share in a region.
So, if a city has three internet service providers (ISPs) and none of them have more than 50% of the customer base, there is no monopoly.
That majority rule isn’t set in stone.
For the most part, the FTC gets to assess monopoly claims on a case-by-case basis.
You can look to these ideas as general guidelines, but there is no hard and fast clear definition of a monopoly in practice.
In the European Union
The EU is another place where we can look at how monopolies are regulated and learn a few things.
Monopolies are defined by individual nation members of the EU, but the union does have some standards that are supposed to apply across all member countries.
Those standards are set out in the Competition Policy of the European Commission.
It’s a pretty simple policy, as far as these things go.
There are two possible criteria to become a monopoly in the EU.
You can participate in anti-competitive agreements, or you can participate in abusive behavior.
Anti-competitive agreements are aimed at the idea of businesses collaborating to create a monopoly-like environment.
Let’s say there were only two oil refinery companies in an EU country. If they split the market share, then there is not an inherent monopoly.
But, if those two companies work together to prevent other refineries from opening, then they have collaborated as an effective monopoly, and that’s a violation of EU rules.
The other possibility is that a company acts as a sole monopoly and engages in abusive behavior.
Let’s say that instead of two oil refining businesses, there is only one.
If that business decides to arbitrarily raise oil prices for no reason, that could be considered abuse, and the EU could take antitrust actions.
There’s another good example that can show how monopoly regulations are different around the world, even when they’re built on the same principle.
The Anti-Monopoly Law (AML) in China is a perfect place to look.
In wording, it looks a lot like antitrust laws in other countries.
In fact, it’s safe to say that this law was heavily influenced by EU and US legislation.
The one difference is that there is a major exemption in the AML for the “state-owned economic sector.”
On the surface, this is actually pretty normal.
You’ve already seen that monopoly exemptions are often made for the sake of utilities, so how would this be any different?
It mostly comes down to the economic structure of China.
China is still technically a communist country, although in practice they practice a fairly mixed economy.
To spare you the boring details of international economics, there’s one simple but paramount difference between the Chinese economy and that of the US or EU.
In China, the government ultimately has purview over all markets.
When the AML makes an exception for a state-owned economic sector, that can literally be any sector if the government deems it as such.
Let’s get into what this really means.
There is no guarantee that any given market in China will be controlled by a state-owned monopoly.
That said, absolutely every sector is fair game in China for such behavior.
In the US and EU, something has to be formally classified as a utility before it can get monopoly exemption status, and it’s not always easy to make that change.
In China, the government has more freedom for creating these exemptions, and it’s why monopolies are not strictly limited to the roles of utility services.
The point of all of this is that even when legislation looks very similar across different places, it might be applied very differently.
And, when it comes to ISPs, China only has one (technically it’s a little more complicated than that).
That one provider is split into several companies across different regions, but it’s ultimately a monopoly in a state-owned economic sector.
In other words, all internet service in China is directly owned by the state.
Where Are ISPs Actually Monopolies?
With so much ground covered, we can get back to the original idea.
Why aren’t ISPs monopolies?
Well, in a lot of places, they are.
And, they are monopolies that are protected by the government.
In many cases, this is because internet service is seen as a public good or universal right.
The motivations for ISP monopolies vary, and when you see some of the different places that have this, it might seem a little more obvious.
The list of countries with monopolistic internet service is pretty diverse.
Here’s a short list of some of the countries that fit this mold:
- South Korea
If you look at the governments and cultures across those places, you’ll see that they are quite different from each other.
Despite that, they have this one fact in common.
So, it’s hard to say that there is a single reason that an ISP might be a monopoly.
Still, the majority of countries that have established internet services are home to multiple providers.
That doesn’t mean that there are multiple options in every region of each of these countries.
But generally speaking, most countries don’t have a true national monopoly on internet services.
Why Aren’t ISPs Monopolies in the US?
If we narrow things down a bit, we can return to the original question, and it makes sense.
Across the United States, ISPs are typically not considered monopolies.
There might be small regions where they are (and might even be protected monopolies), but the general ruling is that they aren’t.
There are two answers to this question, and they don’t have a lot of overlap.
The first answer is that internet service providers can be considered protected monopolies.
The second is that there might actually be enough competition that there isn’t a real monopoly in place.
In the United States, the idea of an ISP as a utility is closely tied to the concept of net neutrality.
You might remember when this was a major political issue. Arguments aside, a net neutrality provision was passed in February of 2015.
This established internet providers as common carriers.
At the risk of oversimplifying, ISPs were set to be regulated by the FCC as a type of utility.
This action gave ISPs in the U.S. some amount of protection as localized monopolies.
None were intended to be protected as a national monopoly or a nationalized internet service, but in any given town or city, you could definitely see a local monopoly, and the FCC was not going to do anything about it.
(This is skipping the bulk of what was in the net neutrality provision and why. I’m just focusing on the monopoly part of the story right now.)
Ultimately, net neutrality was rolled back.
It took a while—from 2017 to 2020—but the regulations were changed.
Despite that, a lot of local systems were already set up with ISP monopolies, and they haven’t been systematically restructured despite the new rules.
In places where there are real ISP monopolies in the U.S., the reason why is that they were classified as utilities when the monopolies were established, and changing with the new rules has been slow at best.
Here’s the last part of the story.
There are plenty of places in the U.S. where ISPs are not monopolies by any technical definition.
In most major cities across the country, multiple internet service providers are available in the majority of neighborhoods.
Because there is genuine competition in this sense, it’s not technically right to call them monopolies, and regulatory bodies don’t have sufficient cause to try to break up these companies.