America's internet slowed by a sticky corporate web

FT.com

If Dwight Eisenhower had General Motors and George W. Bush had Halliburton, Barack Obama arguably has Comcast. US presidents are often linked to one or two corporations that donate a lot of money to them and then benefit from their actions. Comcast, which is America's largest cable television internet provider and is a near monopoly in most of its largest cities, is no exception.

The company's meteoric rise in the past decade parallels the relative decline of internet service in the US. In the late 1990s the US had the fastest speeds and widest penetration of almost anywhere – unsurprisingly given that it invented the platform. Today the US comes 16th, according to the OECD, with an average of 27 megabits per second, compared with up to quadruple that in countries such as Japan and the Netherlands.

The contrast on price is just as unflattering. The average US cost for 1 Mbps is $1.10 compared with $0.42 in the UK, $0.34 in France and $0.21 in South Korea. It is not only places such as Hong Kong that put the US into the shade. Countries such as Estonia, Portugal and Hungary offer a significantly better internet service. South Koreans joke that when they visit the US they are taking an internet vacation. Yet bringing the US up to speed appears to be low on Obama's list of priorities (it did not even get a mention in his State of the Union address last month).

The story of Comcast's ascent helps explain why. So too does its relationships with politicians across the spectrum. In the coming weeks Obama will nominate the next head of the Federal Communications Commission to replace Julius Genachowski, his former Harvard Law School colleague. Comcast, which employs many former FCC staff, including Meredith Atwell Baker, one of the four commissioners who voted to approve its contentious 2009 merger with NBCUniversal has a keen interest in whom that will be.

The FCC has been a good friend to Comcast and Time Warner Cable, the two largest cable providers that dominate US broadband. In contrast to the spread of electricity and telephones, where the US was far ahead of the rest of the world, Washington has abjured the same regulatory promotion for the internet. Through brilliantly effective lobbying, US cable companies have escaped the universal access and affordability clauses that were imposed on telecoms and electricity companies in earlier eras.

Countries such as Japan and France have embraced competition to push the rapid adoption of high-speed internet. The US is happy to tolerate duopoly (Comcast is one of two fixed-wire internet providers in 22 of America's largest 25 cities). As a result, only 7 per cent of American homes are served by fibreoptic wire compared with more than half in South Korea and Japan. It is the difference between a steam train and a bullet train. Yet there is little outcry in Washington.

There are few busier revolving doors than the one between Comcast and Capitol Hill. Of Comcast's 121 lobbyists, 85 are former government employees, according to Open Secrets, which monitors money and politics. "Comcast employs the royalty of K Street [lobbyists],” says Sheila Krumholz, head of Open Secrets. In 2011, the year the FCC approved Comcast's merger with NBCU, the company spent more than $14 million on lobbying – the ninth-highest of any US company (it ranks 49th on the Fortune 100 list).

Comcast's most influential employee is David Cohen, its senior vice-president, and one of Obama's largest fundraisers. Cohen raised several million dollars for him in 2012 (the campaign only disclosed who took in more than $500,000 rather than the exact amount). Comcast is also bipartisan. It gave a lot of money to Mitt Romney's campaign. One of its biggest supporters is Michael Powell, the former Republican head of the FCC, who last month became president of the National Cable and Telecommunications Association, the industry's main Washington group.

But its relationship with Obama is deeper. This month the FCC waived through Comcast's $16.7 billion purchase of the 49 per cent of NBCUniversal it did not own. One of its assets is MSNBC, the liberal counterpart of Fox News, which often seems like a mouthpiece for the Obama administration. In the past two weeks MSNBC has hired David Axelrod, Obama's former chief strategist, and Robert Gibbs, his former spokesman, as contributors. As Jay Leno, the night-time chat show host, recently joked: "The economy is so bad MSNBC had to lay off 300 Obama spokesmen.” No one is alleging impropriety. But such intimacy tells a story.

Which brings us back to Obama's FCC nominee. The choice includes Jason Furman and Mignon Clyburn and Jessica Rosenworcel, two current FCC commissioners. Among others, there is Susan Crawford, a former Obama adviser, whose recent book Captive Power blames America's poor internet performance on market concentration. For that reason, she is seen as the least likely hopeful. Then there are a number of industry favourites.

Whomever Obama nominates will tell us a lot about the future of the internet in the US. Will Washington continue to tolerate America's internet mediocrity (which afflicts both businesses and consumers)? Or will Obama belatedly decide that it merits the kind of zealous priority his 20th-century predecessors brought to the critical technologies of their day?

Copyright The Financial Times Limited 2013.