BARRIERS TO ENTRY ANALYSIS OF BROADBAND MULTIPLE PLATFORMS: COMPARING THE U.S. AND SOUTH KOREA

Open Access
Author:
PARK, EUN-A
Graduate Program:
Mass Communications
Degree:
Doctor of Philosophy
Document Type:
Dissertation
Date of Defense:
July 30, 2007
Committee Members:
  • Richard Denny Taylor, Committee Chair
  • Krishna Prasad Jayakar, Committee Member
  • Matthew Jackson, Committee Member
  • Carleen Frances Maitland, Committee Member
Keywords:
  • barriers to entry
  • broadband access technologies
  • the residential broadband market
  • broadband competition policy
Abstract:
This study intends: to clarify the various economic factors that could prevent or make it difficult for new entrants based on multiple platforms (i.e., xDSL, Cable modem, wireless, BPL, and satellite) to successfully enter the residential broadband access market; to compare the U.S. and South Korea in terms of barriers to entry to identify their differences and to explain how those differences have affected the level of market competition in each country; and to discuss the implications of the barriers to entry in terms of future competition and regulatory policies in the US broadband access market. To accomplish those objectives, both a comparative case study based upon government documents and industry data, and an executive survey and interview analysis were conducted. The findings are: theoretically, a broadband network requires substantial sunk investment, economies of scale and economies of scope. Positive post-entry profitability, entry costs, regulation and competition policy greatly influence the decision for new entry. The most important entry barriers in the residential broadband market in the U.S. are seemingly the access to the last mile, economies of scale, economies of scope and capital requirements. In South Korea, new entrants do not have much difficulty accessing the last mile by virtue of the government’s new entrants-favorable competition policy such as open access and line sharing rules although the last mile operators seize substantial market power in the broadband service value chain in both countries. In contrast, the FCC’s policy directions have been oddly against reducing barriers to entry for new entrants and small businesses. As for new entrants without facilities who utilize wired options, such as xDSL and cable modems, access to the last mile and predatory pricing are the most important barriers. Still, a large portion of new entrants have entered the market utilizing ADSL since 1999 in the U.S. As for new entrants with facilities using other alternative technologies, technological barriers, such as frequency interference and congestion, and economic barriers, such as spectrum costs and capital requirements, have been critical entry barriers. An executive survey of broadband access providers revealed that entry costs were the most important barriers among four factors, i.e., entry costs, absolute cost advantages, product differentiation and post-entry profitability. Interviewing executives produced five main themes: access to the incumbents’ networks, incumbent phone companies’ predatory retail pricing & overpricing access, political power of incumbents biasing the regulation and legislation, difficulty in access to capital due to regulatory uncertainty, and financial and technological limitations of alternative access technologies. Increasingly high barriers to entry to new entrants in xDSL and cable modem services are significant in the U.S. compared to those in South Korea. Even though alternative access technologies are available, new entrants with these technologies are more likely to have high entry barriers in terms of capital requirements and lack of profitability. Regulators should recognize how much more difficult it would be to enter the residential market with only the power of capital despite tremendous competitive advantages the incumbent telephone companies and cable companies have benefited from complete control of the last mile networks for decades.