Substantial Profits in the Broadband Ecosystem: A Look at the Evidence

6 Pages Posted: 27 Apr 2010

See all articles by George S. Ford

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Lawrence J. Spiwak

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Date Written: April 22, 2010

Abstract

In this paper, we disprove claims by proponents of increased Internet regulation that Broadband Service Providers (“BSPs”) - such as AT&T, Verizon, Sprint-Nextel, Qwest, Comcast, and Time Warner Cable - make “record profits,” “substantial profits,” and “soaring profits.” By reference to the most widely used measures of profitability, we find that the data show that the profitability of the larger BSPs is generally equal to or below average for firms in the S&P 500. Thus, “’typical’ is more accurate than ‘substantial’ as a description of these profits.” As for “record” or “soaring profits,” the data show that 2009 profitability ratios are largely typical of recent profitability for the larger BSPs. The data further show that the profitability of the larger BSPs has been relatively stable over the past five years. We additionally demonstrate that content firms like Google and EBay are substantially more profitable than BSPs, implying the BSPs are not benefiting as much as others in the Internet eco-system from the surge in broadband adoption and use. Across all measures of profitability, Google and Ebay are two-to-four times more profitable than the better performing broadband providers. To put these numbers into context, we also looked at the profitability of several large firms outside of the broadband space. We found that, for example, both Wal-Mart and Colgate-Palmolive have much higher profits than BSPs (with the exception of net profit margin for Wal-Mart), leading us to conclude that “[s]elling consumers staples and toothpaste appears to be more profitable than selling them broadband connections.”

Keywords: Net Neutrality, broadband service provider, profits

JEL Classification: K23, L59, L96, 038

Suggested Citation

Ford, George S. and Spiwak, Lawrence J., Substantial Profits in the Broadband Ecosystem: A Look at the Evidence (April 22, 2010). Available at SSRN: https://ssrn.com/abstract=1596255 or http://dx.doi.org/10.2139/ssrn.1596255

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

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Lawrence J. Spiwak (Contact Author)

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States
202-274-0235 (Phone)
202-318-4909 (Fax)

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