James Gattuso

Net Neutrality, France and iTunes

Forget Verizon and AT&T. As American policymakers debate whether to impose “net neutrality” rules to Internet network providers, France–always a step ahead in regulation–has fingered another threat to neutrality: Apple’s iTunes service. In a vote scheduled for today, the French parliament will vote on whether to require Apple to open its iTunes service to competing tune providers.

It would be easy to scoff at this. After all, Apple’s service is one of the most popular innovations since the flush toilet, revolutionizing online music to the benefit of millions of (apparently happy) consumers. But the French are annoyed: “France is against monopolies,” said an adviser at the French Culture Ministry yesterday.

But this is more than an idosyncratic French regulation. Its a logical extension of net neutrality principles: “The consumer must be able to listen to the music they have bought on no matter what platform” the French advisor said. Take away the French accent, and the argument is indistinguishable from that used by U.S. net neutrality proponents.

Of course, in the U.S., policymakers wouldn’t think of applying net neutrality regulations to anyone but the Bells and the cable companies. Would they? Its a question that Internet companies now supporting these net neutrality regulations should think pretty hard about. Maybe they should phone Steve Jobs for his opinion.

March 21, 2006 | Comments |

Viewing 15 Comments

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    Oh come on.

    Take away the French accent, and the argument is indistinguishable from that used by U.S. net neutrality proponents.

    That's completely bogus, and you of all people should know that.

    The reason for pushing for net neutrality laws on the internet is because the basis of the internet was built with public money and given to the Bells with plenty of subsidies and tax breaks.

    Also, laying actual lines still results in a natural monopoly (for the time being, though, hopefully, that's going away as wireless technologies advance -- but we're still a ways away from that).

    Neither of those reasons applies in the music case.

    You can argue against one or both, but to say they're indistinguishable is ridiculous and hurts your argument.
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    Mike,

    I agree with you that the cases are different, and certainly the "natural monopoly" argument is a valid consideration. I'm not sure I see the public subsidy argument, though. Obviously, the Baby Bells have receieved some public subsidies and support over the years. But so have most private businesses. Moreover, the primary contention here is over next-generation infrastructure, which, by definition, will require additional private investment.

    So is there a point at which the Baby Bells will have invested enough of their own capital to treat them as a private business, or is the rule once a monopoly, always a monopoly?
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    A natural monopoly? This must be the strangest monopoly in history -- far from the sole provider, the Bells aren't even the leading provider of Internet access (remember cable?).
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    Tim:

    I'm not sure I see the public subsidy argument, though. Obviously, the Baby Bells have receieved some public subsidies and support over the years. But so have most private businesses.

    Yeah, but the deal for those public subsidies (which were a lot bigger than most other public subsidies) was that there would be net neutrality as part of the deal. That makes a difference.

    Moreover, the primary contention here is over next-generation infrastructure, which, by definition, will require additional private investment. So is there a point at which the Baby Bells will have invested enough of their own capital to treat them as a private business, or is the rule once a monopoly, always a monopoly?

    Heh. Well, that's a bit misleading. This "next generation" will use much of the equipment in place already and the real issue is the right of way deals, which they'll use to install fiber. That remains the key issue. If I wanted to do that, I wouldn't be able to.

    James:

    A natural monopoly? This must be the strangest monopoly in history -- far from the sole provider, the Bells aren't even the leading provider of Internet access (remember cable?).

    The cable guys don't own the backbone (or at least not enough of it to matter) -- which is a big part of the reason why you don't see them talking about net neutrality. The telcos are still in the power position.

    If you want to focus just on last mile stuff, which is only one aspect of the issue, then at best, you have a duopoly in some areas (and there are still plenty of areas with only one choice) -- and since both providers come with tremendous strings attached and there's no way for any 3rd provider to offer wired broadband, it's still a very limited market where no new entrants can show up -- at least until new technologies come along (something I certainly hope will happen).

    However, if you look at the overall system, backbone and last mile connectivity, then I'd say it's very reasonable to say the telcos have a natural monopoly.

    Hey, in a perfect world, I'd agree with you. But there's no reasonable way you can look at this market and say that there's real competition. Not in the slightest.

    Look at my record. I'm a huge free market supporter. But you can't deny reality just because it doesn't match with what you support.
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    Mike,

    Which public subsidies specifically are you talking about? You're talking about subsidies for the backbone in the 1980s and early 1990s? Or favorable right-of-way rules when they were building out the copper? Or something else?

    I think you know more about how this infrastructure works than I do, so I might be missing something, but my impression is that most of the infrastructure in existence at this point was privately financed. The backbone infrastructure that received government support in the early 1990s has been replaced several times over, and they're slowly replacing the old copy infrastructure with fiber.
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    Tim,

    Well, it's a long list. :) However, I'm mostly talking about right of way deals and the incentives put in place in the 90s for the telcos to upgrade to fiber. The "new" infrastructure definitely uses an awful lot of the old infrastructure (a recent WSJ op-ed piece joked how Alexander Graham Bell would be so proud of the phone system today, mainly because he'd still recognize so much of the equipment) -- but is obviously making tremendous use of the right of way -- ripping up cities and towns across the country to bury new fiber.

    So, yes, the infrastructure is being replaced, but plenty of the old stuff does still exist. But, the key to this is the right of way.

    It simply doesn't make sense to grant that right of way to too many parties. Right now, the grants are to two parties, telcos and cable -- and that's mainly because they were offering two different things. So there is some form of competition, but it's extremely limited.

    The argument that the telcos can't pay for the infrastructure upgrades is bogus as well. They know perfectly well that there's tremendous demand and they'll easily recoup costs -- but they want to make sure they get to keep the monopoly/duopoly in place to lock in higher profits.

    That same WSJ piece I referenced before points this out by way of analogy:

    "The telcos whine to legislators that prices should be high to incent them and others to string new lines. That's bogus. Intel invests billions in R&D; for new microprocessors specifically because prices of today's parts are dropping. Cisco just spent $500 million on their new terabit router because prices of their old routers have dropped. If they didn't invest, they'd be dead. It's just the opposite for SBC. It's the prospect of lower prices that stimulates investment, not higher prices, yet our telecom policy is exactly backwards. We desperately need a Telecom Act of 2006."

    The way technology works is you upgrade to stay ahead. The telcos aren't doing that, because there's no competition. They're only upgrading if the government lets them keep their monopoly position. Hell, they're blatant about it. Verizon tried to hold their fiber installs hostage in New Jersey unless the gov't promised them they'd keep competitors out.

    I'm all for competition, but I'm just not seeing it with the telcos.
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    Sure its not a perfect world, but I can't see how the backbone market gives telcos a monopoly - the SBC-AT&T; merger still left the new AT&T; with less than 20 percent of the backbone market, and Verizon/MCI with about ten. (see http://www.heartland.org/Article.cfm?artId=17635). Hardly dominant. That plus a second-place showing in the last-mile still makes for an odd "natural monopoly."
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    That last post was by me. Sorry for the confusion...
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    It is certainly not a perfect world and the government stepping in to regulate how our providers choose to provide is not going to do anything but waste tax dollars. Its a simple principle: Lets not make laws to fix a problem that doesnt exist yet.
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    From how I read this post, I think the argument was that the Itunes regulations were a natural EXTENSION of the proposed "net neutrality" legislation, not that the two efforts were analogous. The impetus for an attempt at governmental intervention is not to ensure that the public gets its tax dollars back, but rather because government wants to ensure that companies play nice. The latter reasoning might sound good, but invites unnecessary regulation, that will invariably lead to more restrictive legislation (a la France) in the future.
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    Competition may not be perfect in the internet market right now, but it can't be denied that it does exist. Furthermore, other platforms like wireless are quickly growing. Should any teleco or cable company (lest we foret a real monopoly) go to limit content or act in any undesireable way, the growth of these other industries will be stunning. Leave it to the market my friend.
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    I like your comparison a lot, James...it makes a lot of sense to me. I really think we should allow the market to take care of itself--as it almost always does--and keep Congress' mits where they belong (far away from the internet!)
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    Readers of this comment thread should know that tpwk, pkp646 and oldhats are part of a tag-team of industry shills who invade blog comments on net neutrality to argue against any government regulation of the telephone companies. Other names who run with this crowd are John Rice, paulaner01, lessgov and AJ Carey. (Google any of these names in combination and you'll see how their game works. They've ganged up on dozens of blogs who oppose the telco position).



    By tag-teaming the blogs, this small handful of individuals gives the false impression of broad popular support for an industry-friendly position.



    It's more of the same deception from the likes of AT&T;, Verizon and BellSouth that are determined to swoop in and become gatekeepers to Internet content -- in a way that benefits no one except themselves.



    I'd like these commenters to tell us how it is that they appear together (usually one after the other) across the blogosphere spouting identical industry talking points.



    What gives fellas? Are you being paid to do this? And by whom?

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