The Fiction of Forced Access “Competition” Revisited

by on September 13, 2009 · 8 comments

In a past life — that is, from roughly 1994-2004 — I spent an enormous amount of time countering the proponents of “open access” regulation for communications and high-tech networks.  My work in that field culminated in the publication of a 2003 book with my old Cato colleague Wayne Crews entitled, What’s Yours is Mine: Open Access & the Rise of Infrastructure Socialism. We aimed to counter the efforts of bureaucrats and central planners to command technology companies and industry sectors to share networks, facilities, or specific technologies with rivals in the name of “competition.”  Simply stated, sharing is not competing, and competition in the creation of networks is just as important as competition in the goods, services, and information that move across those networks.  Moreover, there are property right considerations that come into play when governments seek to commandeer networks or take over network management decisions.

But let’s just stick to the economic issue here regarding the incentives created by the network-sharing mentality of the “forced access” movement and the fiction associated with the belief that network sharing can create competition.  My old PFF colleague Randy May, who currently serves as President of the Free State Foundation, continues to cover developments in this field far closer than I do, and has always done much better work on the subject than me.  Recently, Randy addressed some new fictions put forth by the radical Leftist activity group, the (Un-)Free Press who are, once again, spinning a revisionist history of telecom and media policy.  Specifically, Free Press has recently suggested that in the late 1990s we lived in a veritable communications nirvana, with thousands of Internet Service Providers and/or “competitive exchange carriers” hotly “competing” for our business.  Here’s how Randy May addresses this:

Let’s assume for the sake of argument that the 6000 figure for the number of independent ISPs is an indisputable fact. Nevertheless, I would not want the FCC’s development of a broadband plan to be “data driven” (in the wrong way) by this particular data point. Rather, I would want commissioners to understand that the 6000 ISPs existed merely at the sufferance of an agency policy of “managed competition” through regulated common carrier resale, and that such a “managed competition” policy does not provide incentives either for the incumbent providers to upgrade their networks or for the so-called “competitors” actually to build out their own network facilities. And I would want them to understand that, in the long run, which is what matters, consumers benefit more from facilities-based competition that supports sustainable competition than from managed resale that does not support sustainable competition.

As usual, Randy gets it exactly right.  Of course, it is certainly true that if you don’t give a damn about facilities-based innovation and the growth of networks at the core, not just the periphery, then forced access regulation may seem preferable.  If you want to treat the provision of broadband as a “plain vanilla” commoditized service, with just a basic level of service available from dozens of “competitors,” then forced access can maintain the illusion of “a market” for a time.  Indeed, this is essential what many foreign governments are still doing today; squeezing as much juice out of the old lemons as possible and hoping for a miracle when infrastructure upgrades are needed.  Some supporters of this regulatory model will say that government can always just pass a big tax increase or use a massive government outlay for new services, or something along those lines.  But even if you think government spending on high-tech infrastructure is the sensible way to go — and it certainly doesn’t seem to be going so well these days — you still have to hope that government bureaucrats will do a better job of directing investments and innovation than private network managers. Again, if you can believe in that fairy tale, then forced access is just your ticket. But don’t be surprised when the bubble bursts and investment dries up. [For the complete story on how all this unfolded here in the U.S. over the past decades, see Jeff Eisenach's PFF paper, "Broadband Policy: Does the U.S. Have It Right After All?"]

Of course, these battles live on with the Net neutrality wars as the forced access crowd seeks to assert more government control over broadband networks by regulating terms of service or even price (see 1, 2, 3, 4).  I’ve become quite convinced that we’ll always have these forced access fights with us.  The network or service in question might change — broadband networks, operating systems, search engines, whatever — but the battle about control over digital technologies and networks will continue.  Here’s hoping that real Internet freedom prevails.

  • brettglass

    One of the things which I find refreshing about PFF's philosophy is that it — unlike some very extreme “free market” groups — does recognize the possibility of market failure.

    In general, the government should promote competition and healthy markets rather than regulating if it intervenes in markets at all, and this is certainly the case when it comes to “network neutrality.”

    However, in the case of “special access” lines, the situation is a bit different. In many areas of the country, the incumbent telephone carriers enjoy a monopoly which was created by government subsidies to which would-be competitors would not have access (such as the Universal Service Fund) and built on monopoly rents (which a new entrant would not enjoy). Thus, in many cases, the market is “broken” — in part, due to prior government actions — in such a way that it can't be fixed without additional intervention.

    Clearly, it's important that such intervention be as minimal as possible, and should be done in such a way as to make itself unnecessary in the end due to the restoration of competition. But in this case, at least, it's important that government remediate the damage (perhaps via temporary price regulation) and ultimately “fix what it broke” so that price regulation becomes unnecessary. Otherwise, there simply will be no viable markets, no competition, and insurmountable barriers to entry for newcomers.

  • brettglass

    One of the things which I find refreshing about PFF's philosophy is that, unlike some very extreme “free market” groups who believe that markets are infallible, it does recognize the possibility of market failure.

    In general, the government should promote competition and healthy markets rather than regulating if it intervenes in markets at all. This is certainly the case when it comes to “network neutrality,” where in fact the markets are already healthy and no intervention is warranted.

    However, in the case of “special access” lines, the situation is a bit different. In many areas of the country, the incumbent telephone carriers enjoy a monopoly which was created by — and has been sustained by — government subsidies to which would-be competitors would not have access (such as the Universal Service Fund). Much of this infrastructure has likewise been built and paid for by monopoly rents, which a new entrant would not enjoy (and without which the construction of competitive infrastructure is not even a break-even proposition, much less an opportunity for a reasonable return on investment). Thus, in this case, the market is “broken” — in part, due to prior government actions — in such a way that it can't be fixed without additional intervention.

    Clearly, it's important that such intervention be as minimal as possible, and should be done in such a way as to make itself unnecessary in the end due to the restoration of competition. But in this case, at least, it's important that government remediate the damage (perhaps via temporary price regulation) and ultimately “fix what it broke” so that price regulation becomes unnecessary. Otherwise, there simply will be no viable markets, no competition, and insurmountable barriers to entry for newcomers.

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