Winners and Losers

by on August 29, 2008 · 7 comments

The Federal Communications Commission picks winners and losers, which is why we ought to get rid of it. During the chairmanship of Reed E. Hundt, the losers were incumbent phone companies, whom Hundt considered too Republican. Now it is a cable company, who some consider too Democratic.

The FCC issued an order last week concluding that Comcast acted discriminatorily and arbitrarily to squelch the dynamic benefits of an open and accessible Internet, and that its failure to disclose it’s practices to its customers has compounded the harm. Wow. The FCC will require Comcast to end its network management practices and submit a compliance plan, which is code for submitting to bureaucratic micromanagement.

FCC Chairman Kevin Martin recently asked, “Would you be OK with the post office opening your mail, deciding they didn’t want to bother delivering it, and hiding that fact by sending it back to you stamped ‘address unknown – return to sender’?”

Martin, who the Wall Street Journal identifies as one of the Bush administration’s more questionable personnel picks, lately has become a bit excitable.

Martin is upset with Comcast because it rejects his hypothesis that allowing consumers to pay only for the cable channels they prefer would reduce cable rates.

Martin sided with the commission’s two Democrats to slam Comcast for managing its broadband network like a traffic cop who works hard to prevent gridlock.

The issue is whether light users ought to subsidize heavy users, and whether broadband providers should be allowed to receive advertising revenues which they could use to reduce the monthly fees consumers pay for broadband access to the Web.

Verizon and Google are reportedly in talks right now aimed at featuring the Google search bar on Verizon Wireless phones in exchange for Verizon and Google splitting the ad revenues. There is nothing wrong with this. A new revenue stream might allow Verizon Wireless to reduce the price of its wireless service, which would be good for consumers.

But this possibility is not entirely consistent with some of the utopian visions that the Internet has inspired. Believe it or not, there are many who see the Internet as a long-wished for opportunity to turn freedom of speech into a right to be heard, to educate and to arouse the masses to achieve political objectives and to counteract the influence of conservative talk radio.

This doesn’t concern Comast and other broadband providers. They merely wish to invest billions of dollars in network upgrades to satisfy their customers. But investors won’t support broadband expansion if regulators abscond with the profits.

Martin and others ostensibly worry that if broadband providers are allowed to manage their networks they may block the next Google from distributing an unimagined software application which could change the world.

But popular applications don’t threaten broadband providers; they make broadband services more appealing to consumers.

Apple and AT&T allow independent developers to create new applications for the iPhone because they have more to gain if consumers can access new applications they didn’t invent than if the IPhone can only be used for a limited number of standard purposes.

In a free market there really is an incentive for suppliers to work to please consumers.

The problem with regulation is that it can be circumvented, exploited for anticompetitive purposes and that it usually leads to unintended consequences like inhibiting inventive ideas, discouraging investment and preserving the status quo.

But the FCC’s sanctioning of Comcast may not just be an error of judgment.

Commissioner Robert McDowell claims that “the FCC does not know what Comcast did or did not do. The evidence in the record is thin and conflicting.”

If the FCC has based its decision on an erroneous or insubstantial set of facts — which wouldn’t be a first — the only thing that will have been accomplished is years of litigation.

Meanwhile, investors may look for a safer bet and broadband providers like Comcast will have less to invest in broadband, which would be a tragedy.

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