As I mentioned back in July, Tim Carney was kind enough to send me a review copy of his new book, The Big Ripoff. With dozens of example, Tim does an excellent job of documenting just how frequently Big Business and Big Government are in bed together.
I particularly liked chapter 7, “Regulators and Robber Barons,” which is chock full of real-world examples of regulatory capture. Carney demonstrates that much of the time, the standard media story of big government pushing regulations on businesses and businesses resisting them is wrong. In many cases, what happens is that established businesses argue in
favor of regulations that they perceive as hurting their competitors (often smaller competitors) more than themselves. For example, in 2001, the largest biotech companies lobbied for increased FDA scrutiny of biotech crops which, as the FDA’s own proposed rule acknowledged, would have a disproportionate impact on smaller biotech companies that lacked the resources to jump through the FDA’s hoops. He tells the story of FedEx, an upstart cargo carrier who in the 1970s was prevented from expanding by government regulations that were strongly supported by the Flying Tigers, the then-dominant air cargo company. And he discusses the controversy over “a la carte” cable regulation, which most of the cable industry opposed, but which CableVision–a company that had already invested in the equipment to offer a la carte services–lobbied for. Carney argues that CableVision calculated that imposing a la carte mandates would hurt its competitors more than it would hurt itself.
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Nearly 20 percent of Internet telephone test calls experienced unacceptable call quality over the last 18 months, according to Brix Networks. The company provides a free voice quality testing portal (TestYourVoIP.com) for measuring the quality of broadband Internet phone connections.
Wall Street Journal columnist Lee Gomes interviewed Brix Chief Technology Officer Kaynam Hedayat about the findings:
Why the decline?
With the emergence of sites like YouTube, and music downloads and emails with large attachments, there is just more traffic on the Internet.
Why are phone calls so susceptible to Internet traffic increases?
Voice calls are very real-time-sensitive. If the other person’s voice drops off, you can’t carry on the conversation. It becomes like the old days when you called international over a satellite. The delays were so long that you had to say a sentence, pause a couple of seconds without saying anything, and then wait for a response from the other end.
If Congress enacts net neutrality regulation, network providers could prioritize VoIP services but they would have to do so on a nondiscriminatory basis. That means they’d have to act as a disinterested wholesaler, treating every retail provider of VoIP services, including their own affiliates, equally. Would they do that? Or would it be more profitable to let all VoIP services deteriorate so consumers place a higher value on traditional phone services? You be the judge.
P.S. To those who have extended a warm welcome, thank you.
There were many excellent keynote speeches and panel discussions during last week’s annual PFF Aspen Summit, and the videos for most of them can now be found online here. But I thought that TLF readers might be particularly interested in the very entertaining net neutrality debate that took place there. It featured the following cast of characters:
- Tod Cohen, Deputy General Counsel and Vice President, Government Relations, eBay
- David Drummond, General Counsel and Senior Vice President for Corporate Development, Google, Inc.
- Carolyn Brandon, Vice President, Policy, CTIA – The Wireless Association
- James Cicconi, Senior Executive Vice President, External and Legislative Affairs, AT&T
- Lawson Hunter, Executive Vice President and Chief Corporate Officer, Bell Canada and Bell Canada Enterprises, Inc.
… and it was moderated by Michael Gallagher a Partner at the law firm of Perkins Coie, LLP, and also an Adjunct Fellow with the Progress & Freedom Foundation. The discussion lasts about 1 hour and 20 minutes and it gets really entertaining toward the end when Mike Gallagher lets the panelists ask each other questions.
Again, just go to the following link and scroll down to the Tuesday 10:30am panel discussion and click on the title:
http://www.tvworldwide.com/events/pff/060822/archives.cfm
The Chairman of the Federal Trade Commission made a significant contribution to understanding the proper role of government in ensuring net neutrality. Speaking at the Progress & Freedom Foundation’s Aspen Summit this week, Deborah Platt Majoras cited the principle that, absent clear and specific evidence of market failure or consumer harm, policymakers should not enact blanket prohibitions of particular business models or conduct.
Second, she reminds us that broadband Internet access services are within the FTC’s jurisdiction and that the agency’s powers are proven. The FTC has successfully targeted Internet service providers who have allegedly enganged in deceptive practices and it has also required a cable system to provide open access to Internet service providers. This track record makes it pretty clear the FTC not only has the power but it also has the inclination to preserve openness and other values associated with the Internet. The allegation is that the D-word (deregulation) is coming to broadband services. Aside from the FTC, the FCC and the Antitrust Division also have jurisdiction over broadband services. Contrary to what one might think from listening to the appeals of net neutrality advocates, there are three levels of government oversight of broadband services.
Third, Majoras acknowledged that important questions have been raised and more information is needed. She announced the formation of an Internet Access Task Force to examine issues related to net neutrality and other matters. Net neutrality has been a debate about hypotheticals, which is part of the reason it has seemed so unproductive. This task force will be made up of economists and attorneys from throughout the FTC who are competition and consumer protection experts. Unlike the FCC, which only does communications, the FTC has wide-ranging experience and expertise arising from their involvement in every sector of the economy. This makes the FTC, perhaps, less beholden to some of the passions and prejudices which animate the special interests that have a dog in this fight. The FTC’s involvement will probably contribute greatly to the debate. With this kind of comprehensive look at all the facts underway, I’ll bet many-to-most in Congress will prefer to review the findings before they cast a vote.
See: “The Federal Trade Commission in the Online World: Promoting Competition and Protecting Consumers,” Remarks by Deborah Platt Majoras, Chairman, Federal Trade Commission, Progress & Freedom Foundation’s Aspen Summit, August 21, 2006
See: “PREPARED STATEMENT OF THE FEDERAL TRADE COMMISSION before the COMMITTEE ON THE JUDICIARY UNITED STATES SENATE on FTC JURISDICTION OVER BROADBAND INTERNET ACCESS SERVICES,” by William E. Kovacic, Commissioner, Washington, D.C., June 14, 2006
Critics claimed broadband access is a duopoly (a market in which there are only two providers) but this is technically inaccurate in much of the country so now the complaint is that 98 per cent of broadband customers receive their service from either the telephone company or the cable company. Even this criticism is irrelevant. Consumer harm occurs where prices are excessive or quality is deficient. In the case of broadband, competition is leading to lower prices and higher bandwidth.
Most economists agree it’s misleading to read too much into market shares, although I could point out that regional bell operating companies–the main targets of net neutrality regulation–report only 39.3% of total high-speed connections and that this is far less than a dominant position (other providers who are not telephone companies are lumped together in the FCC’s broadband status report). More important is whether consumers could vote with their feet if an incumbent provider abuses its customer relationships. They could if there are alternate providers or new providers could enter the market. According to the FCC, satellite providers have at least some presence in 88% of the nation’s zip codes, ADSL in 82% and cable modem in 57%. These numbers suggest a lot of consumers have more competitive choices than the critics like to point to. Other technologies, such as fixed and mobile wireless (cellular, PCS and WiMAX) and power line, are growing fast and have enormous potential. They prove that new providers can enter the market.
Broadband is spreading rapidly, according to the FCC. High-speed lines increased by 18% during the second half of 2005 compared to a 12% increase during the first half of 2005. This wouldn’t be happening if broadband providers were gouging their customers or restricting their choices. In order to recoup their multi-billion dollar investments, the providers need to attract all the traffic they can.
The report also says that 99% of the nation’s zip codes have at least one provider who serves at least one customer, and that 99% of the nation’s population lives in those zip codes. Most would agree if only one household or business or a privileged handful have a choice of competitors, that’s a problem. The numbers are actually more positive and the methodology used to gather them more useful than it seems. Cable and telephone networks are never built to serve small groups of people. Networks are capital intensive with high fixed costs, so the cost of bringing on an additional user is always lower than it was for the most recent user. If you have a network you want to build it out as fast as you can, because every additional customer will generate a higher profit margin than the one before. Satellite and wireless providers are capable of serving small groups or even only one customer in an entire zip code, but the fact is they market their services widely and have no incentive to market in such a way as to manipulate the statistics that the FCC gathers in this report.
Duopoly is one of those frightening terms that can either be meaningful or meaningless. In the context of broadband access services, it is meaningless.
See: “High-Speed Services for Internet Access: Status as of December 31, 2005,” Report of the FCC’s Industry Analysis and Technology Division, Wireline Competition Bureau, July 2006
Prompted by the good discussion over on my recent ‘Lack of Competition’ Meme post, I’ve just spent some time looking over other posts here on TLF for articulation of why we seem to be so intransigent about net neutrality regulation.
I think it’s the consensus among TLFers that regulation is a poor way of getting the best delivery of bits to end-users. There are some good posts, but I couldn’t find the one or two that clearly show why we so prefer competition to regulation for solving this problem.
So here’s a quick summary of my thinking about why not regulation:
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Ars Technica – a wonderful publication with brief, informative, and interesting pieces – is showing a little sloppliness in covering the broadband competition issue. The question of broadband competition underlies the drive for net neutrality law, or public utility regulation of broadband.
Discussing FTC Chair Deborah Majoras’ speech at the PFF Aspen Summit, an Ars reporter casually observes, “[M]arket forces really do not exist when it comes to broadband.” That’s at least overstatement. A little more caution would be good given the centrality of the issue.
To show the existence of a duopoly (which is not inherently a competition-free situation), the report links to an earlier Ars piece interpreting a study as showing “not much” competition. But that conclusion goes only to price competition. And it’s a little overstated, too.
The actual study from Kagan research seems to show that DSL is the low-cost option (and getting lower), while cable is the high-bandwidth option (getting higher in bandwidth while dropping in cost more slowly). That diminishes head-to-head price(-only) competition because each is focused on a different niche. But they’re still in competition.
The Kagan Research analyst concludes “Eventually, cable will probably have make [sic] some reductions to cater to the lower end of the consumer market simply to get more customers.” So the study author believes more direct price competition is coming.
That’s some distance from “market forces really do not exist when it comes to broadband.” There is some price and quality competition among the major broadband platforms. Substitutes (such as getting broadband at work and getting information and entertainment offline) play a role in the competition question. And several competitors wait in the wings, to become viable through improvements in technology, new investment, or bad behavior by the current platforms.
I hasten to add that I am not satisfied with the current level of competition. I would like it to be more intense along all fronts and in all regions.
The Wall Street Journal gets it right in an editorial today, saying that Sprint’s announcement that it plans to invest $3 billion to deploy a nationwide high-speed wireless WiMax network by 2008 is another blow to proponents of Internet neutrality regulation who claim that the broadband industry is not competitive. Hooray for Sprint and the WSJ for pointing out “that out in the real world” competition grows despite the rhetoric in Washington. However, the same editorial gets it wrong when it reports: “WiMax, meanwhile, operates in unlicensed spectrum, meaning Sprint doesn’t have to shell out money in auctions to deploy the technology. WiMax is like a wireless home network or a hot-spot in a coffee-shop, but it works over much longer distances, allowing greater coverage and a wider variety of uses.”
WiMax
can be deployed over unlicensed spectrum, but that is not what Sprint is doing. Sprint plans to “put the wireless broadband network together across its 2.5GHz spectrum holdings,” according to The Register and other sources. As I’ve noted before, unlicensed spectrum is great for short-range applications but can’t viably sustain large networks with any serious quality of service.
Steven Colbert has discussed the concept of “Wikiality” on his show: that on Wikipedia, reality is whatever the majority wants it to be. We find evidence for this contention on the Wikipedia entry for network neutrality:
The debate has moved into the regulatory and legislative arena in a somewhat unusual way, because those who prefer to leave the status quo unchanged are advocating legislation in the U.S. to formalize elements of “net neutrality.” Those would want to change by introducing “non-neutrality” do not presently want any further legislation.
The two proposed versions of “neutrality” legislation to date would prohibit: (1) the “tiering” of broadband through sale of voice- or video-oriented Quality of Service packages; and (2) content- or service-sensitive blocking or censorship on the part of broadband carriers. These bills have been sponsored by Representatives Markey, Sensenbrenner, et. al., and Senators Snowe, Dorgan, and Wyden. Advocates of continuing with the status quo include content providers such as Google, Yahoo!, Microsoft and several prominent social-action non-profits, and media critics such as Robert McChesney.
It’s fun to watch whoever wrote that twist himself into semantic pretzels to portray the advocates of change as defenders of the status quo without saying anything that’s literally untrue. Here’s a less truthy way of saying the same thing: Those who advocate the status quo of a regulation-free Internet oppose new regulation, while those who want to change the status quo are urging Congress to enact new regulations.
Matt Stoller thinks my New York Times op-ed is “just disgraceful.” Why?
Timothy B. Lee comes from the ‘Show-Me Institute’, a fake think tank that defends the teaching of Intelligent Design and is funded by corporate interests and foundations with a right-wing ideological slant. As a 501(c)3, they don’t have to release their donor list, but you can get a sense of who they are from reading the bios on the Board of Directors page.
Ok, so the corporatists dug up a shill from an ideologically oriented corporate funded think tank, had this guy write an Op-Ed rehashing fake arguments about competitiveness and broadband, and weirdly enough, his name sound almost exactly like world-reknowned expert Tim Berners Lee, who takes the opposite position.
For the record, I’ve had the name “Timothy B. Lee” since before Mr. Berners Lee invented the World Wide Web. Of course, that doesn’t rule out the possibility that the vast right-wing conspiracy contacted my parents in
anticipation of the network neutrality debate and convinced them to name me Timothy B. Lee.
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The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.