I’ve written plenty here before about the potential pitfalls associated with a la carte regulation of cable and satellite television. What troubles me most about a la carte regulatory proposals is that proponents make grandiose claims about how it would offer consumers greater “choice” and lower prices without thinking about the long-term consequences of regulation. As I pointed out in a recent editorial in the Los Angeles Daily Journal, the problem with these regulatory activists is that “Their static view of things takes the 500-channel universe for granted; they assume it will always be with us and that it’s just a question of dividing up the pie in different (and cheaper) ways.” But as I go on to explain, a la carte regulation could bring all that to an end:
To understand why [it will harm consumers], we need to consider how it is that we have gained access to a 500-channel universe of diverse viewing options on cable and satellite. All of these channels didn’t just fall like manna from heaven. Companies and investors took risks developing unique networks to suit diverse interests. Thirty years ago, few could have imagined a world of 24-hour channels devoted to cooking, home renovation, travel, weather, religion, women’s issues, and golf. Yet, today we have The Food Channel, Home & Garden TV, The Travel Channel, The Weather Channel, EWTN, Oxygen, The Golf Channel, and countless other niche networks devoted to almost every conceivable human interest. How did this happen?
The answer is “bundling.” Many niche-oriented cable networks only exist because they are bundled with stronger networks. On their own, the smaller channels can’t survive; nor would anyone have risked launching them in the first place. “Bundling” is a means for firms to cover the enormous fixed costs associated with developing TV programming while also satisfying the wide diversity of audience tastes. Bundling channels together allows the niche, specialty networks to remain viable alongside popular networks such as CNN, ESPN and TBS. Bundles, therefore, are not anticonsumer but proconsumer.
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Bruce Owen, one of the finest communications and media economists of our generation, has written a powerful piece for Cato’s Regulation magazine asking, “After the long fight to end the ‘common carrier,’ why are we trying to resurrect it?” He’s referring, of course, to the ongoing efforts by some to impose Net neutrality regulation on broadband networks. In his new article, “Antecedents to Net Neutrality,” Owen points out that we’ve been down this path before, and with troubling results:
[T]he architects of the concept of net neutrality have invented nothing new. They have simply resurrected the traditional but uncommonly naïve “common carrier” solution to the threats they fear. By choosing new words to describe a solution already well understood by another name, the economic interests supporting net neutrality may mislead themselves and others into repeating a policy error much more likely to harm consumers than to promote competition and innovation.
Net neutrality policies could only be implemented through detailed price regulation, an approach that has generally failed, in the past, to improve consumer welfare relative to what might have been expected under an unregulated monopoly. Worse, regulatory agencies often settle into a well-established pattern of subservience to politically influential economic interests. Consumers, would-be entrants, and innovators are not likely to be among those influential groups. History thus counsels against adoption of most versions of net neutrality, at least in the absence of refractory monopoly power and strong evidence of anticompetitive behavior — extreme cases justifying dangerous, long-shot remedies.
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Comcast’s terms of service and other consumer broadband service documents make no mention of any restrictions on the use of “peer-to-peer” applications like BitTorrent, or of any Internet network management.
AT&T and Time Warner Cable, two of the other big broadband providers, do mention restrictions on “peer-to-peer” services in their consumer broadband documents. Verizon Communications does not mention the phrase, according to an analysis of the four broadband providers conducted by DrewClark.com.
Unlike Time Warner Cable, Comcast fails to mention any “management,” “network management” or “reasonable network management” of its consumer broadband service in its documents.
Of the four providers, however, Comcast makes the most extensive warning to consumers against the “excess” use of bandwidth. For example, Comcast declares that the consumer “shall ensure that your use of the Service does not restrict, inhibit, interfere with, or degrade any other user’s use of the Service, nor represent (in the sole judgment of Comcast) an overly large burden on the network.”
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I want to comment on Adam Thierer’s recent paper, “Unplugging Plug-and-Play Regulation,” which makes several excellent points. Adam briefly summarized his thesis (i.e., there is no need for government “assist” in private standard-setting) here a couple days ago and generated a couple comments.
The cable industry and consumer electronics manufacturers are touting competing standards initiatives. The pros and cons of each approach, from a technology perspective, are somewhat bewildering to a non-engineer like myself. But there appears to be one clear difference that matters a lot. Adam points out that under the initiative sponsored by the consumer electronics industry,
the FCC would be empowered to play a more active role in establishing interoperability standards for cable platforms in the future. [It’s] a detailed regulatory blueprint that specifies the technical requirements, testing procedures, and licensing policies for next-generation digital cable devices and applications.
Why would ongoing assistance be required from the FCC, which mainly consists of lawyers?
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My colleague Scott Wallsten, PFF’s Director of Communications Policy Studies, has just released an excellent short essay on one of my favorite pet issues: Metered pricing as a solution to broadband congestion / traffic management issues. This is very relevant right now, of course, because of the Comcast kerfuffle regarding how the company have gone about managing BitTorrent traffic.
In his essay, entitled “Managing the Network? Rethink Prices, not Net Neutrality,” Scott points out that:
Comcast should have been more forthcoming in its response and should be more transparent about its actions. Even so, Comcast isn’t the culprit and net neutrality regulations aren’t the answer. Instead, network congestion problems caused by some people’s excessive use are a direct and predictable result of the all-you-can-eat pricing that nearly every ISP charges for broadband service.
We know that this kind of pricing gives people little incentive to pay attention to how much of the service they use. People whose electricity is included in their rent rather than metered, for example, may as well leave the lights on all day and keep their homes frigid in the summer and toasty in the winter. To be sure, some people conserve simply because they care about the environment, but most won’t since they don’t see any savings from using energy more efficiently.
It is often complicated to determine prices in network industries that have high fixed costs and low marginal costs–like broadband. As long as the cost of sending an extra bit down the pipe is close to nothing, a flat rate for unlimited use is probably efficient. In that case, the operator must cover the fixed cost of the infrastructure, but it might not be worthwhile to monitor usage. If usage costs begin to increase, however, flat rate pricing may become inefficient.
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I have a new paper out this week entitled “Unplugging Plug-and-Play Regulation” in which I discuss the ongoing dispute between cable operators and the consumer electronics industry over “digital cable ready” equipment and “plug-and-play” interactive applications. Basically, it’s a fight about how various features or services available on cable systems should work, including electronic programming guides (EPGs), video-on-demand (VOD), pay-per-view (PPV) services, and other interactive television (ITV) capabilities.
This fight is now before the Federal Communications Commission where the Consumer Electronics Association (CEA) has asked the agency to mandate certain standards for those next-generation interactive video services. In my paper, I argue that regulation is unwise:
Ongoing marketplace experimentation and private negotiations represent the better way to establish technical standards. There is no need for the government to involve itself in a private standard-setting dispute between sophisticated, capable industries like consumer electronics and cable. And increased platform competition, not more government regulation of cable platforms, is the better way to ensure that innovation flourishes and consumers gain access to exciting new services.
To read the entire 7-page paper, click here.
Last week was a whirlwind of activity for the telecommunications, media and technology project with which I had been engaged since August 2006.
The folks at the Berkman Center for Internet and Society at Harvard were kind enough to invite me to speak in their luncheon series on Tuesday, October 9. I discussed “Media Tracker, FCC Watch, and the Politics of Telecom, Media and Technology.” I’m happy to report that the event is now archived on Media Berkman as a webcast.
I spoke about the work of the “Well Connected” Project at the Center for Public Integrity for which I was responsible. I devoted most of my time in the lecture to the Media Tracker, the interactive database at the heart of the project. The Media Tracker combines data from publicly available sources in a new and unique way, mapping out media and telecom ownership at the ZIP code level. Ownership is linked to lobbying expenditures and campaign contributions by company. The level of contribution by a telecom, media or technology company to any federal candidate can be viewed – documenting who has received what from whom.
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Seems as though the FCC can’t get enough fining done within the bounds of its legal fining regime and is now fining arbitrary 3rd parties related to broadcasts. According to Yahoo! News:
The Federal Communications Commission is proposing a $4,000 fine against Comcast Corp. for airing a pitch for a sleep aid without telling viewers that the spot was financed by the maker of the product.
The story goes on to point out that:
The fine, while small, is significant for another reason: It is being assessed against a cable company. Comcast Corp. says cable programming is not covered under the statute cited by the FCC.
This remind me of the Onion story from either years ago that reported “Aging Pope ‘Just Blessing Everything In Sight.‘” It seems that now the FCC is ‘just fining everything in sight’ and spreading its ‘blessings’ just as capriciously.
The Technology Liberation Front is the tech policy blog dedicated to keeping politicians' hands off the 'net and everything else related to technology.