Duopoly Blues

A few weeks ago, Senator Ted Stevens enlightened us with the observation that “the internet is not a big truck.” Today, Timothy B. Lee of the Show Me institute lets us know what it is: a railroad!

You see, if we try to guarantee net neutrality via regulation, the regulatory body will just get captured, like the old ICC:

A regulated industry has a far larger stake in regulatory decisions than any other group in society. As a result, regulated companies spend lavishly on lobbyists and lawyers and, over time, turn the regulatory process to their advantage. . . . Economists have dubbed this process “regulatory capture[.]”

Mr. Lee concedes that “incumbent broadband providers do have some limited monopoly powers,” but then states

Internet service provider that denies customers access to content risks a serious consumer revolt. Unlike a one-railroad Western town, most broadband customers can choose between cable and D.S.L., and a growing number have access to wireless options as well.

Well, I think this article gives us some sense of why that’s a bit pollyannish. . . . as do incumbents’ vigorous efforts to undermine municipalities’ attempts to get wireless to under (or un)served neighborhoods. But since this is a blog, let me indulge in a little anecdote.

A few weeks ago, I exercised my much-vaunted consumer choice. I checked on Verizon to see if I could get DSL in my apartment, and when I found out I could, I disconnected my (more expensive) cable internet connection. This involved two long calls to Comcast, the first of which ended fruitlessly when they informed me their computers were down. After calling again, I trooped down to their office and returned the relevant equipment. (This whole disconnection process took about 2 hours). Then, I took about an hour to get signed on with Verizon on July 17, and was promised service in a few days.

It’s not come yet. And here’s an email message from July 24:

We’re eager to deliver the power of high-speed Internet access to you, but we must first conduct additional testing of your line to ensure DSL can be provided. We will continue to provide you with updates on the progress of your order via e-mail, so you’ll want to check it regularly.

As I have been. I’m still waiting. Mr. Lee, could you let me know of the other options available in the Journal Square neighborhood of Jersey City? I tried the cybercafe last night, but the computer crashed!

5 thoughts on “Duopoly Blues

  1. I never said the telcos weren’t incompetent. But it’s not clear to me how your anecdote constitutes an argument for network neutrality regulations.

  2. A few minor points:

    First, on the railroad comparison. In some ways, the analogy sticks. In other ways, it does not. The railroads were a critical infrastructure that enabled transport of people and goods. Within the context of my infrastructure theory, the railroads would likely qualify as commercial infrastructure because the primary productive activities enabled by the railroad system was transport and delivery of private goods. The Internet also in a critical infrastructure and it enables transport of bits. The important difference between the infrastructures is that the Internet is a mixed infrastructure that enables a wide range of productive activities that yield public and nonmarket goods and consequently, significant spillovers. Put another way, the types of socially valuable productive activities enabled by railroads and the Internet are vastly different.

    While the debate about regulation was similar in the sense that it focused, in part, on discriminatory practices, as Lee points out, the social costs of discriminatory practices are quite different. Why? because of the different types of productive activities enabled by the infrastructures and the spillovers. I’ve written (and am still writing) about this in various articles, so I won’t belabor the point in this comment.

    I have a difficult time buying the regulatory capture argument. In part, I think it is sort of a trump card where we’re expected to simply throw up our hands whenever it is raised. As Frank suggests with his reference to industry efforts to prevent municipalities from providing local infrastructure, regulated or potentially regulated or unregulated but powerful entities seek to tilt the playing field in their favor whenever and however they can, whether at an agency, Congress, state puc, etc. Of course, regulatory bodies may be a particularly troubling locus for such activities (see Susan Crawford’s recent paper, The Ambulance, the Squad Car, and the Internet), but some less so than others. I don’t find the regulatory capture argument that convincing in this context (certainly not a trump card in my opinion). Even if it is a thumb on the scale against regulation, I still think the scale tips decidedly in favor of network neutrality regulation. Ok, this comment is getting too long, so I’ll stop here and perhaps add more later.

  3. As for Tim’s point–I should preface this by saying that I’ve liked a lot of your blog posts, and I should have said they give you some additional “street cred” to me on this issue that a Mike McCurry lacks. This post is one of my rare descents into snarkiness! But I guess that arises more from an impatience with lazy capture arguments made in my ad law classes than with your particular work here.

    As for an argument for net neutrality: yes, I don’t make much of an argument here. But here’s a possible one, based on a comment I posted on another blawg in May:

    There was a panel on net neutrality at the Computers, Freedom, and Privacy conference. Gigi Sohn of Public Knowledge and Tim Wu gave very compelling arguments for network neutrality, while Chris Yoo argued that there should be a diverse array of services (like we have the post office, fed ex, ups, etc. depending on how urgent package delivery is) and net neutrality legislation could impede that. Tim Wu responded by asking: do we want an internet where companies and sites succeed based on the quality of their content, or on how sweet a deal they’ve cut with Verizon or Comcast? Sohn estimated that in about 20% of the country, there is no broadband; in 30%, one company has a monopoly; and in 50%, there is a duopoly. Not too competitive a market.

    My view is that Brett’s work on digital infrastructure should also be a major part of this debate. Brett points out that so much of this infrastructure has so many positive externalities that it makes sense to treat it as a public good. To me, the problem of allowing the “pipes” to be totally controlled by private parties is that there are so many public benefits that can arise from the use of individuals who can’t afford private charges. If we let private companies adopt the same “high margin/low volume” business model here that has been adopted in so many IP/IT areas, we risk exacerbating the digital divide, both among corporations and individuals.

    One last point–what really needs to be done here is cross-national analysis of the many, many countries who’ve done a better job than we have at supporting internet infrastructure. Many of these, like S. Korea, have made that support a *public* priority, and not facilely assumed that the “market” will have all the answers.

    here’s the source for that discussion:
    http://prawfsblawg.blogs.com/prawfsblawg/2006/05/network_neutral.html

  4. I’m glad I’ve earned more “street cred” than Mike McCurry. Please keep in mind that the Times gave me 700 words, about half of which were required just to introduce my subject, give background information, and wrap up at the end. So it was difficult to sketch out my argument in any detail. Obviously, simply pointing out that regulatory capture has happened in the past doesn’t prove that it’ll happen in the future. If you haven’t seen it, I would recommend my Thursday post elaborating on the sort of capture that concerns me:

    http://www.techliberation.com/archives/040344.php

    I would also reiterate the point that Ed Felten made in his recent paper: network neutrality isn’t nearly as simple a concept as its advocates seem to assume. The vaguer and more complex a regulatory principle, the riper it is for capture. I think Snowe-Dorgan is less susceptible to capture than the ICA was, but I think its advocates are far too sanguine about the implementation details.

    Finally, I plan to do a lengthy blog post in the next week or two considering Frischmann’s infrastructure argument. I obviously think the general argument has some merit, but I’m skeptical about how well it applies to Internet regulation.

  5. I am very glad you’ll engage with Brett’s work on this, because I think it’s an important angle. I also think that anyone advocating a laissez-faire approach has to grapple with the figures from Sohn I mentioned above (regarding the overwhelming duopoly/monopoly form of this market at present).

    It’s just not enough to say that “competition will appear.” Are there countries where that has happened? Might we want to model our regulations on countries that have better closed the digital divide? Part of my point in knocking the railroad analogy was to imply that perhaps we should look around internationally at other nations’ treatment of *current* technologies, rather than inwardly/historically at our own treatment of an old technology.

    Finally, I have to add: Verizon still has not got in touch with me. I’m not holding my breath. And while you may dismiss this as mere anecdote, I think the reason that this issue has become so controversial is that so many of us have direct experience of being ignored or bullied by a major carrier that has little effective competition. Just postulating, ala Gilder’s Telecosm, that a wide world of broadband options is inevitable given the magic of technological and market forces is not going to do much to change our views.

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