You can’t have your cake and eat it too

Sweet Talk recently published a post on a proposed alternative solution to net neutrality that, we’re supposed to believe, would keep the internet free, create competition, and foster innovation. The underlying premise is the oft-cited (and repeatedly disproven) meme that a free market is always the solution. There are numerous flaws with the proposed idea. I’ll address a few major ones here.

If you’re too lazy to read his entire article (which you should), here’s his proposal:

Require that utility companies lease space on their poles to at least four ISPs, at cost.

(call it Pole Neutrality, or Open Leasing)

The idea is that the “at cost” part encourages more ISPs to set up shop and the “at least four” part creates competition. The part that’s presupposed (in line with the free market meme) is that this “competition” magically keeps all the ISPs in line and serving the best interests of their customers. Even the arguments popping up that are refuting the proposal do not question this last part, only the viability of the logistics involved with this pole leasing to multiple ISPs.

The first issue I see with this idea is that it’s taken for granted that at least four ISPs will move into every market across the country. This is obviously not in line with reality, because ISPs aren’t exactly going to be beating down the doors to dive into rural markets. These markets will require laying plenty of wire yet will yield few subscribers. In fact, this is already an issue.

The more densely populated a place is, the more likely it is to have fast, affordable Internet. When people live far apart, service providers don’t profit enough to cover the costs of building and maintaining the physical infrastructure. If they do provide access, it’s often at higher prices and slower speeds than in urban areas. In the rural West, where 2 million people lack broadband access, topography is also a barrier. Mountains and narrow valleys can block signals from wireless towers and satellites and make it difficult to install fiber-optic cables.

Yet we’re supposed to believe that multiple ISPs are going to dive into these markets and compete for a tiny amount of business? Not a chance. So if this proposal only works for urban customers, it is already inferior to net neutrality and should be discarded. Everyone should have access to a free and open internet. Why would we want to implement something that furthers the information and resource gap between wealthy and poor?

Second, we have the “at least four” part of the proposal. Let’s assume a minimum of four ISPs actually do move into all markets (an assumption we already know to be wrong). Is four choices really competition? How well do the limited number of carrier choices work out for customers in the wireless world? The FCC published a 339 page report that discussed exactly that.

Has that limited competition improved prices for consumers? Improved prices are one of the primary tenants of the free market meme.

Nope.

FCC

With stiff competition keeping the providers in check, capital investment should be increasing year after year to keep an edge up on the competition… but it’s not.

CTIA: Total Annual Incremental Capital Investment (in billions)

Annual Capital Investment as a Percentage of Industry Revenue, 2006-2011

Data from CTIA likewise show that investment as a percentage of revenue increased from 13 percent in 2009 to 16 percent in 2010 and then declined to 15 percent in 2011, but Census Bureau data show that this metric remained flat at 14 percent from 2009 through 2010.

It’s declining because the providers are comfortable in their domination of the market. It’s not dog eat dog, it’s large corporations selling products with nearly inelastic demand dictating to customers how things are going to be whether they like it or not. Everyone with a cell phone knows that when your provider sucks, you’re free to switch to one of the other handful of providers with an identical plan that costs the same amount and includes customer service that sucks just as much. How’s your unlimited data plan doing? Shouldn’t consumer benefits be increasing under competition, not getting hack or throttled? The ISP industry is no different. It has high entry barriers and is dominated by only a handful of massive corporations – this is an oligopoly. Oligopoly is not competition. Allowing the handful of these firms to co-mingle in marketplaces does not make it any less of an oligopoly, as we can see in the wireless industry, oil industry, college textbook publishing industry, and (most closely related) the cable/satellite industry.

Finally, even if I’m wrong about the first two points, let’s talk about the part of the proposal that everyone is presupposing: the idea that competition will solve the issues net neutrality is intended to address. Let’s pretend we’ll have a bunch of things we likely won’t have under this plan: lots of ISPs, real competition, highly informed consumers, easy switching between ISPs, and low entry barriers for new ISP startups. Will that environment provide the same benefits as net neutrality? Nothing has changed as far as what’s in the interest of the ISPs. It’s still in Time Warner’s and Comcast’s interests to throttle Netflix into the dirt. “Oh, but they can’t because then people will switch to Google Fiber!” you say. Will they though? It’s in Google’s interest to throttle/block Yahoo!, Bing, and every other search engine that isn’t Google and every web mail that isn’t GMail. So what if I want to watch Netflix AND use Bing? I guess I’m out of luck. Or maybe I can hope that XYZ startup ISP also moves into town, manages to not get acquired by or merge with Time Warner, and doesn’t take issue with any of the other websites I enjoy visiting. Want to watch Netflix? You’ll have to use an ISP that doesn’t also have their own video streaming service. Want to use Hotmail? You’ll have to use an ISP that isn’t also a major web mail provider. Now this example is extreme, as are most net neutrality examples, but, just like most net neutrality examples, the point remains valid. This plan changes nothing because when your choices remain the least of four evils (if you’re lucky enough to not live in a rural area and actually have four ISPs to choose from) you still don’t have real choice and these corporations can still do as they please with your browsing experience. The bottom line is that there is no way around net neutrality if we want a free and open internet. The internet must be explicitly protected. We cannot rely on the mythical free market fairy to do something that is the job of the FCC.

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3 comments

  1. Rain, Rain · November 12, 2014

    But I do believe in fairies!

    Okay, will it help if I clap my hands?

    Like

    • thewhiteboardpig · November 12, 2014

      No, but it might help if you tap your heels together three times while repeating Adam Smith’s name. 🙂

      Like

  2. Pingback: Obama's Wonderful Words - Pilant's Business Ethics

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